Democrats who seized power in the US House of Representatives from President George W. Bush's Republican Party may engineer a higher minimum wage for Americans but not a sweeping makeover in economic policy-making, analysts said.
Democratic gains in Tuesday's election will put them in charge of the House and its key committees for the first time since 1994. Democrats also were on the brink of wresting power in the Senate, giving them a robust platform for policy change.
But executive authority in Republican hands leaves limited scope for achieving it.
On Wall Street, stock prices fell amid caution over the undecided Senate race. But bond prices and the dollar were bolstered by expectations a divided government would limit spending, keeping down the supply of Treasuries. House Democrats have laid out an agenda that puts a hike in the minimum wage near the top.
Rep. Charles Rangel, ranking Democrat in line to become chairman of the powerful House Ways and Means Committee, urged Treasury Secretary Henry Paulson to help identify "some 'low-hanging fruit' or policies that we can deal with together in the first months of 2007" to establish trust.
In an interview with Reuters, Rep. John Spratt, the presumed new chairman of the US House of Representative's budget-writing committee, vowed to try to end chronic deficits.
"We would simply like to go in a measured way toward deficit reduction and a balanced budget within the next five years," the South Carolina Democrat said.
Analysts said ahead of the vote that Democrats might be able to push a modest agenda forward in the remaining two years of the Bush administration. But ill feeling between Democrats and Republicans runs so deep that the most likely bet was for legislative gridlock.
"The president and a Democratic-controlled House are going to be bickering over Iraq and that's going to take the wind out of any economic policy effort," predicted economist Mark Zandi of Economy.com in West Chester, Pennsylvania. In the countdown to Election Day, financial markets were buoyed by the prospect that, regardless of the outcome, big tax changes were unlikely.
"The gridlock theory says that not much will change and that tax law is pretty well set," said David Strauss, a portfolio manager with Johnston Lemon Inc in Washington. But shares of retailer Wal-Mart Stores Inc and some drug companies fell on Wednesday due to concerns Democrats might be less friendly to them than a Republican-controlled Congress.
Hiking the minimum wage, which is now $5.15 per hour and has not been raised since September 1997, is one initiative identified by Democrats as a priority. Analysts saw it as unlikely that Bush would veto such a measure.
Another Democratic aim is to revise the program providing prescription drug benefits for older Americans. Democrats want to allow the government to negotiate directly with drug-makers on prices.
On tax issues, specifically Bush's drive to make permanent 2001 and 2003 tax cuts, the going is likely to be much tougher. Most of the cuts are scheduled to expire in 2010.
Democrats might be in position to engineer a trade, offering extension of some of the tax reductions in exchange for a higher minimum wage. Democrats blame tax cuts for driving budget deficits up, but Rangel has suggested a broad reversal was unlikely. Bush has said he wants to rein in the costs of entitlement programs like Social Security and Medicare. But the odds of a bipartisan deal appeared remote.
Budget specialists warn growing costs for paying benefits aren't sustainable after about five years. But Democratic reluctance to add measures like private accounts coupled with a Republican refusal to raise taxes make a solution less likely with more lawmaking power in Democratic hands.
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