Midterm elections: What does it matter to the economy?
Elections are vital for more than just ensuring the democratic process (and inundating you with political campaign ads). They also decide which politicians will be making serious fiscal decisions for us. With the midterm elections being held next week, we want to discuss just how they affect the economy.
See below for more…
Control change in Congress
The race worth watching in the midterm elections this year will be in the Senate. At this early stage we believe there is a slightly better than 50 percent chance that the Republican Party will win control of the Senate. As for the House, the Republican majority does not appear to be changing hands.
Currently, Democrats control the Senate with 53 seats and two Independents that both caucus with the Democrats. Republicans hold the remaining 45 seats.
Here’s the math that leads us to our conclusion that the Republicans have the edge this time:
- 36 contested seats
- 21 will go to the Democrats
- These include seven Democrats in states that supported Mitt Romney in the presidential election. These seven states have substantially lower approval ratings of President Obama than the national average.
- 15 will go to the Republicans
- Only one of the Republicans up for reelection is in a state that President Obama carried.
- 21 will go to the Democrats
Our research tells us that incumbency is a powerful thing. During an average election cycle, 90 percent of incumbents win reelection. The Republicans need six additional seats to have the majority, which means it’s going to be close. This is why we put the odds at only slightly better than a coin toss.
What we find interesting is looking past the 2014 Senate race and into the 2016 cycle where we see the opposite happening. Out of the 24 Republicans up for reelection, seven are in states that supported President Obama, meaning the Senate may see a yo-yo effect in 2016.
Why it matters
Why does it matter if the Republicans control Congress? If they are in control, we believe Congress will focus its attention on a few major issues:
- Spending and other fiscal issues – The debt ceiling will once again be a discussion point in March 2015. A Republican-controlled Congress may look for spending concessions.
- The 2016 budget –The Republicans made a big deal out of the Senate’s failure to pass a budget in the past, so now it’s their turn to get it done. If Paul Ryan is Chairman of the Ways and Means Committee‡, we could see discussions around tax reform and changes to Medicare and Medicaid.
- Immigration reform – This could be put on the back burner, which forces it to be addressed by our 2016 presidential candidates.
- Other issues – The Republicans may take on changes to the Affordable Care Act‡ and perhaps Dodd-Frank legislation‡.
Stay tuned for part II of this topic on election day—November 4!
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K.C. Mathews joined UMB in 2002. As executive vice president and chief investment officer, Mr. Mathews is responsible for the development, execution and oversight of UMB’s investment strategy. He is chairman of the Trust Investment, Asset Allocation and Trust Policy Committees. Mr. Mathews has more than 20 years of diverse experience in the investment industry. Prior to joining UMB, he served as vice president and manager of the portfolio management group at Bank of Oklahoma for nine years. Mr. Mathews earned a bachelor’s degree from the University of Minnesota and a master’s degree in business administration from the University of Notre Dame. Mr. Mathews attended the ABA National Trust School at Northwestern University and is a Chartered Financial Analyst and member of the CFA Institute. He is past president of the Kansas City CFA Society and a past president of the Oklahoma Society of Financial Analysts.