November 13, 2018
This is a brief review of the November 6th midterm elections in the United States. In the coming days, this election briefing will be followed by white papers on further policy and political implications of the election results.
In the most watched midterm elections since 2010, the anticipated Blue Wave – the predicted surge of Democratic voters – arrived Election Day with just enough momentum for Democrats to take control of the U.S. House of Representatives for the first time in eight years. In fact, the 2018 election was arguably the best showing by Democrats during a midterm in over a generation. However, Democrats were not able to make gains in the U.S. Senate, where in fact they lost at least three seats.
It was an election marked by intense partisanship and public anxiety, with an increase in turnout of over 30 million voters compared to 2014. Unprecedented volumes of early voters, more intense voter enthusiasm (especially among younger voters, Latinos, African Americans, and women), and fundraising in the billions of dollars by both parties underpinned the force of interest across the country. Most observers believe this was driven largely by voter response and reaction to President Trump, who has dominated America’s political and cultural landscape since his victory over Secretary Hillary Clinton in 2016.
Democrats were able to take advantage of President Trump’s low approval numbers in moderate, swing suburban congressional
districts to take control of the House of Representatives at margins consistent with historical midterm gains. With an expanded map of vulnerable Republicans, the Democratic Party won among 18-49 years-old voters, college educated men and women, and bested the Republicans among independents – 54% to 42%.
President Trump and the Republicans thwarted the surge of Democratic party enthusiasm and expanded their majority by winning at least three seats (Indiana, Missouri, and North Dakota) in states that Trump carried in the 2016 election. President Trump’s personal support in tight Senate races undoubtedly propelled Republican victories in Tennessee and Texas.
There are many dynamics unfolding in the United States, creating more uncertainty and disruption. To be clear, the new 116th Congress will be diverse in generation, gender, and governing philosophy. But in this moment, the election results must be viewed as a split-decision by the American people on President Trump’s first two years in office, as well as a demonstration of the clear geographically-influenced political divides in the United States.
As such, the result immediately sets up a political and policy confrontation for the next two years between the President and Democrats, now energized and fully engaged. This dynamic will impact the Administration’s agenda and the nation’s politics ahead of the 2020 elections.
While divided government is appreciated by the financial markets, individual companies will find their industry’s issues gaining additional public scrutiny and debate, furthering political risk: The tech sector and privacy issues and net neutrality; financial services and recent Dodd-Frank modifications; regulatory schemes on oil and gas exploration; and healthcare and prescription drug prices.
In a White House press conference the day after the election, the President took a defiant tone. Over the next few weeks, a reassessment of President Trump’s leadership of the party and his political strength will occur among Republican leaders. As President Clinton and President Obama demonstrated, an incumbent president can recover from a midterm defeat, but both did so by moderating their positions – a tactic President Trump has thus far been reluctant to take. He rightfully points to gains in the Senate to demonstrate his political viability, all but ignoring significant loses in the House, and potentially most importantly, the loss of seven GOP-held governors seats and majorities or supermajorities in multiple state legislative chambers.
In the weeks ahead, President Trump is likely to reshuffle his cabinet and White House staff, all the while continuing to pursue his “America First” agenda. There may be areas of legislative cooperation suggested between the parties – infrastructure, workforce development, prescription drug pricing, privacy – but it is far more likely that we will see an acceleration of hyper-partisanship and gridlock in Washington as the President and the Democrats look toward the 2020 presidential election.
In November, the Republican and Democratic House and Senate caucuses will meet and determine their leadership for the next Congress. There are no expected major changes in leadership in the US Senate. With current Speaker Paul Ryan retiring from the House, Republicans will have a contest between current Majority Leader Kevin McCarthy and a challenge from the more conservative wing of the GOP in Rep. Jim Jordan of Ohio. The Democratic Caucus race may pit current Minority Leader Nancy Pelosi against symbolic challengers, each attempting to claim the mandate of “new leadership.” Along with her deputies, Democratic Whip Steny Hoyer and Assistant Democratic Leader Jim Clyburn, Pelosi is expected to weather the storm, providing stability as the next generation gears up for a leadership overhaul in 2020.
Beyond the organizational meetings for the 116th Congress, Majority Leader McConnell and Speaker Ryan will need to begin clearing out the remaining issues of the 115th Congress.
First and foremost, Congress must deal with the seven remaining appropriations bills to fund the government through the end of the year. These bills would fund non-defense portions of the government. In particular, the bill that funds the Department of Homeland Security (DHS) sets up the opportunity for the President to push for full funding of a border wall, something he emphasized in his post-election press conference. A border wall fight would most likely halt progress on the other outstanding appropriations bills. At the same time, a lame duck deal on the border wall could also include action on the Deferred Action for Childhood Arrivals (DACA) program, a priority for Democrats. Republicans may also press for a rollback of reforms to the Medicare prescription drug “donut hole” included in the Bipartisan Budget Act passed earlier this year, a change supported by the pharmaceutical industry.
Additionally, Members of the tax-writing committees have been working toward an end-of-year tax deal. Such a deal would likely address technical fixes to the 2017 tax reform bill, an extenders package, a tax administration package and other member priorities that could include retirement incentives and capital formation ideas. While the parameters of the package are long from settled, there is substantial energy behind the idea. However, if the package gets too big and complex, it could collapse under its own weight. Other items that remain open for lame duck action are the Farm Bill, criminal justice reform, reauthorizing the Violence Against Women Act, and a package to spur capital formation. But, all of the action in a lame duck is contingent on resolving the spending fight.
Looking ahead to the divided 116th Congress, Democrats in the House will likely take a tempered approach, largely centered around intense oversight of the Trump Administration and those corporations that worked closely with the Administration in the first two years. The day after the election, House Speaker Nancy Pelosi – who is likely to continue in her role in the 116th Congress – took a moderate stance, demonstrating that she and Democrats are well-aware of overplaying their hand at the expense of narrowly won districts and that they will instead focus on themes with broad appeal, such as campaign finance and workforce training. The Senate on the other hand – still well shy of a 60-vote majority – will likely focus on confirming President Trump’s nominees and moving forward with the broader Republican agenda.
While conventional wisdom suggests two years of legislative gridlock is on the horizon, there are potential areas of agreement where President Trump and Nancy Pelosi have already adopted a bipartisan tone. Areas of common ground could include drug pricing, infrastructure, workforce development, privacy, and additional tax legislation. That said, leaders of both parties will need to walk a fine line between appearing too friendly or too obstructionist towards the opposition, ahead of a highly contentious 2020 presidential election driven by a motivated electorate with strong party affiliations.
One final point of reflection is that many of the candidates who ran unabashedly progressive statewide campaigns lost (Abrams – GA, O’Rourke – TX). While these candidates had uphill climbs across the board, Democratic leaders were watching these races to determine their strategy going into the 2020 presidential election and whether they should embrace progressive politics or provide a center-left alternative to Trump. These results give party leaders and activists much to consider in the coming months as they begin to plan for the 2020 elections.
*George W. Bush and the Republican Party gained seats in the 2002 midterm election, the first after the attacks of September 11, 2001