Now that President Barack Obama has secured another four years in the Oval Office, and Congress has retained its basic power structure, what will be different? And what do the results tell us about the political landscape going forward?
Short-term uncertainty remains, while medium term certainty prevails.
The Demographic Wave
It’s now undeniable: The makeup of the electorate is changing. Mitt Romney won a greater share of the white vote than any presidential candidate since Ronald Reagan’s landslide victory in 1984, but he lost the race as a record number of Hispanic voters pulled the lever.
As SFGate.com points out, the number of nonwhite voters has tripled over the past 40 years, with this bloc making up an estimated 28% of voters Tuesday. The GOP’s reliance on white men (women broke for Obama 55-44) might have cost Romney the White House.
But Republicans can’t simply court these growing voting pools without rethinking some of its fundamental policies. Hispanics don’t support Democrats simply on the immigration issue alone — and the idea that the GOP can woo these voters by dangling the immigration carrot in front of them is myopic. Healthcare, social welfare programs, education — these issues are vitally important to nonwhite voters, and the GOP will be wise to rethink its policies in these areas. Expect the coming debate about the future of the Republican Party to be a bitter one.
The Fiscal Cliff: Uncertainty Ahead
Ever since the Republicans swept the House in 2010 in a wave of anti-government, anti-spending, anti-Obamacare sentiment, there has been a showdown between House Speaker John Boehner and President Obama about how to deal with the ballooning debt and deficit. The GOP refused to consider raising taxes at all, and the Democrats refused to consider entitlement reform without raising taxes. This dance resulted in the debt ceiling standoff in the summer of 2011 and the consequent downgrade of America’s debt.
In response, Congress created the so-called supercommittee that was charged with finding a compromise between the parties that would cut trillions from the deficit. The supercommittee famously failed at its task and triggered automatic spending cuts that will begin to take effect on Jan. 1. These cuts will coincide with an expiration of the Bush tax cuts, the payroll tax cut and much of the other stimulus the economy has relied on for three years.
Conventional wisdom suggests that now that the election is behind us, Congress will begin to work more seriously with Obama in forging a compromise on taxes and spending. But the basic power structure of the House and Senate remains the same. Republicans are in charge of the House, Democrats in charge of the Senate. While Obama won a decisive victory in the Electoral College, he only barely won the popular vote. If anything, the election simply confirmed deep divisions in this country. The only cause for optimism in this scenario is that Obama is not running for re-election and should have the flexibility that accompanies a second-term president.
Markets generally and corporations more specifically crave certainty in their tax and regulatory burdens. President Obama and his congressional colleagues have a big job to accomplish in just two months. Boehner claimed just yesterday that he and his party will not under any circumstances raise taxes on the wealthiest Americans. Obama claims just as fervently that he will not proceed with any tax reform unless it demands more of top earners. If nothing is done before the end of the year, everyone’s taxes will go up significantly … and the economy will tip back into recession.
The Republican Party has spent almost four years fighting Obama on healthcare reform. The president passed his signature piece of legislation without Republican support and then spent two years defending the Affordable Care Act both publicly and in the courts. In fact, every single one of the GOP primary candidates promised to repeal Obamacare if elected.
When the Supreme Court upheld the controversial law this summer, Mitt Romney doubled down on his vow to repeal Obamacare on his first day in office. Romney argued that the added taxes and regulations produced by the legislation were preventing businesses from hiring.
So, with Obama at the helm for another four years, we are assured that Obamacare will be fully implemented in 2014. Regardless of their feelings or opinions about the efficacy or wisdom of the legislation, businesses will have to prepare for its inevitability. There are no more elections or court decisions that might overturn it.
While health insurance companies expect to profit as a consequence of the new customers Obamacare will mandate, other sectors will not fare so well. As we’ve noted before, the businesses that stand to lose the most in the implementation of Obamacare are those that have large numbers of hourly employees — particularly restaurants. Indeed, as recently as last month, the Darden Restaurant (NYSE:DRI) group began to move many of its full-time staff to part time, in order to sidestep the Obamacare requirement that all full-time employees be provided health insurance.
In a similar vein, financial reform will continue its inevitable march forward. Mitt Romney and his GOP challengers had all promised to repeal the Dodd-Frank legislation immediately upon assuming office. Wall Street threw its support behind the Romney campaign in large part because the finance sector expected a Republican administration to roll back much of the regulation that they considered onerous.
Now, with no hope of a repeal, the finance community can plan for the full implementation of Dodd-Frank. While the legislation provides a basic framework for financial reform, it leaves much of the details and rule-writing to the bureaucracy. Many of the specific rules have not yet been written. The big banks that worked hard and dug deep to elect Romney will now have a chance to work with the SEC, CFTC and the like to participate in the rule-writing and detailing of Dodd-Frank.
Last night’s results provide a framework for legislation and reform that — like it or not — businesses will have to implement. That clarity should help companies look forward and plan for the future. That’s good. Less certain is the near-term effect of the fiscal cliff. There’s still much work to be done, and an intransigent Congress charged with doing it. We’ll have to wait and see whether Obama’s re-election is the catalyst needed to spur cooperation on this pivotal issue.
The opinions contained in this column are solely those of the writer.
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