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Voters send centrist message to Washington

Lots of opportunities for deal-making in 117th Congres

Divided government appears likely next Congress, but lawmakers owe it to voters to seek common ground on a host of issues, Cohn writes.
Divided government appears likely next Congress, but lawmakers owe it to voters to seek common ground on a host of issues, Cohn writes. (Bill Clark/CQ Roll Call file photo)

ANALYSIS — The “blue wave” prognosticators saw coming broke a mile from shore as voters rendered a split decision. The numbers so far tell the story: Joe Biden won the presidency in a nail-biter, with thinner majorities for House Democrats and Senate Republicans.

Two GOP Senate seats in Georgia are likely up for grabs in Jan. 5 runoffs. Dead heats in both races probably make it coin toss territory. Republicans need to win just one; losing both would tip the Senate to the Democrats. The odds of winning two coin flips in a row are never greater than 25 percent, and Georgia Democrats should probably get docked a couple of points just based on their history of poor runoff showings.

Even if Democrats win both races, a tied Senate doesn’t guarantee sweeping change. When President George W. Bush had a GOP House and a 50-50 Senate, he lost two Republicans on the pivotal budget vote to get his big 2001 tax cut through. But Bush made up for it with five Democrats — including two Georgians.

House Democrats had lost four seats as of Sunday, with as many as seven more uncalled races at risk. Speaker Nancy Pelosi’s 15-vote cushion could dwindle to single digits, limiting her ability to jam through partisan bills.

Voting patterns around the country have been striking. Biden may flip GOP-leaning states like Georgia and Arizona and make inroads in North Carolina and Texas, but he underperformed Hillary Clinton’s 2016 showing in Florida. President Donald Trump has narrowed his gap somewhat in heavily blue New York and Illinois, although more ballots remain to be counted.

GOP charges of “socialism” stuck. Iowa Republican Sen. Joni Ernst beat challenger Theresa Greenfield in a race that wasn’t as close as it was supposed to be. One independent voter told The Des Moines Register that “the far left scares the hell out of me,” and his vote for Ernst was based largely on keeping the Senate majority. “I mean, the socialist ideas — no. I don’t want the United States to become a really large Venezuela,” said Mike Gamm, 45.

In Florida’s Miami-Dade County, two House Democrats lost and Trump narrowed his 2016 gap by 22 points en route to a convincing Sunshine State win. A voter who backed GOP challenger Maria Elvira Salazar in the 27th District over Democratic incumbent Donna E. Shalala told the Miami Herald that she and her husband “voted for Maria Elvira because we don’t like socialism, and Shalala is a socialist.”

Shalala isn’t a socialist, as the Herald pointed out. And according to the Tax Foundation, Biden’s tax increases would only jack up federal revenue to Clinton administration levels. But that was the late 1990s, when the economy was booming and Congress had slashed capital gains taxes. Biden would raise the top capital gains rate by some 17 percentage points.

Shalala’s district is below the U.S. household median income, but there are pockets of fabulous riches. She represents the wealthiest ZIP code in the country by average adjusted gross income, a private island near Miami Beach where a boat slip was recently listed on Zillow for $550,000. Another Miami Beach ZIP code was in the top 100, according to IRS data; between the two, there were roughly 9,600 households filing 2018 tax returns — more than Salazar’s victory margin.

Several Chicago-area ZIP codes are also among the nation’s wealthiest. Illinois voters, who already pay the nation’s second-highest property taxes behind New Jersey, rejected a ballot initiative to raise taxes on upper-income households. Historically Democratic-leaning Cook County went big for Biden, but Trump may end up shaving a few points off his 2016 deficit. Rep. Lauren Underwood, D-Ill., had been trailing in the 14th District, though she pulled ahead by a nose Sunday.

States like Illinois, New York and New Jersey have been hemorrhaging people and tax revenue to no-income-tax Florida in recent years, according to IRS data. One Miami-area real estate broker told Business Insider last year she’d seen a flood of “tax refugees” from places like Manhattan, Silicon Valley and Chicago since the 2017 tax law capped state and local tax deductions at $10,000.

California, with the nation’s highest income tax rate, has seen a similar exodus to no-income-tax Washington, Nevada and Texas. As of Sunday, House Democrats were trailing in two Orange County districts they flipped in 2018.

New York Democrat Tom Suozzi, from Long Island’s 3rd District, was also behind in the count late Sunday. The Ways and Means member has led efforts to repeal the “SALT” cap, which would give the biggest tax breaks to wealthier households. His district is the fifth-richest by median household income, according to census data.

Best of both worlds?

Ultimately, the investment bankers, venture capitalists, real estate developers, private equity and hedge fund managers and tech moguls who bankrolled Democrats this cycle may see the best of both worlds. They’ll not only be rid of Trump, his trade wars and his itchy Twitter finger; they’ll also likely dodge huge tax increases.

Democrats’ union backers may also salvage some of their investments, including $23 million a United Brotherhood of Carpenters-backed group donated to fundraising committees affiliated with Pelosi and Senate Minority Leader Charles E. Schumer.

The carpenters’ union and others in the building trades, who were some of the biggest Democratic donors this cycle, may yet see movement in divided government on an infrastructure package, clean energy tax credits and aid for their failing pension plans. One former top Senate GOP aide pointed out that a big class of Republican seats up in 2022 could lead to more deal-making.

House Ways and Means Chairman Richard E. Neal, D-Mass., and ranking member Kevin Brady, R-Texas, have already agreed on a retirement savings package that could move next year. And likely incoming Senate Finance Chairman Michael D. Crapo, R-Idaho, has a history of working across the aisle, including with fellow Pacific Northwesterner Ron Wyden of Oregon, the top Finance Democrat.

Russ Sullivan, a top Democratic lobbyist and former Senate Finance staff director, says other areas of cooperation could include “domestic reshoring” incentives to bring jobs and manufacturing back from China and elsewhere — part of what he sees as an ongoing “economic nationalism” movement. Sens. Mark Warner, D-Va., and John Cornyn, R-Texas, are pitching a 40 percent tax credit for semiconductor research and manufacturing costs, for example.

Let’s make a deal

Compromise starts with a COVID-19 aid package in the lame-duck session. Senate Majority Leader Mitch McConnell is poised to take the reins from Treasury Secretary Steven Mnuchin; Biden may do the same with a weakened Pelosi. McConnell made clear back in July that $1 trillion was his ceiling, and they’ll likely end up closer to that instead of the $2 trillion-plus Pelosi wants. A booming stock market and upbeat jobs numbers could help McConnell’s cause.

“I think Biden is likely to say, ‘Look, the number of cases is at an all-time high, we risk colossal damage if we wait two or three months. Get whatever you can out of Mitch McConnell and Donald Trump,’” said Sullivan, who leads the tax policy group at Brownstein Hyatt Farber Schreck.

All the puzzle pieces are there for the taking: extended unemployment benefits; another round of $1,200 payments; funding for schools, vaccines and testing; more Paycheck Protection Program loans for small businesses. Tax writers have already been swapping paper on things like tax credits for employee retention and hiring, cleaning supplies and protective equipment. Remote workers and employers seem likely to get a break from paying taxes in multiple local jurisdictions.

Some state and local aid will need to be included, along with business liability protections.

If lawmakers don’t get the message to compromise this time, there’s always another election in two years. And that one may be even more unfriendly to incumbents.

Peter Cohn edits CQ Roll Call’s budget, tax and appropriations coverage.

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