If the Republican Party succeeds in taking over Congress in the upcoming midterm elections, the fiscal and regulatory landscape facing many American companies will be reshaped.
Zhitong Financial APP learned that the United States will hold midterm elections on November 8. The midterm elections in the United States are held every four years, and although new members of Congress are elected rather than presidents, the results of the elections may have a considerable impact on the rest of the president's term in office, or even in the presidential election two years later.
Historically, the president's party usually suffers certain setbacks in the midterm elections: either the House of Representatives, or the Senate, or even both houses. For nearly two years, Biden's Democratic Party has controlled the White House, the House of Representatives, and the Senate. However, in view of Biden's current low support and high opposition ratings, as well as high inflation, weak economy, and prominent immigration problems in the United States, the loss of control of the Democratic Party over the House of Representatives is almost certain, and even the possibility of the Senate falling to the Republican Party is increasing.
For businesses, the biggest impact of Republican regaining control of Congress was the end of a series of Democratic economic policies. Democrats will no longer be able to use the budget mediation process to bypass Republicans forcing through tax increases, changes to Medicare drug policy, and pandemic aid spending that many economists believe is fueling inflation.
Even in a divided administration, there may be room for bipartisan compromises on border security and legal immigration to address the labor shortages plaguing U.S. industry, and possibly agreements to streamline permitting and leasing energy projects. However, Republicans vowing to investigate the Biden administration, reject his appointments to key positions, and fight over the U.S. debt limit that could disrupt markets are politically fraught moves that could disrupt any bipartisan deal.
With about a week to go until the U.S. midterm elections, here are the many risks facing U.S. businesses:
1. Republicans will block raising corporate taxes
The Democratic Party has pushed for an economic agenda to raise corporate tax to 25 percent and introduce a 15 percent global minimum corporate tax rate. With Republicans back in the House, the risk of that economic agenda being revived disappears, as does the possibility of a windfall profits tax on oil companies. In addition, the December negotiations to extend the R&D tax incentive are also likely to be affected by the outcome of the midterm elections.
Republicans say that in most cases, they will push to extend the expiring provisions of the 2017 tax cut bill signed by former President Trump, two of which are especially valuable to businesses. Grover Norquist, an influential anti-tax figure for Republicans, expects the Republican-led Congress to negotiate with the White House to extend the provisions for two years by the end of 2024. Rohit Kumar, a former senior Senate Republican aide now based at PricewaterhouseCoopers (PWC), predicted that Republicans would force a tough vote on a reconciliation bill to extend Trump's tax code and force moderate Democrats to agree to bailout small businesses, "which will set the stage for final negotiations in 2025."
2. Energy production will be boosted and climate measures will be cut
Republicans plan to push for expanded domestic energy production if they win the midterm election and will try to capitalize on voter dissatisfaction with high oil prices to get the Biden administration to agree. Representative Bill Johnson, Republican of Ohio, a member of the House Energy and Commerce Committee, said the committee will seek to promote the development of hydrogen projects, simplify the approval and development of nuclear power plants and expedite the approval of liquefied natural gas export facilities.
If implemented, these measures will enable nuclear energy operator Southern Co., small modular reactor manufacturer NuScale Power Corp. and liquefied natural gas exporter Cheniere Energy, Inc. (LNG. US) and other companies benefited. Meanwhile, Halliburton (HAL. US) and ExxonMobil (XOM. US) such oil producers will also benefit. Bill Johnson also plans to target a Biden administration rule to phase out some natural gas stoves, a rule that has drawn the ire of the American Gas Association. The association also represents Dominion Energy, Inc. and DTE Energy Co. (DTE. US) and other utility companies.
Republicans have vowed to closely monitor the hundreds of billions of dollars in lending authority given to the Department of Energy by Biden's Inflation Reduction Act. At the same time, General Motors (GM. Automakers such as US) and Ford Motor (F.US) want the government to spend another $7 billion on EV charging stations, but Republican lawmakers are likely to ignore it. To win Republican support for his bipartisan infrastructure bill, as well as a Democratic-only climate bill aimed at extending the EV tax credit, Biden has cut in half the $15 billion he asked for EV charger funding.
However, Neil Bradley, executive vice chairman of the U.S. Chamber of Commerce, said he does not think Republicans will be able to recoup money for renewable energy or reverse Biden's past tax hikes, given the legislative hurdles in the Senate.
3. Financial regulation may be delayed or obstructed
Including Robinhood (HOOD. US) would benefit from Republicans taking over Congress. Republicans have been trying to thwart planned regulations by the U.S. Securities and Exchange Commission under Gary Gensler. Republican lawmakers can delay rulemaking by asking the SEC for information and wording in the annual appropriations bill that requires the SEC to delay regulation.
At the same time, one of the biggest targets companies face is an SEC program that requires companies to disclose their greenhouse gas emissions and, in some cases, their suppliers and customers. The rule, introduced in March, drew ire from industries ranging from oil to agriculture, including ExxonMobil, Meta platformMETA.US) and Walmart (WMT. US) and other companies have joined in.
The SEC is also looking to increase regulation of the cryptocurrency industry. Private equity firms and hedge funds could also benefit from the SEC's rule-setting slowdown. Gary Gensler's proposal to force them to disclose more fee information and implement new restrictions has drawn outrage from industry insiders.
4. The antitrust bill that technology companies oppose is unlikely to pass
In a Republican-controlled Congress, Silicon Valley may not be subject to the slash against Apple (AAPL. US), Amazon Inc. (AMZN. US) and Alphabet (GOOGL. US) and the impact of comprehensive legislation on anti-competitive practices at technology companies such as Google.
The bill has bipartisan supporters and has been approved by key committees in both houses of government, but lobbying by the tech industry, which has amounted to more than $100 million, has helped stop the bill's progress. House Republican leader Kevin McCarthy and Jim Jordan, who may chair the House Judiciary Committee, both oppose the antitrust bill. If the bill is not voted on in this Congress by the end of the year, the bill will have to be resubmitted.
Instead, Republican lawmakers plan to focus on ending what they see as censorship of conservative voices on social media platforms, including removing legal liability protections under Section 230, giving them an avenue to appeal when user content is removed, and demanding greater transparency from tech companies. With insufficient support in the Senate and the high probability of Biden's veto, none of these content-focused proposals will become law.
5. Strengthen the supervision of hospitals and insurance companies
Hospitals, insurance companies and drug benefit managers will face tough new regulations imposed by a Republican-controlled Congress, likely backed by Democrats and the Biden administration. Republican lawmakers have pledged to step up the requirement for hospitals to publish prices online and reduce drug costs by targeting pharmaceutical industry middlemen, known as pharmaceutical interest managers. Republicans are trying to abandon promises to repeal the Affordable Care Act, also known as Obamacare, or restrict abortion rights instead, focusing instead on rising health care costs for Americans.
Express Scripts Inc.、CVS Health(CVS. US) and OptumRx Inc., three pharmaceutical management companies that account for more than two-thirds of the U.S. market, are expected to be affected by Republicans' initiatives. HCA Healthcare(HCA. US), Ascension Health, and Tenet Healthcare (THC. US) is also a company that may be affected.
Many Democrats remain frustrated by the limitations of the Medicare drug price negotiation provisions in the Inflation Reduction Act, with only 10 drugs under negotiation by 2026. Under Republican control, expanding the provision would be impossible. Johnson & Johnson (JNJ. US)), Merck (MRK. US), Pfizer (PFE. US) and Eli Lilly (LLY. US) is expected to be affected because some of the company's products are heavily purchased by Medicare.
6. 5-year extension of the $428 billion farm bill
The next Congress will need to pass another five-year farm bill on direct farm subsidies, crop insurance, food stamps and protection programs. The 2018 farm bill authorizes spending of $428 billion over the next five years, of which about three-quarters go to food aid and a quarter to agricultural support.
The farm bill is the backbone of domestic agribusiness, and it may be more difficult to update it under Republican control. While there is broad bipartisan support for maintaining spending, some conservatives want to see farm subsidies cuts.
Bigger questions may arise in previous Republican nutrition programs for eligibility requirements and conservation programs. The food stamps in the program provide low-income recipients with a way to buy more food, helping Walmart and Kroger (KR. US) and other retail chains have boosted grocery sales.
According to the USDA, direct federal subsidies are a significant contributor to agricultural profits, accounting for 18 to 48 percent of annual net income from U.S. agriculture since 2018. Additional subsidies for farmers helped boost Legg Mason (MOS. US) and Deere (DE. US) also reduced sales from major grain buyers such as Cargill Inc. and Archer-Daniels-Midland Co., as well as major grain buyers such as Tyson Foods (TSN. US) and other meat and poultry processors who buy animal feed.
7. Arms manufacturers and contracts may be boosted
The Republican-led Congress will give a grant including Lockheed Martin (LMT. US)、Raytheon(RTX. US), General Dynamics (GD. US) and Boeing (BA. US) and the largest U.S. defense contractors present both opportunities and risks.
Republicans complain that the Biden administration is underfunded for weapons systems, and the party will come under pressure to ensure that the military budget keeps pace with inflation. Rep. Kay Granger, Texas, who will likely be the next chairman of the House Appropriations Committee, said in an interview that she would prioritize increasing defense spending.
However, the defense industry is also likely to fall into Republican brinkmanship in spending, forcing Biden to cut social programs and bolster border security. The protracted battle over spending could force lawmakers to rely more on temporary bills that don't allow new contracts to be funded. In a Republican-controlled Congress, oversight of the Pentagon's speeding up the process of awarding Ukrainian arms contracts is likely to come under increased scrutiny.
This article comes from Zhitong Financial Network