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ELECTIONS '94: IMPACT ON BUSINESS : The Republican Effect

November 10, 1994|Robert A. Rosenblatt, Ralph Vartabedian and Jube Shiver

Here's how Republican control of Congress is likely to affect key parts of the U.S. economy and the American consumer:


The defense industry is likely to benefit modestly from the Republican control of Congress, picking up stronger support for Pentagon budgets and a quick end to many of the acrimonious fraud investigations into weapons programs by Democrat committee chairs. However, the changeover in committee leadership could strongly affect specific weapons programs. Sen. Sam Nunn (D-Ga.), who will lose control of the Senate Armed Services Committee, has been a strong supporter of the Lockheed F-22 and the Northrop Grumman tri-service missile. Conversely, the B-2 bomber may get a new lease on life thanks to the exit of B-2 critic Rep. Ronald V. Dellums (D-Oakland) as chairman of the House Armed Services Committee.


The new leaders of the congressional banking committees will be Sen. Alphonse D'Amato of New York and Rep. Jim Leach of Iowa. Both are sure to aggressively pursue deeper probes into the banking-related Whitewater scandal. Leach is also concerned about the impact of derivatives in financial markets and their possible threat to banks and mutual funds. He also wants to accelerate banking deregulation, breaking down the walls between banking and securities. But D'Amato, who has strong ties to the New York investment community and Wall Street, may not go along. As a result, major new banking legislation seems unlikely. Both are likely to unite in opposing Clinton Administration regulatory efforts to aggressively expand bank lending in poor communities.


Tax cuts are likely to be a major theme for the ambitious Republican majority. The prospective new chairman of the House Ways and Means Committee, Bill Archer (R-Tex.), supports a tax credit of $500 for each child in a family and promises to create new Individual Retirement Accounts that could be used for education or health care. Bob Packwood (R-Ore.), who will be the new chairman of the Senate Finance Committee, is a strong supporter of IRAs and wants cuts in the capital gains tax. Both favor additional tax incentives for small business.


Leadership changes on the Senate Commerce Committee and its crucial telecommunications subcommittee--both of which had been headed by Sen. Ernest Hollings (D-S.C.)--could boost the chances of a telecommunications reform bill passing next year. The powerful regional Bell telephone companies blocked such a bill this year, but Hollings' replacements--probably Packwood at the full committee and Sen. Larry Pressler (R-S.D.) at the subcommittee--are likely to be far friendlier to the Bells' interests. Still, telecom reform revolves around conflicting industry interests rather than partisan issues, so the ultimate outcome is anyone's guess.


The Clinton Administration's activist technology policy, which mobilized the government research and development establishment to boost the competitiveness of U.S. industry, is likely to lose big. For example, the Commerce Department's advanced technology program, which funnels money to promising new technologies that cannot get private backing, could be eviscerated. Efforts to shift military research to commercial ends will probably slow. And the rhetoric about the information superhighway will grow less loud--though the federal government's longstanding support of basic science and military research should remain intact.


Convinced that the country opposes any major health legislation, Archer and Packwood are unlikely to push hard for change. Packwood likes cafeteria-style health plans, in which workers pick combinations of benefits. He and Archer might embrace limited insurance market reform, making it easier for small businesses and individuals to buy coverage. Both should favor increased deductions for self-employed workers buying coverage. But they are unequivocally opposed to any form of mandates forcing employers to provide coverage.

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