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Crafty_Dog:
The Curse of Voinovich

Even if Republicans hold the Senate, the Bush tax cuts could be in trouble. If the GOP loses two to five seats, its majorities on key committees are almost certain to shrink. The biggest problem is the Senate Finance Committee -- the tax writing committee of the upper chamber. Right now, Republicans enjoy an 11 to 9 majority on the committee. That will shrink probably to 11 to 10 or 10 to 9 if Republicans lose Senate seats in November.

Here's the problem: Bill Frist is retiring and this leaves an opening on this coveted committee and next in line in terms of seniority is Ohio Republican George Voinovich. But Mr. Voinovich may be the least reliable Republican on tax votes and if he's not the worst, he's definitely in the Bottom Three. Mr. Voinovich opposed death tax repeal this year, one of only three GOP defections. He has even said that he might support a higher estate tax. Mr. Voinovich has also been wishy-washy on investment tax cuts, arguing that deficit reduction should take top priority. Says one GOP Senate staffer: "We Republicans could lose effective control of the committee with Voinovich added."

The GOP already has a problem child on the committee in Olympia Snowe of Maine. She votes often with the Democrats and has little sympathy for the supply-side agenda. In 2003, she was one of three Republicans to vote against the Bush tax cuts in the Senate.

Adding Sen. Voinovich could mean Republicans would have little chance to make the Bush tax cuts permanent -- one of the GOP's key 2007-08 agenda items. One saving grace might be that any new committee appointments will likely be decided by the new Senate Majority Leader, who almost certainly will be Mitch McConnell. Sen. McConnell could brush aside the seniority courtesy and choose a reliable supply-sider and avoid all these problems. That might be his first big test as the new chief cat herder of the Senate -- assuming it remains under GOP control.

Opinion Journal (WSJ) Political Diary

rickn:
Woof crafty,

Permanent tax cuts are DOA because even if the Republicans do not lose control of either house of Congress, they still will not have 60 votes in the Senate for cloture.  There will be a lot of capital gains realization in 2007 and 2008 as many investors opt to pay the 15% tax rate ahead of possible rate hikes if the Dems control Congress and the White House.  Coupled with the projected decrease in corporate profits in the second half of next year, the likely increase in selling pressure on all asset classes, stocks, real estate and commodities, increases the risk of negative economic and investment data.  Also, it will create another spike in Treasury revenues that will give the 2009 Congress the incentive to spend even more.

rickn

Crafty_Dog:
Delighted to have you with us Rick!

Your assessment seems quite sound to me. 

With the apparent victories of the Dems looming, why is the market so sanguine?

G M:
The triumph of the dems isn't near as close as they think it is. We'll see very soon, but the buzz we're hearing is more wishful thinking rather than solid analysis IMHO. I'm going to predict that the republicans will lose seats, but will retain majority in both the house and senate.

Now i'm crossing my fingers! :-o

rickn:
craftydog -

The markets are sanguine because they view the worst case situation as gridlock.  That is not very much different than now for taxes.

I like your new improved forum.

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