The Policy Effects of the U.S. Midterm Election

  • An Economic View of the U.S. Midterms
  • Italian Budget Stress
  • The View From Down Under

Undergraduates may describe their midterm exams as the second-most important examinations in many courses. Administered halfway through the semester, these tests are central to both teacher and student as a check on progress. This week’s midterm elections in the U.S. served a similar role, allowing voters to express their opinions of the country’s progress halfway through the president’s term. The verdict was something of a stalemate.

Thirty-five Senate seats and all 435 places in the House of Representatives were up for election. As polls generally predicted, control of the House of Representatives will shift from the Republican to Democratic Party when the next Congress is seated in January. Republicans added slightly to their majority in the Senate.

The change in control has precedent: past midterm elections have often been unfavorable to the president’s party. The economy often makes the difference in voter sentiment, but not this time. U.S. economic circumstances could scarcely be better: low unemployment, an elevated stock market and real gross domestic product (GDP) growth of more than 3%. Trade tensions also made little difference in the balloting; some states that have been most heavily affected by tariffs still supported Republicans.



Administrations have an easier time advancing their agendas when the president and majorities of both chambers of Congress are from the same party, an advantage Republicans have enjoyed since January 2017. Key legislation passed in the interim, such as the Tax Cuts and Jobs Act (TCJA), won narrowly on party-line votes. The path to progress will become more difficult in a divided Congress, and many analysts are expecting renewed gridlock.

With opinions likely to differ between the houses of the new Congress, current tax and spending policies will likely remain in force. This bodes poorly for the nation’s fiscal outlook. Despite strong growth and exceptional corporate profits, government receipts were flat in the last fiscal year, thanks to tax reform. Additional room for spending was granted as part of last spring’s bipartisan budget deal; the extra allowance is due to expire after two years, but many expect it to be extended. The Federal deficit may reach $1 trillion next year.

Looking ahead, we are braced for repeated fights over government funding. In past divided governments, every budget negotiation provided an opportunity for the opposition party to push its agenda. In the current situation, each side will be looking to score points in advance of the 2020 presidential election.