Goldman Sachs released a US economic analysis report on November 1, highlighting that the key focus of the November 3 midterm elections is as follows: prediction markets show Democrats have a greater than 90% probability of winning a House majority, while Senate control remains uncertain.
If Democrats take the House, fiscal deadlines such as the December 11 expiration of spending authorizations and the 2027 debt ceiling will become the main legislative battlegrounds.
The report also notes that major fiscal policy changes are unlikely over the next two years, but spending could rise slightly under a Democratic victory scenario.
On tariffs, limited tariff cuts by Democrats are expected to be insufficient to offset the impact of new tariffs imposed by Trump after the midterms, and the overall US tariff level could still rise.
Data center issues may cool after the election, while AI regulation and state-level restrictions remain worth watching.
Democrats Have Strong Odds in the House, Senate Remains More Uncertain
Polling and primary voting show that national sentiment has swung toward Democrats by about 10 to 11 percentage points since the 2024 election, according to the report.
In national generic ballot polling, Democrats currently lead by about 9 percentage points; Republicans won the House popular vote by 2.6 percentage points in 2024, meaning the swing exceeds 11 percentage points.
Voter enthusiasm indicators and primary participation rates also point to a similar-scale Democratic advantage.
In the House, Democrats need a net gain of just 3 seats to win a majority.
Prediction markets currently suggest Democrats could gain a net 21 seats, reaching 236 total seats next year, similar to the size of the Democratic majority after the 2018 election and wider than the slim advantage of just above 220 seats that the ruling party has held since 2021.
The Senate race is closer.
The report says Democrats lead in some Republican-held seats, but most are within the margin of error; among the seats Democrats must defend, their candidates also lead in polling, though two are within the margin of error.
The report argues that if Democrats win the House, the Senate outcome becomes relatively less important, because passing legislation in the Senate usually requires bipartisan support, and President Trump can still veto bills sent to him by Congress.
Fiscal Deadlines Take Center Stage, Spending May Rise Slightly
The report argues that under a scenario where Democrats win the House, fiscal deadlines will be the main focus of legislative action.
Spending authorizations will need to be extended and the debt ceiling will need to be raised, potentially forcing both sides to compromise.
Democrats may use these deadlines to push an agenda including the Iran war, tariff reductions, reversing spending cuts and expanding health benefits.
However, Goldman Sachs does not believe Congress will address these deadlines before the end of the year, although Republicans may try.
Specifically, the next relevant deadline is December 11, when spending authorizations expire.
The report says that given policy differences and the gap between the two sides' proposed spending levels, Congress is more likely to push the deadline to February or March 2027.
The debt ceiling may be reached in the first quarter of 2027, and the US Treasury is expected to respond by drawing down its balance at the Federal Reserve and using extraordinary measures, but Congress may need to raise the debt ceiling before October 2027.
The report says Democrats may use shutdown risks or mandatory events such as the debt ceiling to seek policy concessions.
Jeffries, who could become House Speaker, has said he expects to quickly push to expand health insurance subsidies, cut some tariffs and promote a vote against the Iran war.
House Democrats also established a working group this year on affordability issues, covering food, energy costs, housing, healthcare and caregiving, which could be a central theme next year.
On the fiscal policy impact, Goldman Sachs does not believe there will be major changes over the next two years, but spending could increase slightly under a Democratic victory scenario.
Democratic proposals to reverse spending cuts in last year's fiscal package are expected to increase 2027 spending by about 0.25% of GDP.
If an agreement is reached on discretionary spending and/or expanding health insurance subsidies, there could be a slight increase on top of that.
Tariffs: Limited Cuts Unlikely to Offset New Increases
Democratic leaders have said that if they win a majority they will try to reverse some Trump administration tariffs, according to the report.
Provisions to cut tariffs on specific countries or products could enter fiscal deadline negotiations or even pass as standalone measures, with the most likely focus being reducing tariffs on imports from Canada.
But the report expects Trump to announce the results of the Section 301 investigation into industrial overcapacity after the midterms, and comprehensive measures will restore tariffs on individual trading partners to roughly pre-Supreme Court ruling levels.
The report expects that new tariff increases announced by Trump after the midterms will outweigh limited Democratic cuts, potentially raising the US effective tariff rate by slightly less than 2 percentage points on a net basis.
Data Center Issue May Cool, AI Regulation in Focus
Data centers have become a theme in some campaigns this year, but attention is expected to decline after the election because they rank low among voter priorities, according to the report.
Congress may limit tax benefits for data centers, but a nationwide moratorium on data center construction appears unlikely regardless of the election outcome.
The report expects Congress to shift focus to AI regulation, possibly reaching a compromise that includes basic federal oversight and self-testing, though strict restrictive regulation is unlikely.
At the state level, further action is still possible at the state and local level after the midterms.
Some Democratic gubernatorial candidates have proposed stricter limits than their Republican opponents, including statewide moratoriums, environmental legislation and restrictions on tax incentives.
Potential Democratic trifectas in Arizona, Pennsylvania and Nevada could drive new AI-related laws and bring more AI regulation modeled on existing rules in California and New York.
At the federal level, the report believes a Democratic win of one or both chambers is unlikely to produce comprehensive new regulation, and any legislation would need bipartisan support.
A bipartisan AI agreement could center on self-testing and self-regulation, with a moderate burden on AI companies.
By contrast, stricter proposals such as independent external assessments and mandatory government pre-review of models are unlikely to win bipartisan support.
If Democrats win either chamber, the report expects them to launch investigations into large technology companies, examining AI development, safety practices and data collection.
On data centers, Democrats may propose excluding them from some tax benefits and push for a data center-specific tax, but Republicans may block stricter regulation.
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