Republicans Win House, Gain in Senate; But Questions Abound for Industry

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The Republican party can claim a fairly resounding victory in Tuesday's midterm election by taking a majority in the House of Representatives and cutting into the Democrat's super-majority in the Senate. However, though small business appeared to pine for such results, the 2010 race may have left more questions than answers. Chief among them may be: Will there actually be a massive improvement made for small businesses in the areas of manufacturing and credit? The jury on that could remain out well into the 112th Congress.

Republicans gained at least 60 seats in the House and about a half-dozen more in the Senate with some close races still being tallied. On the surface, the GOP victory appeared to be just what the doctor ordered for small businesses, especially in manufacturing. In fact, a pair of studies released in the week before the election from Discover and FTI Consulting, indicated just that.

Discover's Small Business Watch saw its monthly measure of small business confidence in the economy increase by 10.4 points to a level of 84.2. The study's directors attributed the strong gain directly to the perception that Republicans would almost certainly retake the majority at least the House. Meanwhile, FTI Consulting's study found 64% believe economic conditions would improve and 60% thought employment levels would rise if Republicans won a majority in either house of Congress. A similar ratio of respondents indicated they believed GOP policymakers were more likely to be cooperative with the business community going forward.

Should those responses prove accurate, the most likely short-term legislative changes would come in a significant revision of unpopular health care-related provisions requiring a 1099 for any business transaction over $600 as well as passage of a small business aid package that was pushed by the Obama White House in October. The latter appeared to die in Congress more from pre-election partisan gamesmanship than actual objection on either side to helping struggling small businesses. The change in Washington, DC might also inspire lawmakers to push for quicker resolution on long-pending free-trade agreements with Panama, South Korea and Columbia.

Byron Shoulton, senior vice president and international economist at FCIA Management Company, believes those Democrats who have opposed breaks for businesses and/or increased exporting, something the administration has shown increased interest in, may have to compromise more than any time in the last two, perhaps four, years.

"I do believe the current mood favors tax cuts on small businesses among other likely incentives to help boost the economy and regain consumer confidence," said Shoulton. "The new majority has every reason to move boldly to help small businesses as much as possible. I expect they will." However, Shoulton admitted that some "new arrivals" to Congress may come to Capitol Hill trying to prove something to the voters who elected them on an anti-incumbent, anti-Washington platform and other simply may not want to ease the pressure on President Barack Obama.

Economists Xiaobing Shuai, of Chmura Economics & Analytics, and Ken Goldstein, of the Conference Board, appeared even more pessimistic regarding the idea of compromise among federal lawmakers.

"Because both parties are moving away from center, it is difficult to see anything big coming out of Congress," said Shuai. "Both parties will be posturing for the Presidential election in 2012."

Moreover, Goldstein said matters are complicated further by the reality that it's not just Democrats and Republicans battling - It's both traditional parties being joined in the mix by the emerging Tea Party membership, which didn't exactly toe the GOP line or get much support from party stalwarts during the 2010 campaign season. The latter group could be unlikely to play ball, so to speak.

"This three-way free-for-all is made for gridlock," said Goldstein. "Some of the victors specifically campaigned on NOT compromising. Small business must therefore look to the Federal Reserve and the local banks, not to Congress or the White House. It also suggests looking for legislation to be passed in both houses and NOT vetoed could be waiting for Godot."

Brian Shappell, NACM staff writer


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