Wall Street, assuming President Clinton's reelection, has started speculating on the impact of that event on the economy, financial markets, and legislative trends.
Nothing happened during the presidential and vice-presidential debates this week to alter the assumption that Republican candidate Bob Dole will go down to defeat. So political observers hired by brokerage firms to report to their clients on Washington affairs are focusing more attention on the congressional races.
"I think voters will opt for divided government, the most investor-friendly outcome," says Charles Gabriel Jr., who writes a "Potomac Perspective" report for Prudential Securities Inc.
A Republican staffer on Capitol Hill some years ago, Mr. Gabriel suspects Clinton "will slowly resurrect support for activist government" in a time of conservative public attitudes toward fiscal policy. "A Democratic Congress could help give life to many of Bill and Hillary Clinton's most liberal imaginings," he maintains. And that could shake a little the mostly conservative big players in the stock and bond markets.
Stanley Collender, a Washington political analyst for Smith Barney, another investment firm, says a Democratic majority in Congress, if it occurs, will be by no more than about five seats in the House and only one in the Senate. "While this will put the Democrats in charge, it will also place the balance of power on most issues with a group of conservative Democrats who will not hesitate to vote with the Republicans if their own party goes too far to the left or becomes too anti-business," he reckons.
Similarly, Gabriel notes that "observers have become conditioned to brushing off the enormity of Clinton's promises, because they are only as real as Congress will make them."
Here's what these two observers are forecasting:
The Deficit: "A Democratic majority is not likely to abandon deficit reduction," Mr. Collender notes. "Quite to the contrary."
The leading candidate to become chairman of the budget committee, should Democrats retake the House, is Rep. Bill Orton of Utah, a descendant of the "Boll Weavils" that often worked and voted with the Reagan administration, he says.
Health Care: Any reform plan proposed next year is likely to be smaller in scope than Clinton's first health proposal, Collender figures. "This will make the proposal less costly and far more acceptable to the business community, especially small business."
Gabriel differs. Quoting Mrs. Clinton at the Democratic convention as saying "all American families should have affordable health insurance," he expects Clinton to take steps toward national health insurance if he gets a strong Democratic Congress.
Medicare: Lost in the campaign rhetoric is the fact that the budget plans of the Republicans, Clinton, and a bipartisan plan of Senators John Breaux (D) of Louisiana and John Chafee (R) of Rhode Island, all included reductions in the growth of Medicare expenditures, Collender says. "The argument [is] over the amount and type of change, not whether it should happen."
Without changes, Medicare will be insolvent before the next presidential election, a situation that neither party, the White House, or Congress will be able to ignore, the budget expert adds.
Taxes: If one or both houses go Democratic, one presumed message from the voters will be that a large tax cut like the one proposed by Dole "is not as popular as might have been the case in 1994," Collender says. This will reduce political pressure in Congress to reduce revenues and raise chances for deficit cuts.
Gabriel expects Clinton to push for some of his campaign tax promises: a $1,500-per-year tuition tax credit during the first two years of college; the ability for "working families" to deduct up to $10,000 in tuition costs annually; tax-free Individual Retirement Account (IRA) withdrawals for college expenses; expanded IRAs so that young people can save tax free to buy a home; removal of capital gains taxes on home sales, and a $500 per-child tax credit. Such measures, he says, are intended to win the affection of baby boomers, trying to get children through college, concerned about the prospects for Social Security pensions.
Labor: Clinton will need to pay off political debts to labor unions, including the teachers' unions, for their active support, Gabriel says. Such measures could include urging bills to hinder striker-replacement workers, remove favorable tax treatment for income from foreign corporate subsidiaries, and encourage "corporate responsibility" in such areas as company downsizing.