If any doubt remained that the troubled economy is the driving issue in the U.S. election, the last two weeks buried it. Now, faced with a roller-coaster stock market and severely crimped credit, some 51% of voters say they trust Democrats more on the economy, vs. 38% for the GOP—the largest gap since June, according to pollster Rasmussen Reports.
Presidential contender Barack Obama has been the biggest beneficiary of this mounting sentiment. But a critical shift is also under way in the battle for Congress. It looks increasingly possible that Democrats could not only retain control of both houses but attain a filibuster-and-veto-proof 60-vote majority in the Senate.
That would have been hard to imagine a few months ago. Each party now holds 49 seats, with two independents usually voting with the Democrats. Analysts have long assumed the Dems would pick up several Senate seats, but even prominent Republicans such as Elizabeth Dole of North Carolina and John Sununu of New Hampshire lag in recent polls. Charles E. Cook Jr., editor and publisher of the nonpartisan Cook Political Report, predicts Dems will gain six to eight seats. "But could it be nine? Or 10?" he asks. "Yes."
If the Democrats reach—or even get close to—60 votes, legislation that business has fended off in recent years with help from Republican allies will be tougher to hold at bay. That's particularly true if Obama is elected. "The Democrats will be very constrained on spending, so they will have to get more of their policies across with regulation and mandates," says Daniel Clifton, the Washington policy analyst for Strategas Research Partners, an institutional investment firm. "A lot of issues important to business—and to investors—face a growing risk." Here's where the impact could be greatest:
The Bankruptcy "Cramdown": The financial-service industry has long battled efforts by Dems to allow judges to modify mortgages in bankruptcy court and save struggling homeowners from foreclosure. In the industry's latest victory, bankruptcy changes were kept out of the Treasury's $700 billion bailout plan. But congressional Democrats are talking informally about bringing the issue back next year.
Drug-Price Controls: When the Bush Administration expanded Medicare to cover prescription drugs in 2003, Big Pharma quashed efforts to allow Medicare to negotiate lower prices. Those days could soon be over. To whack health-care costs, the Democrats want the government to haggle over prices just like a private insurer would.
Taxes: Victory could lead to another round in the fight to tax private equity partners' profits at regular income tax rates rather than the lesser capital-gains rates they now pay. If the Dems do make it to 60, says Anne Mathias, who oversees policy research for institutional broker Stanford Group, watch for a move to end the tax breaks companies get on income earned overseas.
Energy Alternatives: A host of energy issues could return to the table. Stalled measures to increase efficiency standards in new buildings could move ahead, as could a windfall tax on oil profits and limits on speculative energy trading. A measure requiring utilities to buy more solar and wind power will likely return, too.
Union Rules: Labor's top priority is passage of the Employee Free Choice Act, which would allow workers to unionize if a simple majority sign authorization cards, eliminating the secret ballot. Unions believe the proposed law will boost declining rolls, but it has been vigorously opposed by the U.S. Chamber of Commerce. "It's definitely in play," says a congressional aide.