New Year, New Congress, New Outcomes?
They say elections have consequences and the November mid-terms were a direct hit on Senate Democrats and the White House. Republicans will find it easier to push their agenda in Congress, but will that result in positive things for the HVACR industry?
When Congress opens the 114th Session in January, we’ll see many new faces on Capitol Hill and a big shift in priorities. You can expect fewer disagreements between the House and the Senate, but that doesn’t mean the gridlock will end.
The last Congress was one of the most ineffectual in history. More than 10,000 bills were introduced, but less than 2% became law. Since the 110th Congress in 2007-2008, Congress’s output of bills that became law has precipitously declined. The House and Senate were controlled by different parties, had different priorities, and didn’t have any real incentive to help the other party achieve any political victories.
The battles going forward will be fought between the Republican controlled House and Senate and the White House. House and Senate Democrats will be marginalized since they can’t control the agenda and they may not have the votes to stop legislation. You can expect to see the Speaker of the House and the Senate Majority Leader negotiating directly with the White House on bills they want to see become law.
Republicans now hold the largest majority in the House (of any party) since the Great Depression. A lot of pundits are saying this gives House Speaker Boehner more leeway in controlling the divergent members of the Republican caucus. The tea party members who opposed him over the last two years will be offset by new Republicans from the Northeast and Mid-west, which was one of the significant outcomes of the anti-Obama wave.
On the Senate side, Democrats lost their majority when at least seven seats switched parties. Senator Mitch McConnell can count on at least 52 Republicans to vote his way. (Two other races were not called by press time and could further increase the Republican majority). And depending on the issue, McConnell may find a few moderate Democrats willing to work with him. If he’s able to cobble together 60 votes, he can overcome a filibuster.
Over the next two years House and Senate Republicans will be able to pass out several major policy initiatives. These include bills to approve the Keystone XL Pipeline, restrict the ability of the EPA to regulate carbon dioxide emissions from power plants, and restrict the White House from using the regulatory agencies to enact its agenda. All of these will fly through Congress on their way to the President’s desk. At which point they will all be vetoed. So it will seem like we are back to square one with gridlock.
But there are ways around the veto threat. One of the first tests for the Republican majority will be adopting a budget resolution for fiscal year 2016. This is not the same as the annual appropriations, it is more of an internal Congressional document that sets spending allowances for Congress and expected tax revenues. It does not require the President’s signature or any cooperation or compromise with the Obama Administration.
But it’s a way to tackle things like comprehensive tax reform or major changes to health care policy without worrying about a filibuster. This is how the Democrats passed the Affordable Care Act through the Senate in 2010.
If Republicans set up a budget reconciliation process to deal with issues like tax reform, entitlement reform (except for Social Security, which is statutorily excluded from reconciliation), health care, and the debt limit, that will mean putting some very controversial cards on the table early in the 114th Congress. Under current law, the debt limit will reset at its level as of March 15, 2015. Since at that time the Treasury is expected to be running a surplus due to income tax and estimated tax filing activity, Congress should have until sometime in May or later before it has to act on the debt limit.
HVACR contractors would welcome comprehensive tax reform since it could remove the bias against pass through entities, like S Corps, partnerships, and LLCs, that pay a higher tax rate just because of the way they are organized. The good news is there will be a new chair to the House Ways and Means and tax reform is sure to be a top agenda item.
Finally, everyone in Washington is already talking about the 2016 elections when the White House, the entire House of Representatives, and a third of the Senate are up for grabs. Mitch McConnell will have to protect his majority. In 2014, Senate Republicans had an ideal environment and a favorable map. Looking ahead to 2016, Republicans will face a number of tough races. Senate Republicans will be defending 24 of the 34 Senate seats up for election in 2016, including three in states (Pennsylvania, Wisconsin, and Illinois) that have voted Democratic in six consecutive presidential elections.
The next two years look good for the legislative interests of the small business contractors of the HVACR industry. Congress will have an assuredly more pro-business agenda, and both chambers will be keeping a close eye on any executive actions in the last two years of the Obama Administration.
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