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MID-TERM ELECTION RECAP: REPUBLICANS IN CONTROL

November 6, 2002

IN THIS ISSUE:

Election Recap - My Predictions Vs. The Actual Results Bush’s Political Gamble Pays Off Importance Of Judicial Appointments Where Did The Democrats Go Wrong?

Election Recap

The mid-term elections are behind us now and there were certainly some surprises. The GOP ended up having a big night, enlarging their House majority by 4 to 7 seats (some races are still too close to call) and regaining control of the Senate by picking up two seats net. A couple of issues back I engaged in some election forecasting on competitive Senate races, lets quickly revisit those and compare them to the actual results.

I had forecast that the GOP would hold CO, NC, SC, NH, and TX. As it turns out they did. However, I also thought they would hang on in AR, but the Democrats gained a seat there. Democrats held the line NJ, IA, and SD (this was called for Johnson minutes ago). And the GOP gained seats in MO, MN, and GA. These last two were real surprises where the momentum shifted very late toward the GOP.

So it turns out that my forecast of an overall two-seat gain for the GOP came through, albeit taking a different route.

Bush’s Political Gamble Pays Off

President Bush took the political gamble of a lifetime and came up a winner. You will recall that in my October 30 E-Letter, I mentioned that some “talking heads” were saying it was a mistake for President Bush to leave Washington and campaign for Republican candidates. However, the election results certainly nullified this criticism.  His late-race relentless campaigning for the GOP helped push them over the top in several races, but the margins were thin and it could have easily gone the other way.

With this two seat net pick up, the Senate is now “Chafee proof”. That of course refers to Rhode Island Senator Lincoln Chafee who is believed to have been interested in jumping ship from the Republicans to Independent status, much the way Jim Jeffords did.

Be Careful What You Ask For…

There’s an old saying that goes, “Be careful what you ask for, you just may get it.”  That’s where the Republicans are right now.  Republican majorities in both the House and Senate means that the GOP, particularly the newly minted Senate majority, has a bulls-eye painted on their collective heads.

With perceived total control over the agenda, the failure or success of the domestic agenda and an economic recovery will rest with them.  If the GOP-controlled Congress does not achieve all of its goals, there will be no one to point fingers at.  Gridlock, once seen as a positive thing in government, is no longer considered an advantage.

A number of talking heads have suggested that the GOP will move to immediately make the Bush tax cuts permanent. I am sure they will try, but this is not a ‘slam-dunk’ issue for them. You can expect the Democrats to resist bitterly, and there are even Republicans who would be hesitant to endorse a permanent tax cut package. A 51-seat majority is not a legislative rubber stamp, considering that 60 votes are needed to break a filibuster. It is more likely that the Homeland Security Bill will take center stage with a decent chance of passage.

However, with the GOP in control there are a number of things you can expect that I believe will aid us in economic recovery.  Tax cuts for small businesses will find their way the Senate floor, as will larger capital-loss deductions for stock market investors. This should be embraced and will certainly be welcome relief for millions of Americans who experienced sharp losses in the market upheaval.

A terrorism reinsurance bill will help put ‘the hard hats’, as the president says, back to work. We can also look forward to an energy bill that will reduce our dependence on foreign oil and could help stabilize the oil markets with war in the Middle East on the horizon.

I think you will also see much needed bankruptcy and Medicare reform, with tax credits for uninsured workers. You could also see a wholesale reform of the alternate minimum tax (AMT) system and a reduction in the capital gains tax rate. You can also expect the permanent estate tax cuts or the elimination of them entirely to be a major issue.

There is also a significant amount of legislation that has been buried by the former Democratic leadership. Some of the more notable pieces include the Corporate and Auditing Accountability Act (HR 3763) that seeks greater public transparency in corporate auditing and accounting practices in the wake of the corporate scandals.

The Economic Security and Worker Assistance Act (HR 3529) could also be up for quick passage. Among other things it updates the tax code to exempt terror victims of 911 and monies given to disaster relief and reduces estate taxes for military personnel killed in action.

The Homeland Security Act (HR 5005), as mentioned above, will likely be given top priority. Interestingly enough, the politics and stonewalling over this bill is thought by many pundits to be a major factor in the GOP success.

The Homeland Security Information Sharing Act (HR 4598) establishes methods of sharing and coordinating information and intelligence among various federal agencies. The Immigration Reform and Accountability Act (HR 3231) is also stalled and would allow INS to coordinate with homeland security by placing them under the control of the Attorney General.

And perhaps most importantly, H. Con Res. 353, the 2003 budget. Yes that’s right, the Senate has yet to pass the budget for fiscal year 2003.  You can expect the GOP to move on a number of these issues early.

Of course the Democrats will be there to oppose, modify, or endorse some, all, or none of these proposals.

Judicial Appointments

From a judicial appointee perspective, the GOP should be able to pass most of the president’s nominees through the Senate with little resistance. For the most part, the circuit court nominees have been moderates that were held up in committee for political reasons and, when before the full Senate for consideration, only require a simple majority vote.

It is also important to note that, with Senate control back in GOP hands, some of the Supreme Court’s conservative members could see fit to retire. The most likely candidates for retirement are Chief Justice William Rehnquist, Justice Sandra Day O’Connor, and Justice John Paul Stevens.

Rehnquist and O’Connor, conservatives, have waited for a Republican president and a Republican Senate to retire to maintain their conservative seats on the court. There are also a number of departmental personnel that are waiting for appointment, such as an under-secretary of state.

The appointment of circuit court judges and the possibility of replacing three Supreme Court Justices loom as the biggest potential legacy of the results of this mid-term election. 

Wall Street sees GOP control as a positive in general for the economy and markets. Of course, the GOP have shown that they can spend money every bit as well as the Democrats, so it will be up to the President to hold the line and address budget deficit issues.

In the midst of the elections SEC Chair Harvey Pitt resigned, and it is widely believed that Treasury Secretary Paul O’Neil will soon follow. This, too, will please the Street as both of these men are seen as incapable in their current posts. Pitt in particular has been a political liability to the Bush administration.

On the global stage, the GOP sweep is seen to re-enforce Bush who many, particularly in the EU, have viewed as only quasi-legitimate. Emboldened, expect Bush to push the War On Terror and call for US unilateral action where required. In this regard the biggest loser in this election (beyond the Democrats) was Saddam Hussein. Had the Democrats won, action in Iraq would have been less likely and any future deployments would have been questioned, second-guessed and stalled.

What Went Wrong For The Democrats?

So what went wrong with the Democrats? It seemed as though they were mounting a late game rally about three weeks ago, but then two things happened. First, they replaced Toricelli in New Jersey with Launtenberg when it became obvious that Toricelli was going to lose, even though it was a violation of New Jersey election law. This played nationally and smacked of the Democrat’s legal maneuvering in the Florida presidential election recount debacle in 2000. Many voters saw this as a “win at any cost,” and it energized the Republican base and put off swing voters.

Second was the Walter Mondale political rally that masqueraded as a Paul Wellstone  “memorial service.” This shrill, ultra-partisan display left many people all over the country with a bitter taste in their mouths. Though the Democrats blame the Wellstone children for the lapse in good taste, most Americans perceived that it was too well scripted to be a spontaneous event.

The DNC machine, however, is out in force today claiming that the reason for their defeat is that they were heavily out-spent by Republicans who were funded with millions in special interest dollars, mainly from the pharmaceutical industry. And that President Bush went overboard in campaigning for GOP candidates at the last minute.

It seems to me, however, that the Democrats, with their late game missteps, did more to hand the elections over to the GOP than anything else.

Best Wishes,

Gary D. Halbert

SPECIAL ARTICLES

A rally big fiasco.

http://www.nypost.com/postopinion/opedcolumnists/49931.htm

No Class. Peggy N. blasts MN Dems.

http://www.opinionjournal.com/columnists/pnoonan/?id=110002554

Bush's popular presidency seen helping GOP on election day.

http://www.washtimes.com/national/20021101-94421064.htm

Late shift appears to favor GOP.

http://www.usatoday.com/news/politicselections/2002-11-03-poll-usat_x.htm


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