Economic Impact of Democrats’ Success

Tuesday’s congressional and gubernatorial election results nationwide will have a major impact on key business and economic issues over the next two years.

First and foremost, the election settled the argument between the White House and Republican leaders of Congress over use of the federal budget surplus. Democrats’ success at the ballot box says there will be no tax cut for the next two years.

Republicans had failed to pass a tax cut from the $70-billion budget surplus in the last session of Congress. House Speaker Newt Gingrich then pledged to “come back in January with more Republicans” and cut taxes.

Republicans lost five seats in the House on Tuesday, however, and only managed to hold their numbers even at 55 in the Senate. So the surplus, in President Clinton’s words, will be “saved for Social Security.”

The money is not really needed now for Social Security. On the contrary, the federal budget surplus results from the fact that Social Security will collect $80 billion more in taxes than it pays out in benefits this year. That’s because workers outnumber retirees at this time. But the ratio of workers to retirees and tax receipts to benefit payments will start shifting about 2010, as baby boomers end their working years. To set up a reserve for that time of shifting ratios, we should keep the money in government hands today, Clinton and the Democrats say.

But the issue is more philosophic than economic. The Democrats favor keeping the surplus to use for general purposes such as education. In fact, $20 billion of this year’s surplus is paying for U.S. peacekeeping efforts in Bosnia.

Republicans, conversely, argue for giving the surplus back to taxpayers to spend as they see fit. But in this election, voters favored the Democratic argument.

It was only a single off-year election, but the voters’ response could signal a shift away from the “cut our taxes, shrink the government” sentiment that has dominated politics in this decade. If so, we could look for increased government spending to boost the U.S. economy in the next few years and for inflation to be slightly higher than it has been.

The electorate exhibited pro-government sentiments on other questions Tuesday. In North Carolina, Democrat John Edwards was elected U.S. senator, defeating Republican Lauch Faircloth. Edwards, a trial lawyer, ran on a platform calling for increased regulation of managed health care and for giving patients the right to sue health maintenance organizations for malpractice and damages.

In California, similarly, Sen. Barbara Boxer, the Democrat, called for HMO regulation and hammered her opponent, Republican state Controller Matt Fong, for his defense of HMOs.

The voters clearly were calling for more government monitoring of medical care. One consequence of that sentiment nationally is that HMOs will face more lawsuits.

The managed-care business forgot who its customers are. If they’re smart, HMO companies will now find ways to win trust among their ultimate customers, the patients. So far, the business has succeeded in cutting medical costs and winning the approval of corporations and insurance companies that pay medical bills.

But in a democracy, there is always another recourse of appeal. It’s called the ballot box, and employees and patients used it to effect Tuesday.

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