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What Mid-term Elections Mean for Legislative and Regulatory Agenda

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Most predictions were for Republicans to gain over 20 seats in the U.S. House of Representatives, and polls just prior to the elections suggested that they could even regain the Senate.  The polls got it wrong again, and this time the actual result favored the Democrats.  Democrats have won 50 seats in the Senate, and thus can control the outcome there with the Vice President's deciding vote, and Republicans are projected to have an only extremely narrow margin in the House.  The last Congress had a 220-212 Democrat majority with three vacancies, while the new Congress is expected to have around the same margin but with a slight Republican majority.  As of the time this article went to press, Republicans had secured 218 House seats to the Democrats' 212, with 218 necessary for a majority.  President Biden can claim the best mid-term performance for an incumbent President's party in 20 years.

The results were surprising since some 70% of voters indicated they were unhappy with the state of the nation.  Democrats had to deal with an unpopular President, 8% inflation, falling real incomes, rising crime, and chaos at the border.  Many blame the adverse results for Republicans on the "election denial" of candidates promoted by former President Trump, and a greater interest in voting in some liberal groups due to the Supreme Court abortion ruling.

But perhaps the biggest winner of election night was a Republican, Florida Gov. Ron DeSantis, who won a second four-year term by almost 20 points.  Further, Gov. Brian Kemp in Georgia won a significant re-election victory again defeating Democrat Stacey Abrams, even though he was opposed by Mr. Trump who attacked him for his refusal to challenge the 2020 election results in Georgia.  Georgia again faces a Senate election run-off between Democrat Raphael Warnock and Republican Herschel Walker.  

In many ways, it is more important to win the Senate than the House, as the Democrat victory in the Senate allows President Biden to select judicial and executive appointments.  In today's environment, judicial appointments and the so-called "administrative state" are critically important to changes in policy.  

Some say there is a threat to Democrats in their win should they ignore voter unhappiness with their policies.  Further, two-thirds of the voters indicated in exit polls that President Biden should not run for President again.  In this year's mid-terms, Republicans led the aggregate vote in the 435 House races by about 52% to 48%, improving the margin by almost eight points from the 2020 election results.   Republicans face similar challenges, in that many believe that Gov. DeSantis would make a stronger Presidential candidate for the Republicans, but Mr. Trump may wage a crippling primary battle with him.  

So what can the two political parties work together on over the next two years?  Since no one likes high gas prices, some say there are opportunities to compromise on energy issues, and possibly even expansion of temporary immigrant workers.  It is believed that compromises will be reached on the Farm Bill, aid to Ukraine, and defense spending.  

In the employment area, perhaps the best chance for bipartisan legislation would be workplace retirement policies.  Potential compromises may be reached on creating incentives for employers who don't offer workplace retirement benefits, as well as other measures to expand retirement access and allow more efficient retirement plan administration.  A significant retirement issue would be whether 401(k) and 403(b) plans should automatically enroll new workers.  

In particular, although a recession exists based on the historical definition, economists are forecasting a recession within the next year.  If a recession continues, it may be necessary for the two parties to compromise to bring about needed recovery.

This article is part of our December 2022 Newsletter.

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