Five Trends in U.S. Politics

1. TAX REFORM IS THE FIRST PRIORITY

Speaker Paul D. Ryan’s (R-Wis.) first priority in the 115th Congress will be passing a budget reconciliation package that provides a path forward for tax reform. Under reconciliation, a tax bill only needs 51 votes to pass the Senate. However, there are downsides to using reconciliation for tax reform, namely that the reforms can only remain in law during the “budget window,” which is currently ten years. Lawmakers could try to extend the budget window to enable tax reform to remain on the books for additional years.

2. POLLING CALLED INTO QUESTION

Election polling has been skewing in Democrats’ favor for at least the past two elections. Donald Trump’s White House win was not only stunning but also historic in that it was one of the biggest upsets in U.S. political history. The country’s major pollsters didn’t see it coming. At the same time, pollsters predicted Republicans would lose up to seven seats in the Senate, but they are on track to only net a loss of two seats.
[NOTE: The Senate contest in Louisiana will be decided December 10, 2016 in a runoff between the two top vote getters: Republican Joe Kennedy and Democrat Foster Campbell. Kennedy is heavily favored in the runoff.]

There is some precedent for this. In 2014, Senator Mark Warner (D-Va.) was widely expected to cruise to victory over Republican challenger Ed Gillespie, but Gillespie nearly won. Senator Joni Ernst (R-Ia.) was predicted to win narrowly but won by over eight points. Senator David Perdue (R-Ga.) was expected to go to a runoff, won outright.  

Nate Silver, with FiveThirtyEight, wrote shortly after the 2014 election that:

“[t]he polls did have a strong bias this year — but it was toward Democrats and not against them… The average Senate poll conducted in the final three weeks of this year’s campaign overestimated the Democrat’s performance by 4 percentage points. The average gubernatorial poll was nearly as bad, overestimating the Democrat’s performance by 3.4 points.”

3. MORE PRESSURE FOR ENTITLEMENT REFORM

There will be greater pressure on Congress to address entitlement programs as more and more baby boomers reach retirement age in the next Congress. The urgency to address entitlement programs is compounded by the finding that 25 percent of baby boomers have no retirement savings, according to a recent study by Insured Retirement Institute. A recent report from the Committee for a Responsible Federal Budget shows the looming benefit cuts will likely occur if Congress does nothing: 17 percent in 2017; 18 percent in 2021; 19 percent in 2025; 21 percent in 2029; and 23 percent in 2033.

4. A FOCUS ON REDISTRICTING

Redistricting will draw focus starting in the next Congress as President Obama plans to take up this issue after he leaves office. The Washington Post reported on October 17 that “[h]oping to regain lost ground in the states before elected officials there redraw congressional maps for the next decade, Democrats have launched a new group that will enlist the aid of President Obama as well as a slew of the party’s liberal allies. The National Democratic Redistricting Committee, which will be chaired by former attorney general Eric H. Holder Jr., will focus on key legislative and gubernatorial races, voter initiatives and legal fights.”

5. GROWING CONCERN OVER DEFICITS AND DEBT

Deficits and debt will regain focus in the next Congress as they are expected to continue to increase. For fiscal year 2016, the deficit was $587 billion, up from a deficit of $438 billion in 2015, according to the Treasury Department. That is a 34 percent increase in the deficit from 2015 to 2016. The Federal debt is nearing $20 trillion and expected to continue to climb. Under President Obama tenure, the debt almost doubled, from $10.3 trillion on January 20, 2009, to $19.7 trillion on October 14, 2016.

Kenneth J. (Ken) Kies is Managing Director of the Federal Policy Group, LLC. The Federal Policy Group provides sophisticated strategic and technical tax advice on tax policy matters before the Congress, the U.S. Treasury Department, the Internal Revenue Service, and the OECD.

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