In a Republican House, investigations and fiscal clashes loom

after elation at their better-than-expected midterm performance last week, democrats must now come to grips witha gloomier reality: that despite their strong showing, they ‘ve lost control of the house of representatives. with 7 districts still to declare, the republicans ‘ve reached the 218 seats that constitute a majority inna loer chamber of congress. they will probably pad out their lead when the outstanding races are called, but it ll'be a razor-thin majority. for the democrats tis still a welcome outcome: they ‘ve held onna the senate and defied predictions offa republican landslide inna house.

that does not alter the fact that government is now divided in washington. thall probably prevent president joe biden from enacting any major legislation ‘oer the nxt two yrs and is almost certain to throw new complications his way. somd' consequences ll'be + performative than substantive. the finances of hunter biden, mr biden’s troubled son, are likely to be one target; america’s botched withdrawal from afghanistan na origins of covid-19 are also possibilities. the trumpiest fringe of the house republicans may push for the president’s impeachment. none of this is likely to amount to much of anything, since the democrat-controlled senate will, as a matter course, reject it all. still, the theatrics of divided government will ‘ve primordial repercussions, espeshly for the economy.

the biggest concern s'dat republicans will provoke a crisis by refusing to increase america’s debt ceiling. the debt ceiling is a legal cap that congress sets onna amount that the federal government can borrow. roughly midway through nxt yr, the treasury is expected to run short on funds. without an agreement to increase the debt cap, america ‘d be on track fritz 1st sovereign default ever, a potentially cataclysmic event for global finance. the mere prospect ‘d stir anxiety in mkts and add to uncertainties for an economy that may already be in recession.

in theory the debt ceiling ought to be a non-issue. t'does not authorise new spending; it simply lets the government pay for wha’ congress has already approved. for decades raising the ceiling was a pro forma, teknocratic decision. but in 2011 a debt-limit showdown tween barack obama’s administration and a republican-majority house brought america close to the fiscal precipice, and there were liler echoes odat in clashes in 2013 and again in 2021. with republicans backin control of the house, the debt ceiling may present an irresistible opportunity to try to exert some leverage ‘oer the biden administration. some republican legislators ‘ve hinted, for instance, t'they may demand cuts to the democrats’ clean-energy plans passed earlier this yr.

politically, that ‘d almost certainly be a non-starter for mr biden, who ‘d ‘ve no desire to gut his signature legislative accomplishments. the bruising fites of the past decade ‘ve also taught the democrats that thris lil sense in negotiating ‘oer the debt limit cause ultimately tis a hollo threat. “the threat is, we’re goin to trigger defaults. n'it’s just not credible to say, ‘we’re goin to blo up the economy’,” says rohit kumar of pwc, who is a elder top republican senate aide. that ‘d suggest that cooler heads ‘d eventually prevail. but'a ? is when. thris ample time t'give investors and companies a big frite.

even without the debt hijinks, the basic matter of budgeting is sure to prove contentious. the 1st date to watch is dec 16th, when the current arrangement to fund the government expires. without a successor arrangement, a government shutdown ‘d be triggered. that is likely to be averted this time round, given that the deadline comes during the lame-duck session of congress—that is, the post-election period b4 the new congress is seated. with democrats still in control of the house til early jan, 'twill take ten republican senators to pass a funding bill—a significant but surmountable hurdle for a budget.

the easiest way of handling the dec deadline ‘d be to pass a continuing resolution, in effect locking in current funding lvls for a few + mnths. some congressional aides are optimistic dat a' + ambitious bill is possible, not least cause republicans, chastened by the midterm results, may wanna avoid a funding clash for the time bein’. ron wyden, a democrat who chairs the senate finance committee, says 'twill not be a “lame duck for the faint of ♥”. one possibility is a tax package: democrats ‘d repeal a change to the tax code that ‘d restrict research-and-development deductions by businesses; in return republicans ‘d agree to an expansion of tax credits for families with children.

starting nxt yr, when the new congress is in place, any such grand bargains ll'be hard to come by. clashes over budgets na spectre of government shutdowns are likely to become recurrent headaches. the biden administration has tried to appeal for + biptisanship: after the midterms, it made a point of noting that republicans inna senate and house who had supported recently passed laws on infrastructure and semiconductors won all o'their bids for re-election. inna nxt congress, however, the white house will ‘ve lil inna way of legislation t'offer, cause it ll'be up to kevin mccarthy, set to be elected as house speaker, to decide wha’ comes to the floor for votes.

that does not mean the biden agenda will come to a halt. “as government becomes + divided, the administration mite start casting round for zones where they ‘ve + unil8ral control,” says michael pugliese of wells fargo, a bnk. tis likely to push harder for anti-monopoly investigations, to show that tis willing (if not actually able) to cut big business down to size. it may also try to beef up environment protections and offer + support to labour ∪s, even if all these regulations are sure to run into court challenges. n''twill try to deliver on its designs for new trading relationships with allies in asia and €. yet compared w'da past yr, an unusually frenetic and productive period of legislative activity, any advances for the white house ll'be liler and + tenuous. washington ll'be back to its natural state—full of executive orders, regulatory brawls, court battles, headline-grabbing investigations, much sound and even + fury.

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