Jessica Gibbs (Co-Host):
Hey Dave. We’re back. This is part three in our, political miniseries, if you call it, a little sidestep for us, right?
David Armstrong (Host):
A little old-fashioned cross-fire.
Jessica Gibbs (Co-Host):
Right, exactly. So if you haven’t listened yet, we first had on at the end of last year, we had Reince Priebus on sharing his perspective from the Republican party. We also had, at the end of the year in December, we had Bob Stein from First Trust Advisors. Bob is an economist and political commentator, so I’d call him (middle) unaffiliated. So he gave comments on both Republicans and Democrats and today we’re here with the Democratic perspective. We’d love to welcome Steve Elmendorf to the podcast. Steve is one of the most preeminent political strategists in DC. He’s also currently the co-founder and partner of Subject Matter, a strategic communications and government relations consulting firm. Notably, Steve previously served as chief of staff to House of Representatives Democratic leader, Dick Gephardt, and was also a senior advisor to the Gephardt, John Kerry, and Hillary Clinton presidential campaigns. So, welcome Steve to the podcast.
Steve Elmendorf (Guest):
Good to be here.
David Armstrong (Host):
And just special thanks to our mutual friend Penny Lee over there at the Financial Technology Association. Really appreciate her getting us together because when you are the co-founder and partner of a company that does strategic communications and we’re asking you to be on our podcast to communicate, we know we’re on the clock and we really appreciate you taking some time to help us out with this project. So thanks.
Steve Elmendorf (Guest):
Sure. Happy to do it.
David Armstrong (Host):
So it seems like forever ago, but to frame the initial part of the conversation, let’s go all the way back to November. Everybody, reach back in your memory banks and kind of curious like what happened, what’s your take on the midterms? I know it’s a little old, but let’s just start there.
Steve Elmendorf (Guest):
Well, sometimes the conventional wisdom is wrong. And this was a case where it was wrong. I think everybody believed as we were headed to early November that the Democrats were gonna lose both the House and the Senate and it was gonna be a traditional midterm election where the president and the party in charge lose a lot of seats. What happened was quite the opposite. They kept the Senate and expanded their majority by one when they got to the runoff in Georgia. And they did much better than expected in the house. And again, I think it was different than what people expected. People thought that the traditional James Carville adage that it’s the economy stupid was gonna rule, right? And inflation was gonna drive people’s voting patterns. And I think what we saw is for a particular set of reasons, which I’ll go through, I think it was other issues than the economy.
I think abortion had a huge impact in increasing democratic turnout and helping the Democrats keep their edge in suburban, well-educated areas with women they had done in the past. I think Trump inserting himself into the election was a big problem because the other thing that James Carville and other people have all said is elections are about the future, not the past. And by definition, Trump keeps trying to make everything about the past. He doesn’t talk about the future, he talks about the 2020 election and people wanted to talk about the future. Running for office is really hard and sometimes people forget that the quality of the people running matters. It’s not just the quality, the experience level of the people running, particularly if you’re running for the Senate or governor in a big statewide race. If you’ve never done this before, even though you may have other interesting life experiences, running for office is really hard.
And I think we saw some of the Republican senate candidates who had never done this before, who didn’t know how to raise the kind of money they needed to raise, who wasn’t ready for the back and forth on issues, who didn’t have a feel for the middle of the electorate having just been through a primary. So I think those three things, abortion, Trump talking about the past, and the inexperience of some of the Republican candidates. I think to that experience question, if in Arizona we had had the governor Doug Ducey or in New Hampshire, we had the governor, Chris Sununu, they probably would’ve won. But instead, we had people who were new to politics and new to campaigning and they lost.
Jessica Gibbs (Co-Host):
So let’s pivot from something that’s a little bit in the past in terms to something that’s very current right now and that I know everyone wants to talk about is the debt ceiling. So in your opinion, Steve, should people and specifically investors, should they be concerned about a showdown over the debt ceiling?
Steve Elmendorf (Guest):
Yes. I don’t think we are gonna default on the debt, but I do think in order to get to the death ceiling being raised, we, unfortunately, may have to go through some perils of Pauline moments that will include the markets reacting to things not going well and the markets reacting to a concern that we could default and that market reaction causing the politicians to say, oh, this is a problem, Dow just went down 700 points as we’ve seen in some past fiscal cliffs we’ve had. And so I’m very worried about it from an investor standpoint. I think when you look at it, it’s six months away and all experts I think are pretty much in agreement that we’re okay until the June 15th quarterly filings. The big question will be where does treasury end up after those corporate personal filings and then can they make it to August or sooner? I don’t think many people think it’ll last much beyond August. And right now the two sides, the Republican side in the house has a position that is not sustainable. What they’re advocating for in terms of spending cuts in return for raising the deficit, it couldn’t pass in their own group, let alone in the broader Congress, and get signed by the president. So they have a position that they’re articulating that is not doable.
The democratic position is we just want to clean debt ceiling. The problem with that position is that for Kevin McCarthy, the speaker of the house to do a clean debt ceiling is him basically saying, I’m gonna do that, and then I’m gonna resign because his position will not be sustainable with his own group. So if you take those two facts, which I think are facts, then the question is what’s the compromise? What is the give that Democrats have to do to get McCarthy to be able to put it on the floor? Mcconnell will be a big player in that. And is it a substantive spending cut deal? Is it a process spending cut deal? Is it a commission, is it something? But there’s gonna have to be some negotiation there to get to a result. And I fear that in the process of those negotiations, they could fall apart at various points, and then the markets will react badly.
David Armstrong (Host):
That seems to be a likely outcome and I think we always try to answer the question. Okay, great. So what or what now? And I think anybody that’s listening that hears you say, yeah, the investors should be worried. I agree. And so my advice to people just general advice would be, look, if you forecast a need for cash inside the next six months, let’s just say between now and August 1st, I’m just throwing out time. If you’ve got something you’ve gotta pay for and the market is buoyant right now then raise your cash right now and be able to ride out that volatility. Because everybody knows that the market doesn’t like uncertainty, the market doesn’t like volatility. And if we’re gonna inject that uncertainty and that volatility into it, then have your cash out now. Get your cash out now and then that way you don’t have to worry about selling at the bottom to fund something. I think that’s just our general advice on how to handle it. So not knowing should they be worried, great, that’s all fine. I think it’s how people react to that, that’s really important. But back to politics, here are two things that I do really, really well for my couch, college football coach and elected politician. I am awesome at those two things sitting on my couch yelling at the television set. So my question is, how much should I expect the normal brinksmanship to adjust as it relates to this negotiating on the debt policy? You kind of alluded to it that maybe the compromise would result in a possible resignation, but what else should people expect to see from their couch on this?
Steve Elmendorf (Guest):
Well, I think there are two things that people should worry about this year. One is the debt ceiling timing of June, July, August, and how does that resolve itself, and does it resolve itself in more disruption of the government or does it resolve itself in a deal of some sort that carries people through the next election? So you have a pretty good sense of where things are gonna be from July 1st until the next presidential election in 2024. Or does it resolve itself in a sort of bumpy landing with a kick the can to, we’re gonna do this again in January or something? And I think all that is unknown at the moment. Obviously, for investors, it would be great if we could, even if it’s a little bumpy getting to a result that we could get to a result that took us through the next presidential election. I think the other inflection point to look at is when the fiscal year ends on September 30th, whether or not the government is funded, and does the government shut down. Now we have been through shutdowns before. My view is they are distressing and they cause trouble, but they’re not catastrophic the way a default would be. And you can have a two-day shutdown or a one-week shutdown and generally what happens is the people whose fault it is get blamed and realize it’s not really a good idea. But that could also cause some more… Again, I think markets won’t react all that badly to that because they’ve been through it before and seen that it’s not catastrophic.
David Armstrong (Host):
And specifically, I remember it was during the Obama administration, but I don’t remember exactly when that we had a shutdown but not a default, right? Am I recalling that…
Steve Elmendorf (Guest):
Yeah, we’ve had…
David Armstrong (Host):
Yeah, right. So we have seen that before, but yeah, I agree. Jessica, you had something you wanted to…
Jessica Gibbs (Co-Host):
I wanted to pivot away from the debt ceiling, as fun as that conversation is. And Steve, I’d love to kind of ask your perspective on where you see the Democratic party going.
Steve Elmendorf (Guest):
Well, I think the election, one of the good results of the election from someone like me who’s a moderate, is that I think moderation did pretty well. I think that when people look at why we did well and where we’re doing well, elections are sometimes about all we have to do is energize our base to win. And I think we won this election primarily because we did a pretty good job of working the center. And I think both parties, at least the Democratic party I think, realize that long-term success and winning elections, you cannot just win the elections by jacking up your base. You have to figure out how to talk to that group between the 40-yard lines. So I think that’s a good thing.
I think the agenda for the next two years, we are a divided government and with one part of the government, the house, which is sort of unrealistic in their expectations. And I think the question will become, are there any issues that we can reach some bipartisan consensus on? And if you listen to Biden carefully over the last weeks and months, his message is, I succeeded in these major bipartisan accomplishments of the chips and science act of the infrastructure bill of our Covid response act. The IRA was not bipartisan, but it was a big accomplishment. So I think he’s gonna argue we need more bipartisan accomplishments. He wrote one, an op-ed in the Wall Street Journal last week about, here are some things we could all agree on on tech policy. I think the problem’s gonna be, I don’t know that there is a willing partner in the house Republicans to do that. I think they seem pretty invested in the political strategy of making him fail, not working with him to get things done.
Jessica Gibbs (Co-Host):
Do you see that changing anytime soon or do you think they’re gonna stick to their guns on that for a while?
Steve Elmendorf (Guest):
I don’t see it changing. I think it’s pretty toxic. You know, look, I think the Senate Republicans have a different set of policies and a set of ideas and that they want to get some things done and they, you know, statewide officeholders generally have a different view of what the world than members of Congress who come from, a less diverse, more compact group of ideologies and people. But in the house, I just don’t know what the incentives are. If you’re from one of these very, very conservative districts, there are not a lot of incentives that cooperate, unfortunately. There are a few issues we could talk about, which you know, it’s possible, crypto, which some of your listeners may be interested in. There seems to be, you know, chairman McHenry and the House Financial Services Committee is a reasonable person who has some pretty substantive views on crypto. And after the FTX crash, I think there’s a bipartisan acknowledgment that this is an area of the economy that probably needs some regulation. And so that’s one area where I could see something happening. There are things of less interest to your listeners like the Farm Bill, which traditionally gets done between a coalition of rural interest on agriculture and city interests on food stamps. There’s a reauthorization of the Federal Aviation Administration, which is interesting to all of us who fly, who think that the FAA should get more money and be better at what they do. Some of the other big issues like what happens to the tech sector, which is obviously important to a lot of us who own those stocks, I find it hard to believe that there’s a real bipartisan consensus. Everybody has a view of what’s wrong, but they have different solutions for how to solve that problem.
Jessica Gibbs (Co-Host):
You mean as far as regulation on the tech sector?
Steve Elmendorf (Guest):
Yea. And then the other issue that obviously investors followed closely is taxes and I sort of feel like on taxes we’re in a pretty static period. When Trump was president, the Republicans controlled everything, we had a major tax bill. Biden president, Democrats control everything. We have the inflation reduction Act, also a major tax bill. Now we’re in a divided government, I have a hard time seeing significant tax legislation, especially since we have in the future the expiration of a bunch of the Trump tax cuts in 2025. And I feel like that is probably the next big inflection point when there will be a significant discussion about taxes. Because whenever a tax bill expires and rates go up automatically, that tends to motivate politicians to figure out what can we do.
Jessica Gibbs (Co-Host):
Do you foresee that being a discussion before those tax cuts expire at the end of 2025 or is that gonna be a 2026 onward conversation after the tax rates have gone back up?
Steve Elmendorf (Guest):
I think anything happening will be after the next presidential election. I think there will be people in both parties over the next two years trying to set the table of what they ought to do. But the reality is, I don’t think anything significant is gonna happen.
David Armstrong (Host):
So for people listening for tax planning, probably status quo through the next presidential election, maybe a little bit beyond that status quo. Probably the same thing applies for trust and estate planning too. So the state laws won’t change.
Steve Elmendorf (Guest):
Definitely.
Jessica Gibbs (Co-Host):
Yeah. The changes that were made under the tax cuts and jobs act that elevated estate tax exemption I think specifically is what you’re talking about. That will still remain in fact until the end of December 2025.
David Armstrong (Host):
Yes, right. Don’t wait until December before they sum set. So please, everybody. So I’m curious if you have any on-deck politicians that you really like. Who’s out there on either side or just pick one, doesn’t matter. But I’m curious, you got any up-and-coming favorites, who should we be paying attention to that doesn’t necessarily have the big national spotlight all the time?
Steve Elmendorf (Guest):
That’s a good question and I think in both parties, and this has been true for a while, I think there are a lot of younger politicians out in the states who are interesting and who are doing innovative things. I think on the Democratic side in particular, the new governor of Pennsylvania, Josh Shapiro, early fifties, many people are now starting to say, gee, he could be the first Jewish president. He’s moderate, he won a picture-perfect race, did everything right, and was a very good attorney general. And I think he is the governor of one of the swingiest of the swing states right now. And he’ll have a big profile. I think the new governor of Maryland who we may watch cause we’re all nearby Wes Moore dynamic, again…
Jessica Gibbs (Co-Host):
Oprah likes him.
Steve Elmendorf (Guest):
Oprah. I was shocked. I saw Oprah introducing him.
Jessica Gibbs (Co-Host):
She was at the inauguration.
Steve Elmendorf (Guest):
She introduced him
David Armstrong (Host):
Republican Dave likes him. Yeah, I think it’s great. I’m so energized by him. Love it.
Steve Elmendorf (Guest):
So I think those two, in particular, I am excited about. I love Joe Biden as the Democrat, but I do think there are people in both parties who sit here and think, are we really gonna have a Joe Biden, Donald Trump election? Like is this what we’re left with here? And they would probably say, gee, you know, Josh Shapiro versus Ron DeSantis, would be more interesting or another, you know, Josh Shapiro versus Nikki Haley. So I think in both parties there’s an interest in getting to the next generation and I just mentioned two Republicans who are interesting, next generation, less than 60 years old and still experienced. And I think there’s a thirst out there for younger, I don’t think fifty is young, but I guess it’s young when you’re comparing with 80 years old.
And I think the House of Representatives is a very good model right now where Nancy Pelosi, Stenny Hoyer, and Jim Clyburn, who are the top three leaders, all of whom are 82, 83, have I think stellar careers, done a great job. But they all in unison with no argument moved aside and three new people, all of whom are in their fifties from different parts of the country have moved up, Hakeem Jeffries and Catherine Clark, and Pete Aguilar. And it was a seamless transition. I think people are like, this is great, we loved our old leaders, they did a great job, but it’s time for some new fresh faces and I think both parties could probably benefit from some of that.
David Armstrong (Host):
And I’m in my mid-fifties and I haven’t decided if I’m running either. So I’m a wild card out there still too, Steve. I just want you to know.
Steve Elmendorf (Guest):
I’m 62.
David Armstrong (Host):
That’s really interesting.
Steve Elmendorf (Guest):
I just wanna make sure I make enough money to retire so…
David Armstrong (Host):
Don’t we all, don’t we all. That’s great. Thanks for sharing that with us. I agree there are some exciting people out there. I’m definitely excited to see some of the next generation people come up on both sides and maybe they’re the ones that find some bipartisan common ground, maybe just a new generation changes things a little bit. We can all hope. But do you care to handicap who could potentially not win, but who could be some of the last couple people standing on the Republican side, and to just guess, let’s just say something happens and Biden doesn’t run, who would be some of the people you would handicap that could make it pretty far along in the primary process?
Steve Elmendorf (Guest):
Well, I think if both parties, if you move Trump and Biden aside, you’re gonna have a very robust field. I think in the Republican party, Ron DeSantis is obviously the front-runner after Trump. I think Governor Youngkin in Virginia, he’s a very conservative guy, but he comes across with sort of a sunny disposition, which I think people like optimism in their politics, which is one thing that I would sort of view as a negative about DeSantis is I find him sort of constantly negative. I think Nikki Haley’s in that same category and they’re all very conservative. I think the question for the Republican party is do the successful governors like Larry Hogan who just left Maryland very popular in Maryland, governed in a blue state, Chris Sununu in New Hampshire, similarly, do they have any future in the Republican party or are they just too moderate?
But I think you also have a bunch of candidates like Pompeo and they’ll be a big field. I think on the Democratic side, the vice president would be the front-runner by virtue of where she sits. And in the base of our party, the strength of African American women is how do you get past her? But I think she wouldn’t be given a free ride. I think for someone like a Josh Shapiro, it’s probably a little soon, it’s hard to get elected governor and just turn around right away. Cause the election would start in the first or second quarter of next year and sort of abandon your job and say, I’m gonna go run for president. But I think there are people out there who ran before who are younger and interesting and I think you’d have, besides the vice president, I think Secretary Buttigieg would probably look at it, he’s an incredibly talented person.
I think Corey Booker who ran before, Amy Klobuchar who ran before would look at it. I think, Jared Pollis, the governor of Colorado has talked about it and he’s said another. You know, these governors have had a pretty successful time and a lot of them have recently, and the Republicans would say it’s because they got all this COVID money. But if you look at a lot of these governors, even Democrats, they cut taxes, they have surpluses, and they have good economic stories to tell. And so I think it’s a better platform sometimes to run as somebody who has a success story to tell about running a state than it is to be part of the Washington morass.
Jessica Gibbs (Co-Host):
Well, on that nice positive note . Thank you so much Steve for joining us. I think this was really helpful to hear a perspective, yes, inside Washington, but still, I mean, we all know what happens in Washington impacts everyday people and including investors. So really appreciate you sharing your expertise and your take on what’s going on.
David Armstrong (Host):
We appreciate your time. Thanks. Great.
Steve Elmendorf (Guest):
Take care.
