Economic policy will soon be debated under a changed power dynamic in the Capitol as Tuesday's poll is widely seen as altering the balance of power in both the House and the Senate.
While there is agreement between the Democrats and the Republicans that daunting unemployment and a real threat of deflation demand policies that ensure growth, they have clashed bitterly over the details.
The Democrats have always campaigned for a stimulus-led growth and opposed the extension of the Bush-era tax cuts to wealthy Americans and small businesses, which is set to expire this year. However, the Republicans want to downsize the government, stop big ticket infrastructure spending and extend the tax cuts for all.
Analysts have felt that a Republican control of the House, which looks all too likely, and their bigger clout in the Senate, will possibly lead to a deadlock in policy matters, which will complicate efforts to revive the economy.
"With the Republicans set to make significant gains, our suspicion is that fiscal policy will end up being largely paralyzed for the next two years," wrote Capital Economics analysts Paul Ashworth and Paul Dales in a note.
The GOP is expected to make a gain of at least eight seats in the Senate and as many as 55 seats in the House, according to projection last week by the University of Virginia Center for Politics. Republicans will gain control of the Congress if they win an additional 39 House seats. But they need to gain 10 seats to wrest control of the Senate, which is seen unlikely.
On Tuesday the U.S. voters will elect representatives to all 435 House seats and 37 of the 100 Senate seats. Governorships in 37 states are also up for grabs.
Democrats lost the control of both the House and Senate in 1994, leading to bitter policy tussles and a virtual shutting down of the government. History is likely to repeat - although control of Senate is likely to remain with the Democrats - and tough policy wrangles are on the cards. But, according to leading commentators, the two scenarios are radically different. Unlike this year there was no ghost of deflation or double-dip recession to grapple with in 1994.
Nobel-winning economist Paul Krugman put things in perspective when he compared 1994 with 2010. He said the economic environment was favorable in 1994 and the administration's task was to keep the economy from overheating and head off potential inflation. "And this was a job the Federal Reserve could do on its own by raising interest rates, without any help from Congress."
But, this time round, he doubts if the Fed has the tools to take on the headwinds. "Today’s situation is completely different. The economy, weighed down by the debt that households ran up during the Bush-era bubble, is in dire straits; deflation, not inflation, is the clear and present danger. And it’s not at all clear that the Fed has the tools to head off this danger. Right now we very much need active policies on the part of the federal government to get us out of our economic trap," he wrote in a New York Times column.
"But we won’t get those policies if Republicans control the House. In fact, if they get their way, we’ll get the worst of both worlds: They’ll refuse to do anything to boost the economy now, claiming to be worried about the deficit, while simultaneously increasing long-run deficits with irresponsible tax cuts — cuts they have already announced won’t have to be offset with spending cuts, he wrote.
Even in the aftermath of a split control of the legislative bodies, the two sides will still have to work together to thrash out policies to revive the economy. But analysts are skeptical about the chances of agreement. “We’re all assuming they’re going to thrash this out, but it’s a potential problem that they simply won’t be able to come to an agreement,” Ashworth wrote in an earlier note.
“The Democrats are pretty staunchly in favor of not extending the cuts to high-income earners and the Republicans are insistent that those cuts are continued,” he wrote.
According to Washington post columnist Charles Krauthammer, the stalemate would mean there would be little agreement on policy over the next two years. "Over the next two years, Republicans will not be able to pass anything of importance to them - such as repealing Obamacare - because of the presidential veto. And the Democrats will be too politically weakened to advance, let alone complete, Obama's broad transformational agenda," he wrote.
The battle over tax cuts and stimulus spending will dominate the proceedings in the House and Congress post election.
President Barack Obama announced a three-pronged strategy to revive the economy in the run up to the campaign for the mid-term polls. His plan included $50-billion for infrastructure, expanded research tax credits for businesses and letting businesses write off 100 percent of their investment costs through 2011.
But the Republicans, who have campaigned hard for reducing the size of the government, have been critical of the spending plans. Prominent Republican senators have even termed the infrastructure plan wasteful.
The Council on Foreign Relations (CFR) has pointed to a report released by Republican Senators Tom Coburn and John McCain which has singled out one hundred projects funded by the administration's economic stimulus plan that they called wasteful. They said stimulus-funded construction work that appeared to be inefficient and disruptive to local businesses.
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