The election certainly surprised many with Democrats retaining control of the Senate, while Republicans squeaked over the line to take control of the House with a small majority.
Per my earlier update below, this does change the calculus of what may happen in the next two years as both parties look to the future and want to show what they can, or at least tried to, for the American people.
Tolerance for election conspiracy theories, undermining democracy and playing the hate game won’t likely be a winning platform in 2024.
If Republicans want to win the House they will need to show moderation and a clear economic plan. Democrats, who will likely be dealing with recession in 2023, will need to justify why they can right the ship and reduce the general feeling of economic inequality many Americans are feeing.
Either way, from a fiscal policy I expect both parties to act in a few areas. This includes:
Another stimulus check?
Unlikely with inflation where it is neither party wants to stoke if further by pumping billions more into the economy. However there may be more support for targeted inflation relief programs and a push for states to do more with remaining COVID funds.
Tax breaks and credit
I expect that the child tax credit may be expanded again in 2023, particularly if an economic slowdown, given this credit has bipartisan support and is good politics as undernourished or homeless kids do not play well in any demographic.
I also expect that any further tax cuts or increases will NOT take place – corporate or personal – since Republicans won’t support such measure. So increases to the Corporate tax rate or higher taxes for the wealthiest Americans will go on the back-burner.
Even the IRS cuts discussed in my pre-election update below may be hard for a Republican controlled Congress to pass without Senate or bipartisan support.
Social Security benefits
While there was some fear that SSI benefits would be reduced if the Republicans took control of Congress (based on some public comments), this will no longer be happening in a divided Congress.
With unemployment at historically low levels, it is unlikely that any major federal unemployment support program will be passed in the next few years.
But the good new is that states were able to upgrade their antiquated UI systems and processes using pandemic unemployment funds, so those who do lose their jobs in the next few years should get faster access to their state’s maximum unemployment benefits.
Whether this gets bipartisan support will depend on many factors over the next two years which I will closely follow and you can join our free newsletter below to get the latest updates.
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Midterms and Your Money – What Happens to Stocks, Stimulus and Taxes in 2023 and 2024 if Republicans or Democrats Win in Congress
[Pre-Election Update] No matter what your political disposition or general indifference, the upcoming midterm elections will impact your household finances in some way.
Even if you don’t live in the battleground states of Pennsylvania, Gregoria, Ohio or Wisconsin, the results of House and Senate elections will have far reaching impacts.
If the Democrats retain the House and Senate, it will reinforce their agenda to boost social spending, double down on climate change prevention initiatives and potentially raise taxes on higher income groups.
On the other hand, if the Republicans win enough seats to take control of the House and/or Senate (divided government), we may see a period of fiscal and policy inaction over the next two years as Congress gets nothing done given the wide and adversarial differences between the two parties.
But lets see how this affects key parts of the average American’s financial puzzle in months and years ahead.
The Democrats have a 5 seat majority in the House of Representatives and the Senate is split 50/50, with the Vice President holding the deciding vote.
In the upcoming midterms, 35 Senate seats are up for election, 21 currently held by Republicans and 14 held by Democrats. All 435 House seats are up for election.
The Democrats hold a razor-thin majority in Congress and despite passing some significant legislation, history and the deteriorating economy is not on their side following major redistricting in battleground states
More Stimulus Checks or Free Government Money (Handouts)
One of the most searched for topics on the web and this site has been around the theme, “Will there be another (or 4th) stimulus check?”
This is reflection of all the free money (stimulus) handed out by the Government over the last few years to prevent the economy going into a depression following pandemic shutdowns. It includes all the pandemic unemployment programs, economic impact payments (EIP) and expanded child tax credits (CTC).
Depending on your political and financial disposition, you may argue this was unnecessary or went too far with one to many economic stimulus packages, but the sad fact is that the general public got used to these handouts and at an individual level, everyone likes free month. Macro economic impact (high inflation) be damned!
Prediction: If the Republicans win the House or Senate, then it is unlikely any new major economic spending package will be passed. They may agree to small bi-partisan spending programs to get legislation they want or if the economic slowdown is worse than expected (and adversly impacts their constituents)
If Democrats retain the House and Senate, it is highly unlikely a massive stimulus program will be passed due to the high levels of inflation and in-party differences, but I expect that the Child Tax Credit expansion will be funded, the Student Loan Forgiveness program formally gets passed in Congress (versus executive order) and limited tax credits are provided for lower income households (e.g. larger EITC payment) hit hardest by inflation.
Taxes are a thorny topic at the best of times. In the current climate of extreme political adversity and differences, this will a more touchy subject. Given that taxes fund 96% of the government, tax policy and the agency which enforces this (IRS) will both come into focus.
Prediction: If the Republicans win the House or Senate, then it is unlikely any major tax policy changes will be passed. In fact, there may be a push by Republicans to reduce the extra spending for agencies like the IRS.
If Democrats retain the House and Senate, there will likely be a continued push to reform Corporate tax structures and raise taxes for those Americans earning more than $400,000.
Generally speaking, stock markets tend to stay pretty flat during a mid-term election years per the graphic below. But given the fears of a full blown recession in 2023, the markets are down double digits.
Prediction: If the Republicans win the House or Senate, the stock market will likely have a significant Christmas rally as Washington’s grid lock will likely mean no major new regulations, tax code changes or corporate actions in the coming years.
Historically data has show that divided government does not hurt the economy or markets.
If the Democrats win, the market should still rise a little due to the removal of uncertainty, but rises will be more muted and fizzle out in the new year as the economic conditions come more into focus.
However in either scenario, we will likely see flat stock market returns in the medium-term as the global economy slows, geopolitical risks persist and consumer spending falls in the face of higher inflation and interest rates.
Despite all the political rhetoric, gas prices are based on global oil prices and in the short term (less than 2 years) there is not much either party can do to change gas prices at the pump.
Prediction: No Impact.
Irrespective of which party controls Congress, gas prices will likely follow the same trajectory and be driven by overall economic conditions, global demand/supply and geopolitical factors.
Both parties will blame each other for volatile gas prices, but unless we put in longer term investments to drive self-sufficiency, detach from global markets or boost adoption of alternative energy options (e.g. EV cars), political rhetoric won’t change gas prices in the next couple or years.
4 thoughts on “More Stimulus, Tax Credits or Breaks in 2023-2024 With Divided Congress?”
“Despite all the political rhetoric, Gas prices are based on global oil prices and in the short term (less than 2 years) there is not much either party can do to change gas prices. ”
Yeah, that is NOT true.
The policies of Biden has curbed oil production in the US, which has made the US more dependent on foreign oil. Prior, with Trump, he pushed policies which made the US the most oil producing nation in the world. Which means foreign oil from a global market was not needed, thus we has lower fuel prices.
The US is already self sufficient! But gas prices are still driven by global prices. The way the system is setup and regulations (at state and federal level) make gas prices at the pump subject to non-political factors.
I agree longer term, the government can and should make structural/policy changes, but don’t see either party willing to focus on this as too long term and nuanced to drive mid-term election votes. Maybe more of a factor at the next President election cycle.
That is NOT True Andy. Biden, once in office did the following:
January 20, 2021: One of Biden’s first actions was to revoke approval for the Keystone XL pipeline and impose a moratorium on oil and gas leasing on federal lands and waters.
February 26, 2021: Biden updates the “social cost of greenhouse gas emissions,” dramatically altering the way the U.S. government calculates the real-world costs of climate change. The move could reshape a range of consequences, from whether to allow new fossil fuel leasing on federal lands and waters to what sort of steel is used in taxpayer-funded infrastructure projects.
August 11, 2021: Biden calls on OPEC+ producers to increase supply to help curb rising oil prices, even though the U.S. is one of the three largest producers in the world and can deliver supply with a lower carbon footprint than most unregulated national oil companies in the cartel. He would do this several times in the months that followed, including after Russia’s February 24, 2022 invasion of Ukraine.
With Trump policies. oil production surged to a record level of 13+ million barrels a day. The US is now down in the 11 million range. Recall Biden campaigned on destroying the oil industry! “I guarantee you we are going to end fossil fuel.” — New Castle, N.H. on 9/6/19
The US doesn’t use one drop of oil from the Keystone pipeline. Please state truth, not trump lies.