Change in Senate could widen business impact

The Democrats' newly won majority in the House brings with it control of powerful committee leaderships that could bring major changes in the congressional agenda for business, investment and the economy. Now, with a possible majority in the Senate turning on a single undecided race Wednesday, complete control of the Congress could give the party an even stronger base for a new business and economic agenda.

Even if Democrats take the Senate, they'll still lack the votes to override a White House veto. But a number of the changes being championed by the incoming party may not require President Bush's signature, according to Charles Gabriel, an analyst with Prudential Equity Group in Washington.

"The significance of them having both chambers is important," said Gabriel, "because they could control the budget process and move a reconciliation bill with less than 60 votes that really could take on taking on Medicare changes, student loan changes, etc. So this is a big day in Washington."

Specific industries could feel the impact of Democrats’ return to power — from energy to pharmaceuticals.

One of the biggest line items in the federal budget, defense spending, is also a potential target for change — a prospect made more likely by the resignation of Donald Rumsfeld as Defense Secretary.

Though widespread opposition to the Iraq war was a major force sweeping Democrats back into power, they’re not expected to look for big cuts in defense spending — for fear of appearing soft on defense in the 2008 presidential election.

“Many Democrats are currently going out of their way to show themselves as strong on national security,” said Greg Kelly, at Susquehanna Financial Group, in a recent research note.

Though overall defense outlays may remain intact, Democrats may shift spending priorities — scaling back big-ticket weapons projects and increasing spending on homeland security, for example.

Regaining control of key committees will also give the Democrats a high-profile platform for hearings on issues like oil industry profits and CEO pay, along with control of oversight committees could bring tighter regulation of industries from utilities to telecommunications to pharmaceuticals.

With Rep. Charles Rangel, D-N.Y., in line to take over the House Ways and Means Committee, control over the federal budget process will shift. Democrats have long opposed a series of tax cuts that have been one of the central accomplishments of the Bush administration, including lower top rates on income and lower taxes on capital gains, dividends and inheritance. Though many of those cuts expire in 2010, any effort to raise taxes will likely face a White House veto.

And with the economy growing, tax receipts rising, and the deficit falling, Democrats have recently backed away from calls to roll back the cuts.

“I don't think we want taxes to move higher at all; the kinds of things we're talking about easily funded about rearranging federal priorities making sure that some of the shelters are closed -- the offshore shelters and things like that,” Sen. Charles Schumer (D, N.Y.) said Tuesday. “But the Democrats are against increasing taxes. We want to become more fiscally responsible.”          

In fact, Democrats have been talking about their own round of tax cuts — this time taking on the alternative minimum tax, which originally targeted wealthy taxpayers but was not indexed to take rising incomes into account. As more middle income taxpayers get hit with the AMT, reform has become more popular in both parties.

Democrats may also find that specific policy changes promised on the campaign trail may be tough to enact. Democrats have been much more vocal than Republicans about the need for trade protection, for example. Some Democrats have proposed trade restrictions, especially with China, which has piled up a $70 billion trade surplus by increasing shipments of manufactured goods to the United States. The 110th Congress will have to reauthorize so-called "fast track" authority to negotiate trade deals.

"I think this is the most import issue of ’07," said Gabriel. "This creates creates a vehicle for bashing China and Wal-Mart."

But clamping down on trade with China is easier said than done, according to Stuart Hoffman, chief economist at PNC Financial Group.

“The U.S. and China have very beneficial mutual relations on other issues like North Korea,” he said. “Putting tariffs on the Chinese would not a be a good way to foster cooperation.”

The new Democratic Congress will likely have better luck with another hot issue for employers — the minimum wage. With 18 states already moving to raise floor on workers’ paychecks higher than the federal minimum of $5.15 an hour, the chances of getting a national law passed have improved.

Employers also could see changes in the laws on immigrant workers. Democrats have supported a guest worker program that would provide temporary work visas to immigrants. Democrats also have favored tougher sanctions on employers who hire illegal immigrants. Though the Republican Congress has focused more on preventing illegal immigrants from entering the country, the Bush White House has supported reforms that would include expanding the availability of temporary visas.

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