What the Election Results Mean for You -- and Your Pocketbook

GOP gains in Tuesday’s congressional elections will bring big change. Or will they?

Voters sent Democrats a blunt message (opens in new tab) of repudiation Tuesday night, making it clear that they’re disappointed with the party that’s been running Washington for the past two years. Americans are angry and worried about big government, big deficits and big unemployment -- and the government’s inability to address those issues.

But what kind of change can Republicans bring? On the No. 1 issue of spurring economic growth (opens in new tab) and creating jobs, the answer is “Not much.” Further fiscal stimulus is out of the question, a nonstarter because of deficit concerns. So, too, are big new tax cuts. And the most important element -- restoring consumer and business confidence -- has never been an arrow in Congress’ quiver. The best that lawmakers can do is avoid making things worse and hope that conditions improve before they have to face voters again.

Beyond that, what exactly will this election mean for you? Here’s a rundown.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of Kiplinger’s expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of Kiplinger’s expert advice - straight to your e-mail.

Sign up

•An extension of the Bush tax cuts (opens in new tab) -- a temporary one lasting a year or two -- keeping marginal rates at current levels. Another fix for the alternative minimum tax is certain. A compromise on the estate tax seems likely -- one of the few moves to the middle that stands a better chance than before. The Obama tax cuts (included in the 2009 stimulus), which gave most Americans more money, may be allowed to expire in January as planned. That would mean a tax hike.

•Lower government spending, but the cuts won’t put much of a crimp in the overall national debt. Democratic plans to spend more on education, railroads, highways, green tech, job retraining and more will be stopped cold or reversed. Safety net programs -- unemployment, Medicaid and the like -- will get less money, though no gutting is likely.

•No repeal of the health law. Republicans will make a big push for repeal, as promised, but they won’t get anywhere. More likely to succeed are attempts to rein in regulators by balking at funding for parts of the law. But Democrats will still have enough votes -- and a White House veto -- to keep the changes to a minimum. Rather than assume the law will go away or be gutted, it’ll make more sense for employers and individuals to figure out how to adapt to it.

•More, not fewer, business regulations. Companies worked hard to get a GOP House, hoping to stop the Obama administration’s aggressive approach to federal regulation, but business interests may not be happy with the result. Odds are the White House will try to do an end run around a Congress that won’t pass the legislation it wants. Plus the constant fighting spells increased uncertainty for businesses, making long-term planning difficult.

•Little for labor. As big losers in the election, unions face certain disappointment. For example, no card check legislation is likely, not even a watered-down compromise. The National Labor Relations Board and the Labor Department will push some regulatory and legal changes that would help unions and improve worker safety, but every move will be hard fought, and compromises may be necessary.

•No climate change legislation. Congressional action will be impossible, but the Environmental Protection Agency will push ahead with rules. The GOP will try to stall, with better results than on health care -- but not much better.

•Minimal policy changes in banking or housing. Republicans will give lip service to repealing this year’s regulatory bill, but they won’t mount a serious try. They may delay the confirmations of key administration officials and otherwise try to slow implementation, with minimal results. More likely: A successful push to overhaul Fannie Mae and Freddie Mac, which could have big implications for housing markets.

•No significant changes to Social Security or Medicare. The president’s debt commission will likely put entitlement reform on the agenda for the next Congress, but an agreement is very unlikely before the 2012 presidential elections.

•At least a temporary boost for stock markets. Markets typically rise after midterm elections, but if gridlock persists, that will start to weigh them down. (opens in new tab)

The bottom line: Less change than voters may have thought they were getting, in part because Americans aren’t sure what policies they support and in part because Republicans will be less able to deliver anyway. President Obama won’t be able to muscle through sizeable initiatives, but neither will Republicans. Both parties only have enough power to say no. Voters who want a government that sits on the sidelines more often will be pleased. Those who want the two parties to stop bickering and work together on the country’s big problems will be disappointed.

And remember, the campaign for 2012 begins in earnest now. That will drive the decisions that politicians make over the next two years.

Mark Willen
Senior Political Editor, The Kiplinger Letter