The ironic thing about the midterms and inflation

November 2, 2022 • Issue #167

Hi y’all —

Growing up in Florida shaped me in many ways: I’ve got a high tolerance for heat, a lot of opinions on Disney World and a constant craving for Publix subs.

My swing-state past also makes me take voting very seriously, because I’ve seen firsthand how much of an impact one person (or, uh, 537 people) can have.

That means, of course, that I’m planning to Pokémon-Go-to-the-polls next week for the midterms. The election comes at a particularly weird time, what with gas prices fluctuating and student loan forgiveness rolling out (kinda) and Jerome Powell waging a one-man war against inflation. But before I step into the voting booth, I want to know more about how my vote may actually affect my personal finances.

What money issues are at stake in the midterms?

On a state level, there are several actual money-related proposals on the ballot. In Nebraska, Initiative 433 would raise the minimum wage from $9 to $15 by 2026. In Arizona, Proposition 209 would bring down the maximum interest rate on medical debt from 10% to 3%. And in Massachusetts, Question 1 would amend the state constitution to increase taxes for millionaires.

But nationally, the big question is which party will take control of Congress. Right now in the Senate, Democrats have the majority because although there are 50 seats held by Republicans and just 48 held by Democrats, the two Independent seats lean left — and Vice President Kamala Harris is the tiebreaker. In the House, 220 of the seats are held by Democrats and 212 are held by Republicans (three are vacant).

The midterms, which will decide the fate of all 435 House seats as well as 35 Senate seats, could change the math.

In polls, voters regularly say the economy and inflation, which has been hitting four-decade highs for months, are their top concerns. Candidates know that, and so they’ve been campaigning hard around those issues: “A lot of people are hitting Biden with ‘he’s not doing anything, he’s not doing enough,’” says Michael Snipes, an economics instructor at the University of South Florida Sarasota-Manatee. “Democrats are hitting back that ‘the Republicans are blocking things, the Republicans aren't doing anything.’”

The party that controls Congress will lead the government’s response to the state of the economy, which has a ripple effect (we’ll get to that later). 

But speaking in terms of black-and-white cause-and-effect, Congress doesn’t really have the ability to directly bring down inflation, says Scott Imberman, an economics and education professor at Michigan State University.

That’s largely in the hands of the Federal Reserve, which has been ratcheting up interest rates in an attempt to get our 8.2% inflation closer to 2%. The Fed is independent, so it’s not influenced by the party in power (at least in theory). Its chair, Powell, just got sworn in for a second term, so he’s not going anywhere soon.

“The irony is that inflation is first and foremost on people's minds... and something the president and Congress can do the least about,” Imberman says.

Gas prices, which are tied closely to international factors, are in the same bucket. Imberman says Congress could potentially bring down prices by enacting a gas tax holiday or ordering the release of petroleum reserves (as Biden has done), but that impact is going to be pretty small.

Rather than trying to directly decrease inflation or gas prices, Congress could make moves to increase Americans’ income, therefore boosting their purchasing power, Snipes says.

That’s something that may be influenced by the midterms: Progressives like Sen. Bernie Sanders want to raise the federal minimum wage to $15 an hour. Republicans have been hesitant to do that (last year, Sens. Mitt Romney and Tom Cotton introduced a bill to make it $10; The Guardian described the proposal as having “little chance of getting any serious consideration”).

Snipes says Congress could crack down on corporations, too, using antitrust legislation to encourage competition and bring down prices. Imberman adds that Congress could codify broad-based student debt relief.

The idea is that legislators would free up dollars in my inflation-constrained budget to spend on rent and groceries, making those bills less painful. But that depends on the majority party and its priorities.

Caroline Bruckner, a tax professor at American University, says that perhaps the most imminent, immediate money impact I could see from the midterms has to do with the IRS. Not only because there’s a new acting commissioner — Douglas O’Donnell, named last week — but also because the IRS has some $80 billion in additional funding to spend, thanks to the Inflation Reduction Act.

This tees up a fight. Republicans want to repeal that provision, saying that they don’t want the IRS to use the money to hire workers who will go after taxpayers with unnecessary audits. Meanwhile, Democrats claim that there’s not enough compliance accountability *because* the IRS can’t seem to hire anyone.

Bruckner says there are also a whole slew of annual tax provisions that have to get extended before the end of the year. Whether the parties hammer out a deal is contingent upon the midterms: “If the Republicans have a landslide election, where's the incentive to negotiate with the Democrats?” she says.

One final point: Some of the politicians elected in these midterms will end up dealing with the expiration of the 2017 Tax Cuts and Jobs Act. Republicans will want to extend those tax cuts; Democrats will want to set new priorities.

“That is a looming, multi-billion-dollar issue that is going to impact not only the next Congress but the presidential election in a huge way,” Bruckner says. “Whether or not voters recognize it, that's on the ballot this election.”

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

Money issues like inflation and gas prices aren’t explicitly linked to the outcome of the midterms. But the majority party is, and it’ll have a long-term impact on my wallet.

So go vote.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

Blue Ivy Carter, the 10-year-old daughter of Beyoncé and Jay-Z, bid a whopping $80,000 on a pair of diamond earrings recently. It was at a charity event hosted by her grandma, and it’s not the first time she’s been willing to pony up at an auction (in 2018, she got into a $19,000 bidding war with Tyler Perry over a painting), so I guess I shouldn’t be surprised. We all know who runs the world.

INTERNET GOLD

five things I'm loving online right now

1	I love how much Chris Evans loves space. (Also, yeah, the photos from NASA's James Webb Space Telescope are downright incredible.)
2	Read this fascinating story about cataphiles, or the young Parisians who spend their nights partying, chilling and exploring the city’s catacombs. It’s technically illegal to go into the underground tunnels, but that doesn’t stop the cataphiles. “There’s something surreal about going down there, and the fact that not everyone knows how to enter,” one told Dazed. “It’s like the upside down from Stranger Things.”
3	Owl on broomstick.
4	Congrats to the swift-footed lizard, which was named Massachusetts’ state dinosaur. A Cub Scout den came up with the idea to find a state dino while trying to stay occupied during lockdown, and they ultimately solicited votes from the public before bestowing the honor upon the Podokesaurus holyokensis.
5	When Justice Ketanji Brown Jackson was sworn into the Supreme Court last month, her husband wore socks with her face on them. Best wife guy ever?

401(K)ITTY CONTRIBUTION

send me cute pictures of your pets, please

VIA Courtney Gifford

Meet King Connor, a cat who will be closely watching the results of next week’s midpurrms.

OK, even I can admit that was a bad one.

See you next week.

 
P.S. Last week, I got so excited by the prospect of pets in costumes that I made a typo in Dollar Scholar. There are not 332 billion, with a B, people in the U.S. There are 332 million, with an M. Dividing the $31 trillion national debt by 332 million leads to a per-person debt of roughly $90,000. Thanks to everyone who pointed it out, especially Scholar Stephen and Scholar Robert.

P.P.S. I regret the error, BUT I still want to see your pets in costumes. Please send them to me at julia@money.com or @SuperJulia on Twitter. If I get enough, we could have costumed 401(k)ritter contributions through the end of 2022. What could be better?

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