Big Republican wins on Tuesday would set up key showdowns between the party and the president on the Bush tax cuts, financial regulation, and health care. Charlie Gasparino on what to expect.
If, as widely predicted, the Republicans take control of the House and make major gains in the Senate, Barney Frank from Boston, the liberal head of the House Banking Committee, will be replaced by Spencer Bachus, the soft-spoken but staunchly conservative ranking member from Alabama. Speaker Pelosi from San Francisco will be making room for Speaker Boehner from the 8th District of Ohio. Senate Republican leader Mitch McConnell will likely wield as much power as Harry Reid—that is, if the current Senate leader survives Tuesday’s election against Tea Party favorite Sharron Angle—which means that Richard Shelby, who voted against the massive bank bailouts of 2008, will be more than a match for any Democrat who runs the Senate Banking Committee. (With Chris Dodd retiring, the betting is on Tim Johnson from South Dakota.)
All this may not add up to a sea change in economic policy, but a clear and fundamental shift in the government’s approach to business is certainly in the cards. Broadly, it will pit a more business-friendly, particularly small-business-friendly, legislative branch against the Obama administration and its plans to raise taxes, heap mandates on entrepreneurs, and increase the size and the reach of government. But the real battles will likely be waged on five issues where the ideological differences between both sides are most stark.
1. Extending the Bush tax cuts and a government shutdown. It’s Democratic Party dogma to end them and Republican Party dogma to keep them alive, and if the economy remains weak, President Obama will have an increasingly difficult time making the argument that it’s good public policy to let the rates expire for people making more than $250,000 a year—thus taxing entrepreneurs, small businesses, and the so-called rich. Yet the president has shown little interest in a compromise that would allow the cuts to remain in effect even until the economy recovers from anemic growth and 9.6 percent unemployment. The Republicans will hammer home the foolishness of “destimulating” the economy when it obviously needs stimulus and will insist that budget cuts come before the government raises taxes. The conventional wisdom is that barring huge gains by the Republicans, the president will get his way and the Bush tax rates, at least on the upper brackets, will expire early next year. But there’s talk among House Republicans about using the public’s growing dissatisfaction with raising taxes to stage a showdown with the president early next year. This battle, some in Washington tell me, could lead to a government shutdown. The last time that happened, in 1995, President Clinton used the shutdown to make former House Speaker Newt Gingrich look like an obstructionist. The Republicans now say they’ve learned from their mistakes; they will try to show that Obama is really the obstructionist with his failure to cut spending while he raises taxes on small business.
2. Dodd-Frank Part II. Depending on the size of the new GOP majority—or even if there is one—Republicans will be cranking up the pressure on the administration to remake parts of the alleged “landmark” financial-reform bill. Expect some significant changes to the legislation if the Republicans take control of the Senate as well as the House, people both in Washington and on Wall Street acknowledge—changes that the president and his Wall Street-friendly economic team might just go along with. (Remember that for all Obama’s banker-bashing, the most onerous parts of financial reforms came from members of Congress, not from Treasury Secretary Tim Geithner, a longtime Wall Street friend.) If Republicans merely take the House, as is widely predicted, fundamental change will be replaced by spirited debate on issues like “Too Big to Fail”—the Republicans say it needs to be explicitly outlawed in the legislation—and bank capital standards, which they say are too onerous and are preventing banks from lending when the economy needs small businesses get loans to expand and start hiring again.
3. Ending the Fed. If many of the Tea Partiers have their way, the Federal Reserve will go the way of Lehman Brothers and be abolished. While such a radical move isn’t in the cards even if the Republicans win 70 House seats and take the Senate as well, the central bank is likely to come under unprecedented scrutiny with Republicans in Congress and the Tea Partiers and their patron saint, Rep. Ron Paul, gaining power and prestige. Keep in mind that just a couple of years ago, many Americans didn’t know what the Fed was, to say nothing of its role in controlling the money supply and regulating the banking system. Most still have no clue what the Fed really does, but what they do know they don’t like: namely, the Fed’s important if not pivotal role in the 2008 bailouts of the banks and insurance giant AIG. So while Paul may not get his wish, look for Chairman Ben Bernanke to take the place of Wall Street fat cats and Goldman Sachs CEO Lloyd Blankfein on the congressional-hearing hot seat. Let’s just hope Bernanke doesn’t describe his job as “God’s work” or the Fed’s days really may be numbered.
4. Explaining the real cost of Obama’s health-care plan. Talk to any Republican in public office and he or she will tell you that the real cost of the president’s health-care plan received little if any scrutiny in the media, in large part because the Congressional Budget Office came out with a “study” purporting to show that the plan would save a few bucks over the next decade. The CBO study, they tell me, was riddled with faulty assumptions that made the plan sound like a win-win for everyone, particularly the American taxpayer, who is focused on the ballooning deficit like never before. Well, now comes the counteroffensive from the Republicans, who won’t miss an opportunity to show the economic downside of Obamacare as they gain control of key committees in Congress. One issue the Republicans say has legs is the spate of corporations telling their workers they will have to curtail coverage, given all the new mandates in store for them. Look for a lineup of corporate chieftains explaining why they have to make health coverage cuts (like the ones said to be in the cards at McDonald’s) during hearings that will be designed to further weaken the public’s sagging support for the president’s plan. Republicans know that even if they win the House and Senate, the president will veto any measure to rescind the health-care overhaul outright. But they also know that by attacking his plan as costly socialized medicine, they have a powerful weapon for the 2012 presidential elections.
5. Banker-bashing, but with a twist. I can’t imagine we’re going to see Spencer Bachus holding a hearing in which he calls JPMorgan Chase CEO Jamie Dimon a “fat cat,” or his counterpart on the Senate Banking Committee, Dick Shelby, lambasting Goldman Sachs CEO Lloyd Blankfein for selling “shitty” investments to customers, but don’t expect a free pass, either. Both are likely to tone down the personal attacks but press the banks on other issues, such as demanding to know why, for all the money they continue to make, places like JPMorgan and Bank of America still aren’t lending much to small businesses. Yes, the big banks favored Republicans over Democrats in this election cycle, but as most of the Republican leadership knows, that support is fickle. Both Dimon and Blankfein are longtime progressive Democrats who supported the party and Obama big time in 2008 and are personally uncomfortable supporting conservative principles. As a result, they are inclined to return to using their banks to support the president during the 2012 contest. Meanwhile, one of the issues that resonates among Democrats and Republicans alike, particularly Tea Party types, is an absolute hatred for Wall Street, which, given the bailouts and the subsidies that followed, continues to make money while the rest of the country wallows in 9.6 percent unemployment. So while the rhetoric might be different, banks will still find themselves under scrutiny.
Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His latest book, Bought and Paid For, is about the Obama administration and Wall Street.