US: A Purple Mid-Term Outcome

Published on October 31, 2014

With the US mid-term elections barely five days away, all the momentum and polling across the key battleground states are pointing to the Republican Party winning back control of the Senate and expanding its command in the House to one of the largest majorities in recent memory.

But as we have twice written in recent months (see SGH 9/3/14, “US: Significance of a Narrowed Senate Majority” and SGH 9/26/14, “US: Senate Races Tighten to Center”), a GOP majority in the Senate may not matter as much to the markets as how narrow that majority control is, or for that matter, if by some miracle the Democrats somehow manage to retain a thinnest of control, when it comes, in particular, to the crucial politics of fiscal policy.

*** The outcome of the mid-term elections, we think, will not testify to public support of GOP policies per se as much as it is likely to reveal just how “purple” the voting public is becoming – voting for neither Democratic blue or Republican red policies, but in protest and for those who promise to get things done. Voter expectations in 2016 will also shape the politics of the Senate for the next two years regardless of which party controls the chamber,  which we think will translate into bi-partisan “must pass” fiscal legislation and make bills favored by the Tea Party right less likely to pass, despite an expected strong showing from the GOP. ***

*** The new Senate’s ideological balance is likely to shift from the left to the center, and not just because the Republicans take majority control. A dozen or so Republicans will also be facing 2016 re-elections in purple or blue states, and they will need to prove — quickly in 2015 before yet another election year is upon them — they can be trusted to govern. Equally important, the Democratic mid-term losses are going to be mostly among the party’s more liberal wing. Those losses may even lead to a shake-up in the Democratic Senate leadership that could reinforce the more bi-partisan turn in the Senate next year. *** 

*** Democrats also face a loss of up to a dozen seats in the House, which would give the Republicans one of the largest House majorities in recent years. But what stands out in the likely GOP House gains is how many of them – as many as half the gains – could come in the deep blue states of the Northeast. These Republican freshmen will be highly likely to support returning House Speaker John Boehner in neutralizing the more extreme demands of the GOP Tea Party faction, clearing the way for House passage of Senate-crafted legislation on fiscal policy. ***

Color the GOP Gains Purple

Barring a substantial reversal in the trends indicated in the most recent state polling, everything is pointing to sizable Republican gains in both the Senate and House. Four of the most competitive races in Alaska, Arkansas, Louisiana, and Iowa that have been well telegraphed (see SGH 9/26/14, “US: Senate Races Tighten to Center”) are now all leaning Republican. Added to the all but certain Republican victories in formerly Democratic-held seats in West Virginia, South Dakota, and Montana, that could be enough to put the Republicans over the top.

Those gains could always be limited, however, or even small enough to keep the GOP just shy of Senate control, as the polls consistently miss the last minute emotion-driven voting or higher than expected turnout that has tended to favor the Democrats in the past.

The Democrats may still win one back from the GOP column in Georgia, while an Independent may oust another Republican in Kansas. And if the Democrats manage to hang on to Louisiana in a likely run-off election December 7, they could still manage to keep control of the Senate by a run-off win in Georgia on January 7.

But to our minds, the main takeaway from the mid-terms is not that whether the Republicans will regain control of the Senate and thus Capitol Hill, but the implications to be drawn from such close races when the math and President Barack Obama’s lackluster standing so strongly favored the Republicans in the first place.

To us, it reflects just how purple the voting public is becoming and what it portends for breaking the gridlock of the utterly dysfunctional Congress over the last few years.

The Democrats do seem to have more than a fighting chance in the South of all places, for instance, in part because even the deep red South is starting to turn purple. Democrat Michelle Nunn is running a solid campaign against her Republican opponent David Perdue to take the Senate seat being vacated by retiring Republican Saxby Chambliss, while in neighboring North Carolina, Democrat Kay Hagan stands a good chance in keeping her Senate seat against Republican challenger Thom Tillis.

Both, however, do need to get the African American bloc still loyal to President Obama to the voting booths to win, while at the same time maintaining their appeal to independent white voters less enamored of the President. But the fact that both races are already so close is telling, and the message being taken on board by Republican mainstream strategists is the need to widen the GOP tent and to bring policies back to the center.

In Iowa, an expected easy Democratic win by Rep. Bruce Braley to take the seat being vacated by the retiring Democratic liberal Tom Harkin has instead turned into a unexpectedly tight race, in part due to Braley’s inept campaign compared to his Republican challenger Jodi Ernst’s solid first-time run.

And in both Colorado and New Hampshire, Democrats Mark Udall and Jean Shaheen were also expected to easily win re-election but are now caught up in fierce battles. Colorado is said to be swinging to Republican challenger Cory Gardner, who has run a nearly flawless campaign, while the odds for an upset victory in the Granite State by Massachusetts transplant Scott Brown are lower. 

In Kansas, where Republican Senator Pat Roberts could lose to a surprisingly strong run by Independent Greg Orman, it may not necessarily put a plus in the Democratic column because Orman, hardly a Tea Party supporter, has vowed to caucus with whichever party is in the majority, which again, underscores the movement towards the political center.

House GOP Gains in New England

As bad as the Senate outcomes may be for the Democrats, the same grim foreboding seems to be building in the House races. Republicans already hold a 233-190 majority in the current House. Of the 30 most competitive House races, 23 are held by Democrats, and the Democratic Party has already been pouring money into previously safe liberal districts to stem even further losses in Hawaii, Nevada, and West Virginia.

Despite the national revulsion towards the Tea Party antics with the shutdown last year, all must be forgotten, if not forgiven, if the GOP picks up seats in the non-Tea Party states. And what makes the gains especially interesting is that more than half those Republican gains may come in deeply blue New England, where the Republicans currently do not hold a single seat, or in deep sea blue California and Minnesota. Republicans there take a very dim view of the right wing Tea Party agenda, and most endorse liberal views on social policy like gay marriage or even the minimum wage.

While the GOP is also likely to pick up further seats in the deeply red South, it is these more centrist freshmen Republicans who are likely to make the difference in the House Republican conference. When Speaker Boehner and the House Republican leadership seek to pass legislation in the next Congress, they should be able this time to craft more passable, albeit still conservative, legislation that can pass in the Senate, or in the case of “must-pass” legislation, for Boehner to go with “a majority of his majority” to pass Senate-amended bills with Democratic support that would effectively neutralize the core of the 20 to 30 Tea Party dissidents.

And we would be remiss if we didn’t briefly note the same purple-toned outcomes to the elections next Tuesday extends to the gubernatorial races. Republicans have a good chance of replacing Democratic governors in Massachusetts and Connecticut, while the arch Tea-Party governor of Kansas, Sam Brownback, is facing a voter backlash against his extreme tax cuts that has left the state deep in a deficit hole with little to show in jobs or growth and is now fighting for his survival against Democrat Paul Davis. Two other Republican governors are facing tough re-elections in Wisconsin and Michigan.

A Centrist-dominated Senate

Much of the media speculation for Congress next year is a continuation of the dysfunctional gridlock of the last two years. That may appear to be the case in the first few months of the 114th Congress, as the ideological battles between the two parties or especially within the GOP are hardly over. Each party will still need to differentiate with the 2016 elections on the horizon.

But we think a key ideological shift in the Senate’s political balance from the left of center to the center is being overlooked. If the Republicans do win six or more turnover seats as expected, that will be definition move the Senate to the right. But as importantly, the centerpoint of the Senate Democrats will also be shifting to the middle in that most of their likely mid-term losses, as many as seven seats, will be among the more liberal wing of the party.

Among the shifts from liberal to centrist or even conservative are West Virginia’s very liberal Democratic Senator Jay Rockefeller, who is stepping down and who is going to be succeeded by Republican Shelley Moore Capito; South Dakota’s Tim Johnson has also stepped down, with his seat all but certain to go to Republican Mike Rounds, and the seat formerly held by Montana’s Democrat Max Baucus is going to go to Republican Steve Daines. Likewise, the Iowa seat held by long serving  liberal Tom Harkin may go to Republican newcomer Ernst over liberal Braley (his own Congressional seat is likely to go Republican), and Colorado’s Democrat Udall may lose his seat to Republican centrist Gardner.

On the other hand, the Georgia seat being vacated by the Republican conservative Chambliss may go to Democratic moderate Nunn, and Kansas Republican Roberts may lose his seat to Independent Orman. What links each turnover or possible turnover is both a shift in the Senate’s liberal ideological balance to center and the shift in the state voting to a purpler than blue or red outcome.

Ernst in Iowa, for instance, if she does win, is hardly Tea Party red, and is far more likely to align with conservative centrist Republicans like Ohio’s Rob Portman or Pennsylvania’s Pat Toomey than she is Tea Party stalwarts like Texas Senator Ted Cruz or Utah’s Mike Lee. Democrat Nunn in Georgia, if she wins, will rank among the dozen or so Democratic centrists who we expect to be among next year’s pragmatic dealmakers.

It is also worth noting that if the Republicans do indeed win majority control of the Senate the legislative agenda for the 114th Congress has been turned over to Ohio’s Portman, who drafted what is an effectively an “offering bid” to Democrats of target legislation that is chocked full of proposed bills that carry a high bi-partisan appeal — and he managed to get all 45 GOP Senators to sign on.

Portman said his agenda will “help President Obama have a productive final two years as president,” hardly fighting words. Portman’s agenda includes: passing the Keystone XL pipeline, giving President Obama trade promotion authority, easing federal regulations and reforming the tax code.

Republican Tea Party Senators like Cruz and Lee will make their pitch at extreme agendas including yet another go at repealing the entire Obamacare rather than the fixes here and there being proposed by the Republican leadership, and the early months next year are all but certain to be captured by headlines of renewed ideological warfare.

But we are still quite confident that after the initial firefights, mostly among Republicans, the more pragmatic centrist Senators among both parties will begin to dominate the legislative agenda.

Among the Republicans who are likely to lead the way on these and other bills likely to draw strong bi-partisan support are Ohio’s Portman, Pennsylvania’s Toomey, Tennessee’s Bob Corker and Lamar Alexander, Missouri’s Roy Blunt, and New Hampshire’s Kelly Ayotte; among the Democratic centrists certain to show the bi-partisan colors are Virginia’s Mark Warner, Missouri’s Claire McCaskill, West Virginia’s Joe Manchin, and Delaware’s Chris Coons and Tom Carper.

Potentially adding to the list would be Georgia’s Nunn or Colorado’s Gardner if they do indeed win, as well as Independent Orman from Kansas, if he wins, who promises to join Maine’s Independent Angus King in either caucusing with the majority or voting with the majority by issue. In the same way, the UK’s Liberal Democrats or Germany’s Free Democrats drew their power despite their small size by playing the power broker role, these independents may come to play the swing roles in the Senate, which would tend to steer legislation to the center. 

Again, the key to unlocking the likelihood of a more can-do Senate next year is not which party will command majority control, but why incumbents lost and how that will shape the 2016 outcomes. And in turn, the most likely center aisle crossovers will lead and pass the “must-pass” legislation most important to the markets, including a bill to increase the federal debt ceiling, and an increase in discretionary spending in the 2016 fiscal year budget by chipping away at the sequester.

Run-off Elections, Senate Leadership

Complicating a quick take on the elections next Tuesday is the strong likelihood of run-off elections in Louisiana and Georgia, where no candidate is likely to win a required 50% of the vote. Louisiana would hold its run-off election on December 7 between Democratic incumbent Mary Landrieu and probably GOP challenger Bill Cassidy.

And the size or shape of Senate majority control could still not be clear until January 7, when Georgia would hold a run-off election between Democrat Nunn and Republican Perdue. The possibility that three or more of the 2014 Senate contests could be tied up in litigation over close calls, recalls and allegations of voter fraud also cannot be ruled out.

Besides the uncertainty of which party will actually end up controlling the Senate, it would wreak havoc on the December lame duck session, not to mention doling out Committee chairs and the other perks of majority control. It would also make the leadership contests especially tricky.

And on that front, while receiving scant media attention to date, there are distinct rumblings across the Democratic caucus that Nevada Senator Harry Reid’s grip on the Senate Democratic leadership will be sorely tested if the Democrats do lose the Senate.

In particular, it will be especially hard for Reid to avoid the blame if the Democrats lose two or even three of the mostly closely competitive races in Alaska, Arkansas, and Louisiana. His “goalie strategy” over the last two years (see SGH 9/3/14, “US: Significance of a Narrowed Senate Majority”) of blocking any difficult votes was meant to protect vulnerable Democratic Senators from embarrassing votes, assuming of course that they would want to stay loyal to the party line.

But that strategy may prove to have backfired if the Democrats lose those seats, because it also prevented Louisiana’s Landrieu, Mark Pryor in Arkansas, and Mark Begich in Alaska from showing their independence from the hugely unpopular President Obama in those Red states.

Reid is, for now, vowing he will stay as Minority or Majority Leader and is thus blunting speculation he would offer to step down on the loss of the Senate, for which there is a precedent.

When the Democrats lost the House in the 2010 midterms, then House Majority Leader Nancy Pelosi offered to resign, but her colleagues prevailed on her to stay. The reason was the majority liberal wing of the House caucus did not want the leadership passing on to the Whip Steny Hoyer of Maryland, who has a reputation as a dealmaker willing to reach across the aisle, and who often worked with Republican John Boehner, now House Speaker.

The opposite may occur in the Senate. No Democrat has stepped forward in front of the elections to suggest they would make a run to challenge Reid in the Senate leadership elections, which usually take place in early December. But that could change later next month.

The most likely challenge and where most of the early speculation is pointing is to New York Senator Chuck Schumer, who currently holds the number three position in the caucus leadership as Policy Committee Chairman and Vice Chairman of Senate Democratic Caucus. Schumer has the ambition, and certainly has the ability to lead the Democratic Senate caucus.

Schumer would be likely to wield enough clout to block issues offensive to what may be a Democratic minority if the Republican majority leadership opens the chamber to debate on amendments and minority party bills. And despite his very liberal credentials, he is respected by many Republicans and has a knack for dealmaking, the very sort of political skill we suspect will be a premium over the next two years.

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