What the Election Means for Business

Nancy Pelosi and other Dems may compromise on immigration, but not energy, drugs, and defense

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The Republican Revolution that took Capitol Hill by storm 12 years ago—giving business unprecedented access to the corridors of power—suffered a stunning reversal on Nov. 7, amid an unpopular war, congressional scandals, and widespread unease about the state of the economy, despite generally positive economic numbers.

After a tumultuous political year filled with bitter personal attacks, Democrats accomplished what pundits said was all but impossible in January: They took back the House of Representatives, and with surprising ease. As of 3 p.m. EST on Nov. 8, Democrats had taken 27 seats from the GOP—far more than the 15 seats they needed to take control of the House—with at least six more still undecided. Democrats also were on the cusp of winning the Senate, too. Needing six GOP seats to retake the upper chamber, Democrats clinched five races and held a narrow lead in the Virginia race between Republican George Allen and Democrat Jim Webb.

Despite President Bush's insistence that the American economy was strong, and getting stronger, 52% of voters said the economy was weak, while just 47% said that the U.S. is in the midst of good economic times, NBC exit polls found. And voters who said the economy was the most important issue to them favored Democrats by 20 percentage points, according to CNN exit polls.

Democrat Promises

Candidates and outside groups spent an estimated $2.8 billion to influence the election, the most costly campaign in American history, according to the nonpartisan Center for Responsive Politics. While the massive spending on attack ads and telephone banks helped stimulate local economies from Knoxville to Fresno, it fed into a public anger at the hyper-partisan business-as-usual in Washington, D.C.

In victory, Democrats promised to change the tone of public discourse. "The message of the public is that it's time for civility and it's time to work toward common goals," said Michael Coleman, the Democratic mayor of Columbus, Ohio. But many voters, recalling George W. Bush's similar pledge in 2000, are likely to wait for concrete action and not just Election Night promises.

Among the Democratic winners were a host of probusiness moderates, including Representatives-elect Brad Ellsworth of Indiana, a tough-talking sheriff; Heath Shuler of North Carolina, a businessman and former pro football player; Baron Hill of Indiana, a former moderate congressman who made a successful comeback; and Gabrielle Giffords of Arizona, a business executive with strong corporate support.

Business Benefits

For business, the election offers hope for bipartisan compromise on some top corporate priorities, although there's also anxiety about aggressive Democratic oversight hearings that could target certain Republican-leaning industries.

On the plus side, Democratic control of the House means that it is much more likely that Congress will approve comprehensive immigration reform, including a guest-worker program long sought by business interests.

Democrats also have pledged to rein in the federal deficit and adopt a pay-as-you-go budgeting system, both goals of company reps. And companies are looking forward to Democrats keeping their promise to restore the R&D tax credit, which expired this year amid partisan gridlock on Capitol Hill.

Possible Changes

But some business sectors—particularly energy, defense, pharmaceuticals, and insurance—are bracing for tough hearings by new committee chairmen. And small business seems destined to face the first increase in the federal minimum wage in nine years. Democratic leaders have not yet decided whether to push for an immediate increase from $5.15 to $7.25 per hour or to phase it in over two years.

On the tax front, small business groups now are unlikely to get their top priority: a permanent end to the estate tax. Indeed, a Democratic House Ways & Means Committee seems unlikely to extend any of the Republican tax cuts passed between 2001 and 2003. Instead, Democratic staffers tell BusinessWeek that the party most likely will focus on expanding tax credits for college tuition costs and fixing the Alternative Minimum Tax, which is becoming an ever-increasing burden to upper-middle-class families across the country.

One industry that Democrats plan to target is oil. House Democratic Leader Nancy Pelosi (D-Calif.) has pledged to roll back the tax incentives given to energy companies in the Bush-Cheney energy package. Democrats want to spend that money instead on alternative energy sources and green technology.

Still, Democrats can only do so much in an era of divided government. President Bush, with his veto power, can stop any legislation he views as too liberal. And Democrats can't afford to alienate the independent voters and suburban moderates who gave them control of the House.

Richard S. Dunham is a senior writer for BusinessWeek.