The 114th Congress is now in session. U.S. President Barack Obama for the first time faces a Congress that has Republicans running both chambers.
What President Obama can expect from the GOP Congress in 2015 will matter to investors. Many issues on the agenda, such as corporate taxes, trade, and a higher minimum wage will impact stocks.
Given the gridlock of recent years, the easy assumption is that nothing will get done. But the two sides have more incentive to work together in 2015 than in years past.
Republicans want to prove that they actually have viable ideas for solving the nation's problems and aren't just the "party of no."
And the seesaw election results in recent years - with Democrats winning in 2008 and 2012 and the GOP in 2010 and 2014 - have instilled a healthy fear of the disgruntled American voter.
Though a lame duck, President Obama has the incentive of building up his legacy. But he's already signaled he won't be a pushover.
Yesterday (Tuesday) the White House threatened to veto two GOP priorities - construction of the controversial Keystone XL pipeline and a tweak to the Affordable Care Act to redefine a full-time worker from 30 hours to 40.
The threats came as a surprise since both parties had emphasized cooperation since the November election gave the Republicans majorities in both houses of Congress.
"I'm being absolutely sincere when I say I want to work with this new Congress to get things done," President Obama said in a press conference last month. "We're going to disagree on some things, but there are going to be areas of agreement and we've got to be able to make that happen."
"Serious adults are in charge here and we intend to make progress," incoming Senate Majority Leader Mitch McConnell, R-Ky., told the Associated Press in December. "We're going to change the Senate's behavior, and hopefully change the country in the process."
Yesterday's veto threat, and the angry responses it drew from GOP lawmakers now threaten to spoil that optimism. But it doesn't mean that our elected representatives won't agree on anything. They could get something done in 2015.
Here's a look at what will be on Washington's plate in the months ahead - and just what President Obama can expect from the GOP Congress in 2015...
The Keystone XL Pipeline
The long-running battle for approval of the final leg of TransCanada Corp.'s (NYSE: TRP) pipeline to bring Canadian tar sands oil to Gulf Coast refineries may be over.
The Republicans have enough votes in the Senate to pass a Keystone bill, but not enough to override a veto. GOP leaders vowed yesterday to put a bill on the president's desk regardless.
The Republicans want to force President Obama to veto the bill, which they see as pro-energy as well as a job creator. With a majority of Americans in favor of building the Keystone XL pipeline, the GOP no doubt figures they can get a lot of political mileage out of a veto.
President Obama still could change his mind. If he doesn't, Keystone will be a missed opportunity.
In addition to showing a renewed willingness to work with Republicans, President Obama could have used the Keystone XL as a bargaining chip.
For example, Sen. Chuck Schumer, D-N.Y., had talked about adding an amendment to ban oil moved through the pipeline from being sold overseas. President Obama also could have sought GOP support for some of his renewable energy policies and less pushback on climate change rules.
But instead of a deal, it looks like Keystone will end up pushing the parties further apart.
Corporate Tax Reform
Corporate tax reform is another issue both parties could agree on. Both want to lower the corporate tax rate. That would boost profits for U.S. companies. It also might encourage some businesses to bring home a piece of the more than $2 trillion in untaxed profits they currently stash in offshore accounts.
That's because the U.S. corporate tax rate of 35% is the highest in the world. President Obama has proposed lowering it to 28%, the Republicans to 25%. They also have different ideas on how to tax multinational corporations. But the two sides don't seem so far apart as to make a deal impossible.
Tax reform for the rest of us almost surely will not happen. There's little common ground there.
Wall Street Reform
Wall Street reform will be a true battleground in 2015. Both sides want it, but are moving in mostly opposite directions.
Republicans will try to roll back more of the 2010 Dodd-Frank Act. They scored a victory in December when they included a provision in the budget compromise that eased derivatives trading rules.
The change gives Big Banks like JP Morgan Chase & Co. (NYSE: JPM) and Goldman Sachs (NYSE: GS) more leeway for the sort of bad behavior that helped cause the 2008 financial crisis.
Wall Street donates generously to members of both parties in the hope of getting such legislative favors.
This week the House of Representatives is voting on a bill that would give banks two extra years to comply with the Volcker Rule. That regulation bans banks from making risky bets with their own money.
Next on the GOP's list is raising the threshold for what constitutes a "systemically important" bank higher than $50 billion in assets. Banks above the threshold are subject to tougher regulations.
Republicans would also like to end the process in which the FDIC temporarily takes over failing banks. They'd rather let the banks unwind through the court system.
Most Democrats want the Dodd-Frank rules tightened. But Wall Street always seems two steps ahead of Washington. Citigroup Inc. (NYSE: C) lobbyists wrote 70 of the 85 lines of the derivatives provision in December's budget bill.
The wild card here is Sen. Elizabeth Warren, D-Mass. She's an outspoken crusader against Wall Street's excesses. She's also a possible 2016 presidential contender. If Warren can stir up public outrage, she could make it politically uncomfortable for both Democrats and Republicans to appease Big Banks.
That could prove especially effective in the Senate, where the GOP majority is slim.
Obamacare
Despite what you may hear from the GOP's Tea Party wing, the Affordable Care Act will not be repealed in 2015. The votes aren't there in the Senate, and President Obama would veto a repeal anyway.
Republicans will try to chip away at the law, but President Obama won't allow that, either.
Congress could tweak Obamacare in 2015, however. Democrats have said all along that if the law needs fixing it should be fixed - not repealed.
Republicans in the House are already debating the bill to raise the definition of a full-time worker to 40 hours. With the veto threat, it's unlikely to get any Democratic support.
But even some Democrats don't like the tax on medical devices. Removing the employer mandate also could get some bipartisan support.
Both of those changes would help businesses.
Trade Reform
Trade reform is another area with some pre-existing consensus. Both parties want to see a revival of the fast-track approval process that expired in 2007. It gives the president the ability to have up-or-down votes in Congress on trade deals. In fact, President Obama will face more opposition from within his own party than from a GOP that generally favors trade legislation. A deal here is a near-certainty.
Infrastructure Spending
Republicans hate to spend money on anything but defense, but few deny that the nation's crumbling roads, bridges, and water systems are a dire problem.
Given that infrastructure spending would also create jobs and stimulate the economy, pressure will be strong to do something. At the very least, Congress needs to deal with the expiration of the Highway Trust Fund in May.
The recent drop in oil prices has crested an opportunity to raise the 18.4-cent-per-gallon federal gas tax for the first time in more than 20 years. And it's Republicans, not Democrats, talking about it.
Sen. Bob Corker, R-Tenn., said the GOP is proposing a $0.12 per gallon increase in the federal tax over the next two years.
But any serious attempt to fix America's infrastructure isn't likely. The American Society of Civil Engineers estimates the nation would need to spend $3.6 trillion by 2020 to fix all the problems.
More on Washington and Wall Street: One of the many watchdog mechanisms created by the Dodd-Frank law isn't working quite as well as intended (surprise). And it's not for lack of trying. But the bond between regulators and Wall Street is just too strong. This watchdog is just another paper tiger...
Follow me on Twitter @DavidGZeiler.
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