2022’s midterm elections already are pressuring Democrats, as Wall Street ‘might be praying for Republican gains’


As Democrats in Washington work to deliver on infrastructure spending and other priorities, they’re trying to make progress in large part because of a key event that’s still more than a year away.

That event is the midterm elections on Nov. 8, 2022, when Republicans will aim to take back control of the House and Senate and become a more powerful check on the priorities of President Joe Biden and his fellow Democrats.

“What leaders are thinking about, particularly since we have unified party control, is that these midterm elections are inevitably a referendum on the governing party,” said Sarah Binder, a senior fellow in governance studies at the Brookings Institution and a professor of political science at George Washington University in Washington, D.C.

“In that sense, shrinking time coupled with ‘What is it that Democrats want to run on?’ — it adds pressure on Democrats to get their priorities through the door.”

Time is growing short, Binder said, because party leaders often avoid making their members vote on tough issues in the same calendar year as an election, since that can hurt incumbents in tight races. “Party leaders often think primarily about what they can get done in the first year of a Congress, as opposed to counting on the second year,” she said.

New Child Tax Credit payments — which start July 15, and which many Democrats are working to make permanent — are the type of thing that will play a big role in 2022 campaigns, according to Ed Mills, a Washington policy analyst and managing director at Raymond James.

“Democrats want to show what they stand for and have very tangible things for voters to see from the Biden administration and an all-Democratic D.C.,” Mills said. “So I think that that’s going to be a bigger push on infrastructure
PAVE,
-0.39%
and especially the extension of the Child Tax Credit.”

“Democrats will certainly run on a message of ‘If Republicans get control, they would stop the Child Tax Credit,’” he added, noting that campaigning on direct payments to Americans helped Georgia go blue this past January, when the Peach State held its two crucial Senate runoff elections.

Read more: Monthly payments of up to $300 per child are starting for most families — and could keep coming for years

And see: Democrats’ big foe in pushing Biden’s agenda is the calendar

Republicans currently have a 69% chance of seizing control of the House, according to betting market PredictIt. The fight over the 50-50 Senate looks much tighter, with PredictIt giving a slight edge to Democrats, who only control the split chamber because Vice President Kamala Harris can cast tiebreaking votes.

Sectors that could win or lose

Wall Street
XLF,
-0.33%
looks like a potential winner if Democrats fail to keep their grip on the House or Senate, while renewable energy
ICLN,
+0.66%
and health care
XLV,
+0.15%
might be losers, according to analysts.

Meanwhile, Big Tech
QQQ,
+0.35%
may not see much change in its Washington prospects with any outcome.

Wall Street’s interest in next year’s midterm elections arises from Biden’s proposed hike for taxes on capital gains, said Stephen Farnsworth, a professor of political science at the University of Mary Washington in Virginia.

“The idea that the income tax rate is higher than the capital-gains tax rate is one of the issues that’s really motivating the Democratic left right now — to try and narrow that gap, if not eliminate it. And so the financial sector might be praying for Republican gains,” Farnsworth said.

Finance also looks like a possible winner to Larry Jacobs, director of the University of Minnesota’s Center for the Study of Politics and Governance. And he sees renewable energy and health care getting hit if Republicans take back one chamber or two, as he notes that health insurers and drug makers
PJP,
-0.56%
lately have benefited from Democratic policies. But Jacobs doesn’t see an impact for tech giants.

“At this point, it looks like there’s bipartisan support for really cracking down on Big Tech, and I think after Facebook
FB,
-1.13%
banned Trump, you’re going find plenty of Republicans to sign on to something,” Jacobs said.

Binder, the Brookings and GW expert, said she also doesn’t see much change for tech companies, as she’s downbeat overall on what Congress can do to Silicon Valley, even as some House Democrats have partnered with some Republicans in an effort to rein in Amazon.com Inc.
AMZN,
+0.08%

“I don’t know that that actually succeeds regardless of who controls Congress,” she said.

Related: Tech giants mount defense against House antitrust bills

Individual sectors and the broad market won’t necessarily benefit from Republican control of the House or Senate while Biden is president, according to Mills, the Raymond James analyst.

“The general view is if Congress switches over, the most regulated sectors might get relief. However, if Congress does switch, all of the activity moves to regulation, and so we would see — at least for the last two years of Biden’s term — much more aggressive actions as it relates to bank regulation, energy regulation, health-care regulation, antitrust regulation,” he said.

“So in some ways, a change in party control of Congress could actually add to the D.C. concern of the market, rather than alleviate that concern, especially if that is accompanied with less spending that could occur under a divided government. The market has been up quite a bit in this last year due to strong fiscal spend and a focus on what can be done legislatively vs. a lot of focus on regulatory action.”

The S&P 500
SPX,
+0.05%
has gained 14% so far this year, and the stock index is up 41% over the past 12 months.

History suggests a Republican edge in 2022

“If we look at the historical record, midterm elections favor the party out of power. Those are the most angry voters, and most likely to turn out,” said Farnsworth, the Mary Washington professor.

Since the time of Franklin D. Roosevelt, presidents for the most part have seen their side lose seats in the House and Senate during midterm elections, as shown in the table below, which is based on data from the American Presidency Project at the University of California, Santa Barbara.

Significant exceptions to this trend came in 2002 for George W. Bush, 1998 for Bill Clinton and 1934 for FDR.

Donald Trump saw the Republicans lose 40 House seats in 2018’s midterms, though the GOP did pick up two Senate seats.

Congressional seats gained or lost by a president’s party in midterms

Year

President

President’s
party

Change in House seats

Change in Senate seats

1934

Franklin D. Roosevelt

D

+9

+9

1938

Franklin D. Roosevelt

D

-81

-7

1942

Franklin D. Roosevelt

D

-46

-9

1946

Harry Truman

D

-45

-12

1950

Harry Truman

D

-29

-6

1954

Dwight Eisenhower

R

-18

-1

1958

Dwight Eisenhower

R

-48

-13

1962

John F. Kennedy

D

-4

+3

1966

Lyndon B. Johnson

D

-47

-4

1970

Richard Nixon

R

-12

+2

1974

Gerald Ford

R

-48

-5

1978

Jimmy Carter

D

-15

-3

1982

Ronald Reagan

R

-26

+1

1986

Ronald Reagan

R

-5

-8

1990

George H.W. Bush

R

-8

-1

1994

Bill Clinton

D

-52

-8

1998

Bill Clinton

D

+5

2002

George W. Bush

R

+8

+2

2006

George W. Bush

R

-30

-6

2010

Barack Obama

D

-63

-6

2014

Barack Obama

D

-13

-9

2018

Donald Trump

R

-40

+2

Source: American Presidency Project, UC Santa Barbara

“There’s some folks saying, ‘Well, there’s going to be a positive-news boost for Democrats,’” said the University of Minnesota’s Jacobs, referring to the good vibes around the U.S. economic recovery from the COVID-19 pandemic.

“Maybe that’s true, but we haven’t really seen that kind of thing before,” he added. “And then you throw in the fact that Republicans are going to have a shot at gerrymandering some seats for the House races. In the very, very close battles, that could be the difference.”

Races worth watching

Individual 2022 races that could be telling include two in Virginia where Rep. Elaine Luria and Rep. Abigail Spanberger will be seeking re-election, according to Farnsworth.

“Both of those districts, historically, had been represented by Republicans, but the Democrats won them during the Trump era,” he said. “Some of the Republican suburban voters might go back to the Republican Party post-Trump.”

A Senate race in New Hampshire also looks worth watching, Farnsworth said, as Republican Gov. Chris Sununu is being recruited by the GOP for the contest and could “immediately create the best opportunity for Republicans to flip a Democratic-held Senate seat.”

Binder said she’s keeping an eye on “at risk” Democratic lawmakers who represent districts that Trump won in 2020, such as Rep. Elissa Slotkin in Michigan, Rep. Ron Kind in Wisconsin, Rep. Jared Golden in Maine, Rep. Andy Kim in New Jersey and Rep. Cindy Axne in Iowa.

“So part of the outcome here for Democrats — holding on to their majority, let alone trying to enlarge it — is can they localize these elections? Do these individual members have enough to run on?” she said. “Can they break through this very partisan environment in which politics seems to exist today?”

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