Brunswick Group 2014

Big Business, Big Issues:

The Winners and Losers from the U.S. Midterm Elections

The U.S. midterm elections have dealt a new setback to President Obama. As was widely expected, voters have given Republicans control of both chambers of Congress, weakening the president’s already diminished influence in his last two years in office.

But there’s another set of winners and losers in this this election: the sectors, issues and interest groups that have a stake in the outcome.

The Brunswick Group’s breakdown of the winners and losers in this year’s elections:

Winners

Companies that “invert” U.S. companies that plan to shift their tax headquarters abroad can breathe a little easier. Democrats – who have used the Senate’s major tax-writing and investigative committees to investigate and condemn such deals – will only have a few more weeks to press their proposals before surrendering control to the Republicans.

Free trade Having long argued that free trade deals cost U.S. jobs by shifting work overseas, organized labor will have less sway with a Republican Congress while the U.S. Chamber of Commerce’s influence will rise. This will enhance President Obama’s ability to negotiate trade deals with other countries and may help get the Trans-Pacific Partnership across the finish line.

Fossil-fuel companies Coal, oil and natural gas producers will gain a major ally when Sen. James Inhofe (R-OK) becomes chairman of the Senate Committee on Environment & Public Works. Inhofe, whose state is home to Anadarko, Devon Energy and other leading oil and gas producers, opposes regulation of greenhouse gases and has questioned the science linking human activity to climate change.

$3.67 Billion

Analysis by the Center for Responsive Politics suggests this is the most expensive midterm election ever.

Big banks Banks unhappy with Dodd-Frank regulation will get a more sympathetic ear from Republicans, who say the law’s mandates are overly burdensome.

Medical device makers The medical device industry may get its wish with repeal of the Medical Device Tax under a Republican Congress. Opponents say the tax has stifled innovation and moved jobs overseas. Repeal would be a clear win not just for established device companies, but also for Silicon Valley venture capital firms and medical device start-ups struggling to achieve profitability.

Fun Fact The 'Six-Year Itch' Since the Great Depression, each president elected to a second term, with the exception of President Clinton, has presided over his party losing seats in both the House and Senate during that term.

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Paul Singer The hedge fund billionaire, a critic of the Federal Reserve’s efforts to stimulate the economy, was one of the single biggest donors in the election, steering more than $7 million to successful Republican candidates such as Wisconsin Gov. Scott Walker and Arkansas Sen.-elect Tom Cotton.

TransCanada The developer of the proposed Keystone oil pipeline, which would carry crude oil from Alberta to Gulf Coast refineries, now has greater leverage on Capitol Hill; Republicans have vowed to ratchet up pressure on the Obama Administration to approve the pipeline.

Internet service providers This year’s debate over net neutrality put Internet service providers (ISPs) on the defensive. While the Federal Communications Commission has yet to complete its action on net neutrality, many Republicans oppose further regulation of ISPs. A Republican Congress should provide some political protection from additional regulatory scrutiny of this sector.

Losers

Obama’s nominees The U.S. Constitution gives the Senate, but not the House, power to approve presidential appointments. With the Senate under Republican control, the president will have a harder time filling federal judgeships and high-level executive branch jobs.

Thomas Steyer The California hedge-fund billionaire and environmentalist spent more than $50 million to elevate climate change as an election issue and to defeat Republican candidates skeptical about global warming. But several of Steyer’s targets, such as Sen.-elect Cory Gardner of Colorado, won. And even some Steyer-backed Democrats – such as Virginia Sen. Mark Warner and Pennsylvania Governor-elect Tom Wolf – made clear they don’t share his opposition to the Keystone pipeline and hydraulic fracturing.

Trial lawyers Earlier this year, trial lawyers helped fend off patent litigation reform, fearing that any move in that direction could open the door to broader tort reform. The prospect of tort reform under a Republican Senate, including limits on jury settlements and attorney’s fees, is a blow to the American Association for Justice and the nation’s trial lawyers.

Privacy The defeat of Sen. Mark Udall (D.-CO) means tech companies like Apple, Microsoft and Google will have to find a new ally on the Senate Intelligence Committee, which oversees U.S. spy agencies. A vocal opponent of many of the surveillance programs revealed by Edward Snowden, Udall had pushed legislation to stop the government's bulk collection of phone metadata.

The Export-Import Bank The U.S. export credit agency now faces a tougher fight for survival. The new likely Senate Majority Leader Mitch McConnell (KY) has voiced opposition to extending the bank’s charter. That’s bad for Boeing, General Electric, Caterpillar and other companies whose customers rely on Ex-Im financing to buy their products.

Renewable energy companies In Arizona, two candidates seen as friendly to the rooftop solar industry lost their races for seats on the state’s powerful Corporation Commission, which regulates the power industry. In Ohio, voters also re-elected Governor John Kasich, who has slowed the state’s phasing-in of renewable energy mandates.

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It’s A Draw

Tech For an industry heavily invested in the outcome of this election, the results are mixed. On the one hand, Tech may finally see some movement on its premiere immigration issue – reform of the H1B visa process for highly skilled workers. On the other hand, supposedly bipartisan issues like patent litigation reform, cybersecurity reform and data encryption standards struggled this Congress. Whether a Republican majority can make a difference on these issues remains to be seen.

Did you know?

Google outspent Goldman Sachs on political campaign contributions this election cycle

The Affordable Care Act (Obamacare) Despite fervent pledges by GOP candidates, including likely Senate Majority leader, Mitch McConnell, a Republican-controlled Senate cannot repeal Obamacare. In fact, while Republican candidates pledged to repeal Obamacare few offered an alternative. However, with their new Senate majority, Republicans may attempt to chip away at the president’s signature healthcare law. Early targets will likely include the medical device tax, the 30-hour work week to qualify for coverage, and other vulnerable pieces of the Affordable Care Act, such as the device tax.

U.S. Spy Agencies The defeat of Sen. Mark Udall of Colorado, who has been a vocal critic of the government’s bulk collection of phone metadata, is sure to relieve some of the pressure on U.S. spy agencies. It remains to be seen whether a Republican Senate will finally enact surveillance reform, such as Sen. Patrick Leahy’s (D-VT) U.S.A. Freedom Act.

Tax Reform The future for comprehensive tax reform is murky, with many pundits predicting Congress will fail to make the difficult choices (and compromises) necessary for meaningful reform.

Education Education issues continue to divide the electorate in unique ways – both parties are critical of key initiatives such as the Common Core standards and high stakes testing. Republican gains may have an outsized impact on state and federal education policy, particularly in Colorado, Florida, Michigan and Texas. On the flip side, teachers unions played a critical role supporting education reform through big-money state ballot measures across the country and the Pennsylvania Governor’s race. Republican control in Congress and a re-energized union base sets up a dynamic in which opposing sides will each claim a mandate to dictate education spend heading into 2015.

What’s Next The election may be over, but the legislative fights have just begun. As Congress gears up for a final lame duck session, House Republicans are already signalling they do not expect to be in town for long. With the clock ticking on the final hours of the 113th Congress, here are five debates likely to dominate the coming months:

Which corporate tax breaks will survive the chopping block? Nearly 60 expired tax incentives – worth billions of dollars to corporate America – await action by Congress. Proponents argue they spur investment; opponents say they are a drain on the Treasury. Closely watched is the Production Tax Credit, or PTC, which companies such as Siemens rely on when investing in renewable energy projects like wind. Expect a fight in the Senate over whether these credits should be made permanent or just temporarily reauthorized for another two years.

Free trade deal finally in reach? With President Obama pushing to wrap-up Trans-Pacific Partnership (TPP) negotiations, free trade advocates first want action on reauthorization of Trade Promotion Authority (TPA). Largely seen by advocates as critical to a president’s negotiating authority, TPA is a fast-track mechanism for trade agreements, with Congress voting only to approve or reject an agreement without amendment. Under pressure from labor, Majority Leader Reid has not yet brought TPA to the Senate floor. Will the prospect of a Republican majority Congress finally stir the Senate to action?

Return of the fiscal cliff? The short-term spending bill that prevented the federal government from shutting down in September expires on December 11, 2014. With House Republican leaders leery of repeating last year’s government shutdown, which cost billions in lost economic

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output and reverberated on Wall Street, Congress once again faces a fiscal cliff. Will Congress agree to another short-term spending bill that funds the government into 2015, or will both sides come together to agree on a longer-term funding solution through the remainder of this fiscal year?

Who will lead the Justice Department? One of President Obama’s biggest immediate priorities is appointing a successor to Attorney General Eric Holder. A leading candidate for the job is Tom Perez, the current labor secretary, who is popular with labor unions and civil-rights groups. But Republicans oppose Perez over his positions on immigration and housing policy, and he was only narrowly confirmed to his current post last year.

Terrorism Risk Insurance at risk? Widely seen by business as essential for market certainty, the Terrorism Risk Insurance Act provides a government backstop for businesses against certain financial losses in the event of a terrorist act against the United States. Signed into law after 9/11, the legislation is set to expire at the end of this year. House Republicans continue to debate the degree to which the government should be on the hook for private market losses. Can House Republicans and Senate Democrats overcome their disagreements on extending TRIA to get the bill over the finish line? Watch to see whether big business can successfully pressure Republican leadership to reach a compromise with Democrats.

The Top 10 Most Expensive Senate Races What are the midterms? Midterm

elections refer to the U.S. general elections held two years after the four-year presidential election. Voters head to the polls to choose members of the Senate, as well as governors and officials at the state and local levels. In addition, all of the 435 seats in the House of Representatives are up for grabs.

How are elections financed?

Political contributions are considered protected speech under the U.S. Constitution. Candidates raise campaign funds from a variety of private sources, including individual donors, political parties, political action committees, registered political organizations and even corporations.

Donor Total

NORTH CAROLINA – Tillis (R) v. Hagan (D) $113M

COLORADO – Gardner (R) v. Udall (D) $94M

IOWA – Ernst (R) v. Braley (D) $82M

KENTUCKY – McConnell (R) v. Grimes (D) $78M

GEORGIA – Perdue (R) v. Nunn (D) $65M

ARKANSAS – Cotton (R) v. Pryor (D) $58M

ALASKA – Sullivan (R) v. Begich (D) $58M

NEW HAMPSHIRE – Brown (R) v. Shaheen (D) $47M

MICHIGAN – Land (R) v. Peters (D) $47M

LOUISIANA – Cassidy (R) v. Landrieu (D) $42M

Source: OpenSecrets.org / Center for Responsive Politics

Looking Ahead to the 2016 Presidential Election The Republicans may have scored a victory in the mid-term election, but that doesn’t mean they are favored in 2016. Many of the U.S. Senate seats up for re-election this year happened to be in traditionally conservative states. The opposite will be true in 2016, with Republicans defending a number of potentially competitive seats. With a sitting president’s party historically losing seats during the sixth year of a two-term presidency, it would be a mistake to read this election as a harbinger of the 2016 presidential race. ”It's not as though people have all a sudden fallen in love with Republicans,'' Senator John Cornyn of Texas, the second-ranking Senate Republican, told the New York Times. ''It's just a loss of confidence in the [Obama] administration. It's national security, personal security and job security. People are on edge. And that's not good if you're the party in power.''