Midterm Results: Democrats Control Congress, Face $2 Trillion Deficit

The federal budget deficit reached nearly $2 trillion in fiscal year 2026, a figure announced by the Treasury Department in October that defines the financial constraint for the new congressional session. This debt level will limit the scope of spending increases as Democrats take full control of both the House and Senate following the midterm election.

Health care costs represent the immediate policy priority for the incoming majority. Democrats plan to restore portions of the enhanced Affordable Care Act premium subsidies that expired at the end of 2025, a lapse that caused monthly premiums to rise sharply for millions of enrollees. The party also intends to loosen Medicaid work requirements set to take effect in 2027 under the One Big Beautiful Bill Act, while some lawmakers seek to add long-term care coverage to Medicare.

Tax policy presents a complex balancing act. Democrats may support extending temporary deductions for tip income, overtime pay, and auto loan interest created by the 2025 law, which expire after 2028. However, new senators James Talarico of Texas, Troy Jackson of Maine, and Annie Andrews of South Carolina campaigned on expanding the child tax credit. Daniel Bunn, president and CEO of the Tax Foundation, warned that narrowing the income tax base could complicate funding for other government priorities.

Student loan oversight will likely replace sweeping forgiveness. Mark Kantrowitz, a higher education expert, noted that Democrats will use hearings to press the Education Department to fix the Public Service Loan Forgiveness program. More modest legislative steps, such as restoring tax-free treatment of forgiven debt and raising borrowing caps, may attract bipartisan support. President Donald Trump retains veto power, and projections indicate Democrats will lack the votes to override him, making compromise necessary for major financial changes.

Housing and credit markets face structural challenges tied to geopolitical tensions. An Oct. 30 analysis by Desjardins suggested Democrats might introduce measures for first-time homebuyers, though Jake Krimmel, senior economist at Realtor.com, stated that market stability depends on a calmer bond market. The 10-year Treasury yield remains elevated following the Iran war, which has pushed oil and fuel prices higher and fed inflation across the economy.

The incoming Senate class must also address the future of Social Security. Trustees project the Old-Age and Survivors Insurance Trust Fund will be depleted in the fourth quarter of 2032. Without congressional action, this depletion triggers an across-the-board benefit cut of 22%. Some members of both parties have proposed higher payroll taxes on top earners, while experts anticipate a potential SECURE 3.0 bill could expand access to workplace retirement plans.

Consumer credit and crypto assets remain areas of potential legislative action. Aaron Klein, a senior fellow at the Brookings Institution, observed that a Democratic Congress might act on capping credit card interest rates, though analysts expect any cap to land closer to 36 percent than the 10 percent proposed by the White House. In the crypto sector, Lee Reiners of Duke University declared the CLARITY bill dead after it failed a Senate procedural vote in September, noting that future frameworks must address conflicts of interest involving the president's businesses.