Midterm Elections: The Financial Impact & 8 Ways They Can Affect Your Finances

By Chika

-

Last Updated: November 23, 2022

Share

118
0

The midterm elections have resulted in divided government, with Democrats in control of the Senate and Republicans heading up the House.

Political fallouts from elections regardless of scale usually have implications for your money and this is no different. At least for the next two years.

In this article, we look at how the financial and economic effects of the midterm elections, and their implications for your money and investments.

Here are some ways the midterm elections affect your finances.

 

 

8 Ways the Midterm Elections Affect Your Finances

1. Taxes

A divided Congress is unlikely to pass major tax legislation. This suggests that the Trump-era tax overhaul from 2017 will still be in place through 2025.

That's a three-year window that could allow Americans to make long-term moves to cut their bills, tax planners. So Americans have ample time to plan tax-reduction strategies that work over the next few years rather than taking a one-year view.

 

2. Monthly Child Tax Credits

The Biden administration wants to restore monthly child tax credits and expand health insurance.

Congress's partisan division makes it much less likely that either bill will become law. You may have received the final Child Tax Credit payments, notwithstanding the significant contribution they made to removing American children from poverty.

 

3. Social Security and Medicare

Sen. Rick Scott suggested enabling Congress to vote every five years on whether to extend Social Security, Medicare, and other federal spending programs shortly before he ran for Senate Republican leader. 

Millions of Americans who depend on those benefits may experience financial distress if Scott can persuade enough colleagues to back his idea. Even further, Senator Joe Manchin referred to Social Security as an "entitlement program."

This proposal's future may depend on the results of the Georgia runoff election scheduled for next month. Sen. Raphael Warnock's victory would give Democrats 51 votes and eliminate the need for Manchin to preserve Social Security and Medicare benefits.

Even while it's extremely unlikely that either will be reduced during the upcoming congressional session, it's important to monitor as time goes on.

 

4. Stocks

The stock market has historically done well following midterm elections and when power is split between parties.

The markets have increased in the year following the last 18 midterm elections since 1960. Investors may be celebrating the conclusion of the midterm election's uncertainty or expressing their eagerness for fair policy goals when the parties are sharing power.

Of course, past performance is no guarantee of future results, as the saying goes, and the market has plenty of headwinds to contend with. This is why a caveat must be added here.

Given the combination of historically high inflation, and international geopolitical tensions,, markets may respond differently this time. Nevertheless, given the market's previous setbacks, the overall result may still be favorable.

 

5. Bonds

The election results may also benefit bonds, since a divided government is less likely to approve large additional spending.

Overall, this should result in reduced inflation. The economy will experience a fiscal drag under current law alone through at least the third quarter of 2024, according to the Hutchings Center Fiscal Impact Measure.

 

6. Reduced Government Spending

A divided government with a Democrat in the White House and Republicans in control of at least one chamber of Congress will probably provide difficulties during the following two years. 

One of these is the potential for drama surrounding the debt ceiling, as Republicans have hinted they intend to use their control of the House as a bargaining chip with President Biden to limit government spending. 

This would make it more difficult for Biden to pass legislation to combat the impacts of a recession, especially considering that Republicans have attributed the biggest inflation since the early 1980s to his administration's expenditures.

 

7. A Recession May Bite Harder

The US economy appears to be strong, but recession fears linger.

Some analysts have professed that there is still the possibility of the US economy slipping into a recession in 2023.

In line with the GOP's objective to limit spending and contain inflation, a Republican-controlled House would oppose measures like increased unemployment benefits or stimulus payments if there is a recession in 2023.

 

8. Older Americans May Feel the Pinch

Reforming Social Security and Medicare are part of the spending reduction Republicans are advocating for the country.

Changing Social Security from a mandated spending program to a discretionary one would require Congress to approve money each year, according to some Republican lawmakers.

Meanwhile, House Republicans want to raise the age at which seniors can apply for both Social Security and Medicare benefits to 70. They claim that this is done to reduce spending on the programs, while also aligning the program with increases in longevity by reducing the number of years that seniors are eligible for these benefits.

Currently, Americans who turn 65 can enroll in Medicare, the federal government's senior health care program.

The proposed idea would require seniors to wait until they turned 70 before becoming eligible for the program. Additionally, the full retirement age for Social Security would rise from the current range of 66 to 67 years old to 70 years old.

According to analysts, this might lead to a rise in senior poverty as well as higher out-of-pocket medical expenses for those between the ages of 65 and 70 who would be denied access to Medicare.

The Secure Act 2.0's possible passage may be retirement's lone bright spot. The proposal, which is timely given that nearly half of older employees have no retirement savings, attempts to improve Americans' readiness for retirement.

According to a recent analysis, this bill "would increase retirement-savings tax incentives, primarily by easing restrictions on required minimum distributions and by streamlining small business sign-ups."

Given that it has support from both parties, if the law doesn't pass in the current lame-duck Congress, it will probably be taken up and enacted in 2023.

 

 

Final Word

Elections have always had implications for finance.

Financial implications are one of the key factors people weigh before deciding how to cast their votes.

As such, understanding the implications of government fiscal policies, knowing how to navigate the potential fiscal risks, and taking advantage are skills you need to develop if you want to preserve your wealth in the long term.

Photo by Element5 Digital

YOU MIGHT ALSO LIKE

Leave a Reply

Your email address will not be published. Required fields are marked *

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

LATEST

Subscribe for daily financial content

Daily articles, financial messages and affirmations to best help you navigate your financial future.