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December 2016

Investment insights

What can Trump do with the Republicans controlling both houses?

Will the Republicans’ clean sweep that brought them control of the House of Representatives, the Senate and the presidency give them free rein, allowing incoming President Donald Trump to pass more legislation than his predecessors? Not quite – as our historical analysis shows. Few laws make it through the bureaucratic process and major laws require a larger majority than Trump will enjoy.

It would seem obvious an aligned Congress would make it easier for any president to pass laws, compared to facing an opposed or split Congress, as was the challenge for President Barack Obama’s last six years in office. 

In reality, however, a very small proportion of proposed bills become law in any scenario. 


In reality a very small proportion of bills are passed


Source www.govtrack.us: Fidelity International. November 2016
 

Not only that, but enacted bills have also generally been a shrinking fraction of all bills proposed in the last 30 years. In fact, the current congressional term looks on course to record the lowest number of bills ever passed.


The proportion of bills being passed is in decline



Source: www.govtrack.us: Fidelity International. November 2016

Surprisingly, there is no clear positive link between the number of enacted bills and the degree of party congressional control. In Obama’s first (two-year) congressional term the Democrats controlled both houses, yet significantly fewer laws were passed in this term than in the preceding one under George W Bush, who had to contend with an unaligned Congress.


Congressional control not correlated with number of laws passed


Source: www.govtrack.us: Fidelity International. November 2016
 

Ultimately, presidencies are defined by a few major pieces of legislation, such as Obamacare or the Civil Rights Act, rather than the volume of bills enacted. Just a cursory look at the signed bills record for the current Congressional term shows that an overwhelming majority of the hundreds of bills passed are uncontroversial (and often procedural). 

Passing any polarising legislation typically requires a senate ‘supermajority’. A simple majority (> 50%) gets a bill through the House of Representatives, but to avoid an opposition ‘filibuster’, a supermajority of 60 votes is needed in the Senate. The graphic below shows that such instances of presidential alignment with both houses and a Senate supermajority are rare.


Laws passed in Senate supermajority periods 


Source: www.govtrack.us. Fidelity International. November 2016

Remarkably, Obamacare is the only major law to be passed in the face of 100% opposition from opposing party members in both houses. What made this highly divisive legislation possible was not just a simple majority in both houses (something Trump also has) but, crucially, an effective senate ‘supermajority’ (something Trump does not have), thanks to the support of two independent senators and a Republican senator’s decision to switch parties mid-session.


Changes in composition for incoming 115th US Congress

Source: www.govtrack.us. Fidelity International. November 2016

 

With just 51 Republicans (or 52 if they win the Louisiana run-off in December), the incoming Senate majority is slim. It’s also worth bearing in mind that Trump has failed to earn the full support of the entire party. Political commentator Nate Silver estimates there could be 5–10 Republican Senators who defect, blocking him from confirming his cabinet, making successful Supreme Court appointments, or passing new pieces of legislation.

 

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© 2017 FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340.
Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL limited.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 ("Fidelity Australia"). Fidelity Australia is a member of the FIL Limited group of companies commonly known as Fidelity International. Prior to making an investment decision retail investors should seek advice from their financial adviser. Please remember past performance is not a guide to the future. Investors should also obtain and consider the Product Disclosure Statements ("PDS") for the fund mentioned in this document. The PDS is available on www.fidelity.com.au or can be obtained by contacting Fidelity Australia on 1800 119 270. This document has been prepared without taking into account your objectives, financial situation or needs. You should consider such matters before acting on the information contained in this document. This document may include general commentary on market activity, industry or sector trends or other broad based economic or political conditions which should not be construed as investment advice. Information stated herein about specific securities is subject to change. Any reference to specific securities should not be construed as a recommendation to buy, sell or hold these securities. While the information contained in this document has been prepared with reasonable care no responsibility or liability is accepted for any errors or omissions or misstatements however caused. The document may not be reproduced or transmitted without prior written permission of Fidelity Australia. The issuer of Fidelity funds is FIL Responsible Entity (Australia) Limited ABN 33 148 059 009. References to ($) are in Australian dollars unless stated otherwise. © 2017 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International, and the Fidelity International logo and F symbol are trademarks of FIL Limited.