One major factor that has changed since the Democrats emerged from their summer slump is the narrowing of the enthusiasm gap—one of our major indicators when assessing election outcomes. The “blue wall” supporting Biden in the states of Michigan, Pennsylvania, and Wisconsin was collapsing but, we believe Harris’ VP pick of Governor Tim Walz of Minnesota is centered on repairing cracks in those states and in the Midwest. Meanwhile, Trump hasn’t done much to expand his base since the convention, but his choice of Sen. JD Vance (R-OH) could help in neighboring Pennsylvania and Michigan. With the die now cast with Harris’ VP pick finalized, the Trump-Vance vs. Harris-Walz race is set, and we believe the Democrats are the ever-so-slight underdogs going into the Chicago convention.
Race for the House
While Democrats are breathing a sigh of relief concerning the presidential election, they still have to contend with the congressional race. Coming out of their convention, Republicans were poised to expand not only the Electoral College map but the congressional map as well—jeopardizing any hope of the Democrats taking back the House. Now that the enthusiasm gap has narrowed, we’re still looking at approximately 35-40 (out of 435) seats in play with Republicans having to defend more seats in congressional districts where Biden won in 2020. A sizable number of those seats reside in the blue states of California, New York, and New Jersey. We’re currently giving a slight edge to the Democrats here.
Race for the Senate
At this stage of election season, we don’t foresee a “wave” election coming, and our prediction for the Senate holds firm. Republicans have a clear advantage in gaining at least one seat with the potential to capture up to three more and, thus, regain control of the Senate. One subtle change in our view is, if Democrats nationally are able to maintain momentum, there’s a possibility the Senate ends up 50-50 and, in this case, the newly elected Vice President would determine who controls the chamber.
Looking Ahead at Tax Policy
As the 2025 tax debate looms large, we’ve watched key players in tax policy outlining the compromises they’re willing to make while maintaining their posture when it boils down to their priorities. The dealmaking started more than six months ago with the unexpected compromise of the Wyden-Smith tax deal hatched during an election year, followed by its overwhelming bipartisan approval (357-70) in the House. Then it went off the rails.
The leading Republican on the Senate Finance Committee, Sen. Mike Crapo (R-ID), openly expressed his disapproval of the deal from the onset and, in turn, convinced most of his Senate Republican cohort to side with him until the bill’s demise in the Senate on August 1.
Throughout negotiations on both sides of the Capitol, the focus was on parity between the expansion of the child tax credit and business tax incentives while aiming to offset the $78 billion price tag. Based on the challenges faced by the failed Wyden-Smith bill in the Senate, a potentially divided government could lead to a prolonged and contentious standoff in 2025 when the 2017 Tax Cuts and Jobs Act expires.
In the event of a Republican sweep this November, we predict they will move quickly in 2025 to start the debate and use the reconciliation process in the Senate to help pave the way to passage.
Congressional Budget Impasse
Once again, Congress is facing challenges in passing the annual federal budget on time. After the fiscal year (FY) 2024 budget faced numerous delays and the use of several continuing resolutions to avoid a government shutdown, Speaker of the House Mike Johnson (R-LA) announced his intentions to pass the FY 2025 budget before the August recess. Unfortunately, this didn’t pan out as disagreements among Republican lawmakers regarding costs and language on reproductive rights led to the cancellation of votes on several funding bills.
Despite five bills passing the Republican-controlled House, they haven’t been brought up for votes in the Democrat-controlled Senate. While the Senate has advanced a majority of the funding bills through committee, not a single one has reached the Senate floor.
The impasse extends beyond the budget, with several other important bipartisan issues awaiting resolution: securing a border fix, enacting a Farm Bill, establishing the 21st Century Rail Safety Act, and passing the Social Security Fairness Act.
Congress reconvenes on September 8 and, if a federal budget isn’t passed by September 30, a continuing resolution will be necessary to prevent a shutdown. The probability of an extension is becoming increasingly likely and will last until after the election—which may bring about a shift in the balance of power in Washington on both ends of Pennsylvania Avenue.
