As our economics team has highlighted, the policy implication of most pressing concern is the expiration of Bush tax cuts. They estimate an impact of 2% annualized reduction in household income worth about 1.3% of GDP, and that such an increase if not reversed could trigger a double-dip recession.
...The political shifts affect that outcome with one school of thought that a divided congress raises the odds of no legislation (and hence a default scenario of expiration). In the face of increasing evidence of a slowing economy, a compromise to avoid a fiscal tightening that could exacerbate the risks of a double dip likely rises, in our view. The question will be one of timing – can a compromise be reached ahead of the election (in our view, unlikely), in a lame duck session (again unlikely).
...In our view, that leaves a retroactive extension passed in January as the most likely compromise. But the damage to confidence in the intervening period may already be done under such a potential scenario. A further deceleration in the data may yet change that assessment, but in the intervening period, political uncertainty will not positively contribute to the economic outlook already diminished by a successive wave of negative data.
I can summarize this in one sentence: Democrats are economic illiterates.
By the way, you can also thank John McCain for the expiration of the Bush tax cuts. 'Cause he's a 'maverick'.