WASHINGTON — The central Republican pitch to voters in the midterms was a promise to tackle high inflation and bolster the economy, but a Republican “civil war” is brewing over what policies might achieve those goals.
Having secured some power (Republicans will control the House, NBC News projected Wednesday), the party will have an ownership stake in the economy.
In a sign of how much Republicans are going to rely on the economy, former President Donald Trump, launching his re-election campaign Tuesday, opted to skip his usual diatribes about the 2020 election and instead tried to make the economy the center of your argument about why. must be returned to power.
Midterm voters listed inflation as their top concern, with 1 in 5 saying it had caused them serious financial hardship, according to NBC News exit polls. They gave Republicans higher marks than Democrats on handling the economy.
While Republicans tried to tap into that economic anxiety during the campaign, most candidates provided few details. And Republicans appear to be split within the party, with some calling for cuts in taxes and public spending and others taking a more populist approach of protectionist trade policies and limiting immigration.
“The Republican Party still doesn’t know what its economic policy is in a post-Trump world,” said Brian Riedl, who worked for six years as Republican Sen. Rob Portman’s chief economist and is now a senior fellow at the Manhattan Institute. “Ten years ago, it would have been spending cuts, regulatory reform, free trade and free market policies, and in a post-Trump world, all of those policies are a bit out of place. So there’s actually kind of a civil war in the Republican Party over the economy.”
Republicans will be limited in what they can accomplish with control of the House because Democrats control the Senate and President Joe Biden will have veto power over passed legislation. Biden said he has no plans to change his approach to the economy, despite voter sentiment, making a shift toward a compromise with Republicans on economic policy seem unlikely.
That may mean that one of the best economic tools for Republicans will be their ability to block more spending from Democrats in areas like the Covid response or on programs to help low-income households, including the child tax credit and affordable housing initiatives. Republicans have argued that that kind of government spending has contributed to inflation.
“Big partisan initiatives are off the table, no one can reconcile, there is no path to something big where there is disagreement,” said Douglas Holtz-Eakin, president of the American Action Forum and a former economic adviser to George W. Bush and John. McCain. “That means there will be a lot less economic policy. There will be no US bailout, no Inflation Reduction Act, things like that, and I think that would benefit the economy.”
If there is a recession, as various CEOs and economists have projected, Republican control of the House would likely mean that any stimulus or relief package to help struggling households and small businesses would be significantly less than it would be with Democrats in power. control given Republicans’ vocal opposition to additional spending.
Republicans also risk facing the same kind of economic blame they’ve foisted on Democrats when they face off against voters again in 2024.
“Republicans are going to need to deliver on the economy, especially if the economy is getting worse and inflation is getting worse,” Riedl said. “Republicans will be pressured to deliver or at least present an agenda to contrast with President Biden.”
Republicans have said they would block additional taxes on corporations, such as a windfall tax that Biden suggested on oil and gas companies. But passing big tax cuts or making Trump-era tax cuts permanent, something Republicans promised to do during the campaign, would be much more difficult because of opposition from many Democrats.
One thing that Republicans will have the power to do with control of the House is launch investigations and hearings into the Biden administration’s handling of the economy. Kevin Brady, the top Republican on the House Ways and Means Committee, said Republicans plan to investigate the possible misuse of taxpayer dollars as part of COVID relief efforts, IRS policies and the expansion of Biden’s health coverage.
“Our approach will be to pull back the curtain, to really give the public the right to know how their tax dollars are spent and how their government works,” Brady said in an interview on Fox Business on Thursday.
The divided control of Congress will increase the possibility of another showdown over the debt ceiling that could lead to a government shutdown or the US defaulting on its debts for the first time.
“I think voters should expect some unfortunate drama around raising the debt ceiling, and the Republicans may try to get some spending cuts in exchange for raising the debt ceiling,” said Michael Strain, director of policy studies. economics from the American Enterprise Institute.
Inflation showed some signs of moderating earlier this week with consumer price increases easing to 7.7% in October from a year earlier and declining from 8.2% in September.
Gasoline prices have been a particular concern, with 65% saying high prices have been a financial hardship for them, according to NBC’s exit poll. Energy analysts and investors have said there is little policy that can be done to reduce prices, which have been driven higher by a number of factors, including rising demand after the pandemic, Russia’s war in Ukraine and the limited capacity of refineries.
Ultimately, the main factor influencing inflation would be the Federal Reserve, given its ability to raise interest rates; Economic policy analysts said there isn’t much Congress can do even with single-party control, at least not any time soon.
“There is very little that Congress can do,” Holtz-Eakin said. “They operate for years, and that’s not the right schedule to fight inflation. You have to be much more agile. The tools they have are pretty clumsy. So they just need to be out of that game. That’s the job of the Federal Reserve now.”
