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A tense Congressional tug-of-war carried on before midterm elections this week as Republicans and Democrats fiercely campaigned for seats in the U.S. House of Representatives and Senate.
This Republican-Democrat contest was the hottest in years as voters debated over which candidates would be the most likely to lift the United States out of a morass marked by near-double-digit unemployment, sluggish economic growth and a terrifying $1.29 trillion budget deficit.
Although Republicans were poised to take control of Congress, a significant number of seats remained vulnerable until the very end.
"Let me tell you something," U.S. Vice President Joe Biden wrote last week. "I've been around campaigns for a long time and I have never seen a midterm election with this many races in play."
Experts described this campaign season as more volatile than most because of a possible major shift in power.
Experts predicted the GOP would easily nab some seats in industrial states, where the recessionary fallout has turned voters against Democratic incumbents.
"The political climate is dominated by the economy," Nathan Gonzales, who tracks state races for the Rothenberg Political Report, told Bloomberg. "That's where Democrats are getting hurt."
Republicans successfully attracted voters by criticizing the U.S. economic malaise, including:
- An economic growth rate that's stumbled from 5% at the end of last year to a wheezing 1.7% in the second quarter.
- U.S. President Barack Obama's continued spending, such as a $787 billion economic stimulus package and $940 billion in healthcare reform.
- A 9.6% unemployment rate that won't budge.
Voters have also criticized financial bailouts that will end up hitting already struggling taxpayers.
Other concerns left for after the elections include the Bush tax cuts, a stagnant housing market and ongoing energy issues like offshore drilling.
One thing is clear: Whomever voters elect could be the controlling voice that gets to stop the political deadlock and move the country forward. While some experts have said that a divided government could force negotiations and cooperation, that has so far not been the case.
"We need to have a more thoughtful, nuanced discussion about what we're going to do and what exactly does this mean," David Cote, a member of President Obama's debt-reduction commission, told The New York Times. "And I don't see that happening. It seems like everybody wants to just argue."
The intense focus on the midterm elections and the possible change they could bring to Washington prompted last week's installment of the Money Morning "Question of the Week": What top three issues do you want to see addressed after the midterm elections? Are you confident these issues can and will be fixed? Do you think the vote will bring about a major power shift in Washington? Do you see positive change on the U.S. political horizon, or are you skeptical over what the future holds?
Bring On Change: Top Three Issues To Address After Midterm Elections
1. Scrap the tax code. Try the Fair Tax for at least five years or enact a much simpler code so Americans and American businesses will save billions just on tax preparation. The current code is too complicated, biased, and an undue burden to comply with.
2. Scrap the new financial regulations, try again and re-enact the Glass-Steagall Act. Take the banksters to court for fraud.
3. Limit the length and number of issues that are addressed in any new legislation, plus it must be read cover to cover.
– Kathy L.
1. Term limits.
2. Tort reform.
3. Balanced budget amendment.
– "Pegasus"
1. Job creation
2. Reduce national debt
3. National security
– Johnson M.
1. High unemployment.
2. The huge debt President Obama put us in.
3. Winning in the Middle East.
– Christopher P.
If by "after the elections" you mean the lame duck session, I hope they accomplish nothing! I am terrified that there will be a lot of lame ducks who have nothing to lose, who then decide to push through a lot of harmful legislation before they move on to their jobs with the lobbyists and legal firms in Washington and New York. Sort of padding their nests before they take their new jobs.
However, once the new Congress convenes in January, I think that the first order of business will be to extend the Bush tax cuts, most likely for everyone. President Obama will protest, but will then sign the extension, rather than hit everyone with a big increase.
The second order of business needs to be a complete and thorough audit of the Federal Reserve. The evidence of corruption and protecting the banks and Wall Street at the expense of the general public has become far too blatant to ignore. Especially the Fed's contention that inflation is too low (!!) and their plans to monetize trillions in federal debt in an attempt to increase inflation is absolutely absurd! It is far past time for a thorough and open airing of the stinky stuff going on behind their closed doors.
As for a third priority, it is a target-rich environment, but what certainly needs to be avoided is any increase on the regulatory burden on small businesses. Elimination of the 1099 for every business that you do $600 worth of business with should certainly be on the list, as should the elimination of a lot of federal bureaucracies, but I doubt that this will get any play time at all. I have faint hopes that some of the new Tea Party candidates will push through some helpful changes, but I fear (and expect) that most of them will find themselves captured by the system, or if they refuse to be captured, they will almost certainly be stymied and sidelined.
I wish I could be more optimistic, but I see neither the will nor the good will that would be necessary to make real improvements in Washington.
– Gordon F.
1. What can be done to promote good paying jobs – probably manufacturing back to the U.S.? Working people are our customers and if they aren't employed, they can't buy!
2. Get us out of the war business; we are spending all the nation's capital there, leaving none for maintaining and improving the country.
3. We need to push for steps to reduce damage to the environment not only here but also throughout the world. It doesn't matter how much money you have, you can only escape the environmental damage for a while before even your far off unpolluted hideaway will also be afflicted!
– DP
First of all, if the U.S. wants to return to a position of possibly surviving as a first world nation, we need to:
1. Lance our abscessed military and let the polluted elements drain out of it. The overall military budget is bloated to a ghastly degree-at least 100% larger than it needs to be. It mainly exists at this super-inflated level to enforce the U.S. corporate-run economic empire globally. Anybody in his or her right mind should recognize this. All told, the U.S. is spending 52% of the federal budget on war and defense (you can't throw in Social Security, it's not part of the same budget, folks!). So start by knocking down the military by 50% in 10 years.
2. We need to develop a real health care system, not this horribly ineffective and phony ‘health care system' which is really a sickness care and pharmaceutical (drug) supply system, masquerading as ‘health care.' It only serves to allow people to get very sick, and then make money off of them without health-producing (wellness) ability and emphasis. Americans are some of the most unhealthy people on earth although we spend multiples of what other much more healthy people are spending.
3. We need campaign finance reform – public elections!
There you go – the three biggest things we should do to advance this country's welfare. Alternative energy and clean nuclear might be a fourth.
– "Mr. Thinking Ahead"
1. End the wars – or work with North Atlantic Treaty Organization (NATO) more. We cannot afford war. No nation can afford the number of wars that we've helped finance especially the two current wars.
2. Reduce government by 25% – 35% to year 2000 levels. Almost all government agencies have failed their mission statement. The government cannot grow quicker than its populace.
3. Set term limits for all legislative bodies, three terms and you are out.
-Terry T.
1. Audit the Federal Reserve and banks (and close them as necessary).
2. Stop craziness on federal spending (includes cutting military, too!).
3. Reduce taxes on small business owners/middle class and increase it on those with incomes not over $250,000, but more like $2 million (remember how taxes were before the 1930s?).
– Constantino R.
1. Deficit reduction and economic growth – massive cuts in most federal spending and government bureaucracy (especially in education, energy, and environment); repeal Obamacare; institute Tobin Tax on Wall Street fat cats; reduce regulation, red tape, and taxation of individuals and small businesses; fix Social Security and Medicare (eliminate wage base taxation cap, limit entitlement growth, further increase retirement age); reduce dependence on foreign oil (use natural gas and nuclear energy).
2. National security and secure borders – grow defense and counter-terrorism budget; control borders and ports of entry; no wholesale amnesty for illegal immigrants without corresponding commitments on their part; stop/reverse social agendas for the military; re-institute/increase strategic stockpiles of important commodities; again, reduce dependence on foreign oil (use natural gas and nuclear energy).
3. Individual freedom and social issues – preserve the U.S. Constitution, our founding principles, religious freedom, free speech, and traditional family values; rein in judicial activism (pass legislation to prevent any overrides of popular votes, except by new referendum); reduce dependency on government and encourage greater charitable activity (tax credit versus tax deduction); support individual and family responsibility (moral and economic).
– "alpha phox"
[Editor's Note: Thanks to all who responded to last week's "Question of the Week" feature regarding midterm elections. Be sure to answer next week's question: What investment moves will you make now that midterm elections are over? Do you think there will be a market rally, as we've seen like in other election years? Are you optimistic about the direction of U.S. economic policy and stock markets, or do you have less confidence in a strengthened economic recovery than before the elections?
Send your answers to mailbag@moneymappress.com.!
Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning News Archive:
Midterm Elections Stories
- The Wall Street Journal:
Story of the Midterms, Told Through 5 Races
- Bloomberg:
Voters ‘Ripe for Change' Signal Republicans to Add 6 Governors
- The New York Times:
Deficit Divisions Likely to Grow After Elections
- Money Morning:
Will Midterm Elections Ignite a Stock Market Rally?
- Money Morning:
Voters Frustrated With U.S. Economy Turn to Republicans in Midterm Elections
- Money Morning:
Money Morning Mailbag: How the Demise of Glass-Steagall Helped Spawn the Credit Crisis
- Money Morning News Archive:
Question of the Week Feature
Having refused to cooperate with the President and the Democrats in Congress, the Republicans, and particularly the Tea Party (the new "no nothing" party) and relying on the results of their lack of cooperation, i.e., the decline of the American economy and lagging unemployment, have sold the American voters a bill of goods using simplistic jingoism and platitudes in commercials paid for by the worst special interests in the country.
Well, now the ball is in their court. If all they come up with is more tax cuts for the rich hoping "trickle down" will work, the economy will get worse, not better. If deficit reduction is given just lip service and the vague promise to cut spending doesn't touch the military budget, this Republican victory will become a joke.
Wanna balance the budget Republicans? Bring the troops home from foreign wars and bases (some 50 bases around the world no longer doing anything for the defense of this country including bases in Germany, Turkey, etc). Stop spending billions on new military hardware designed to defeat the Soviet Union in the 1980ies cold war). Keep the Bush tax cuts for middle class and allow them to expire for those making more than $250,000 in NET income (a lot different than gross income). Cut the employment taxes on both employers and employees. This will stimulate job creation. Enact a 10% investment tax credit giving companies that buy new plant and equipment to manufacture goods within the US a bonus for expanding manufacturing thereby creating manufacturing jobs here at home (ala the John Kennedy tax reform). Provide a 5% five year wage tax credit for every business that expands its employee base within the US. Enact a financial transaction tax to curb the speculation of Wall Street while keeping the low (one year holding period) long term capital gains tax on true investments that are not"day trader" speculation. Instead of the Fed buying up more bonds, etc., it should restrict the zero Fed funds rate provided to banks on money borrowed from the Fed to only the exact amount of money the banks are lending out (i.e., penalize the banks who borrow from the Fed at zero interest and buy Treasuries yielding 2% thereby making an arbitrage profit on money the Fed is providing them). For funds not loaned out charge interest equal to double the 10 year Treasury notes.
And finally, the one great idea the Republican espouse (but have and are unlikely to ever enact) is a balanced budget amendment prohibiting the Federal government from having future annual deficits. This would force spending cuts and tax increases but would insure our children and grand children don't have to live in an economic third world country.
Anything like this going to happen in the next two years? Of course not. The election will be over and the election promises will be forgotten by the public as they struggle on with their lives and the government will go on as usual, bickering, screaming, point fingers of blame, and come November 2012 the voters will again "throw the bums out" and it goes on and on and on.
Wanna really be smart? Buy gold, silver and other commodities. They are going to soar as this country evolves into an economically third world country dealing with its debt by trashing the value of the dollar used to pay back the debt. Now there's something about the future you can count on.
Jay Curtis (author of THE CODE)
[…] Shah Gilani, Contributing Editor, Money Morning Markets have rallied on the belief that resounding Republican victories in yesterday's (Tuesday's) midterm elections will re… and lead to more business-friendly policies. However, market participants may be surprised to find […]
First and foremost on the agenda should be scrapping the income tax and enacting the Fair Tax. It is time for the people who actually earn the money get to keep ALL that they earned without 'Washington' having gotten it's hands on their paycheck and taken what it wanted. The payroll taxes, as well as the income tax itself, is the most regressive tax. Even those who do not make poverty level wages in a year will have a minimum of 23% taken from their paychecks. They must then be out the expense of filing a return, waiting for a refund, if any, or pay up to $100 dollars for a 'rapid refund'. Critics of the plan argue it will 'hurt the poor' but support a system that will continue to take from those that can least afford to have any taken. They even will do so while arguing to "tax the rich" and conveniently leaving themselves out of any tax rate hikes. if either they had to pay the same rates they would wish on others or if the poor could decide exactly WHO is rich and set the rates at which they should be taxed, perhaps these same critics would have a change in heart and attitude toward taxation. No more 'let's see to whom we can pass the buck.'
Furthermore, the plan itself has elements everyone should like. For the poor, there is a prebate which ensures no one is taxed on necessities. Even the left should like that. It gives money to the people who need it most and the Fair Tax gives them 23% more in their paychecks every week. For all Americans it will be a tax cut with only those who spend the most paying the most in taxes. From the calculations I have seen and made, the effective rate of taxation is around 17% which is slighty more than half the rate they would have done without every paycheck. Tax cuts for everyone!
Also, for the first time since 1913 and the enactment of the income tax, everyone will have a vested interest in keeping the rate low instead of the usual 'who can we stick with the largest bill.' Everyone from the poor to the rich will be able to keep what they've earned instead of being punished for even the slightest success in our 'pursuit of happiness.' The poor man will no longer be penalized for the slightest increase in income and receives more pay increasing his chances of doing what I know alot of poor people would love to do; get out of poverty.