Tobin Marcus on 2026 Economic Growth, Tax Policy, and House Majority

Economic Growth and Stimulative Environment

• 📈 The US is heading into a stimulative environment in 2026, driven by a combination of tax breaks, capex expensing, fiscal spending, and deregulation.
• 💡 A significant boost is expected from individual tax cuts included in a recent bill, which will largely be realized during tax filing season.
• ⚠️ While there are debates about corporate-side stimulus and potential additional measures like tariff-free funds, significant tailwinds for growth are anticipated.

Corporate Investment and Capex

• 🧐 Wolfe Research holds a cautious view on how much incremental capital expenditure (capex) will be induced by tax cuts.
• 🚀 The AI and data center sector is a strong driver of capex, but faces capacity constraints with chips and turbines already booked years out.
• 📉 For smaller manufacturers, uncertainty around policy and the economy is expected to continue holding back investment, despite potential benefits from expensing policies.

Political Outlook and Midterm Elections

• 🏛️ The base case for the 2026 midterms suggests Democrats are favored in the House, while Republicans are strongly favored in the Senate, likely resulting in a narrow Democratic House majority.
• 🗳️ Flipping the Senate would require Democrats to win key swing states like Ohio and Iowa or Texas, which is considered very challenging.
• 🗣️ Changes to the Senate filibuster are seen as possible in the future, but not likely to occur in 2027, as it depends on a party's need to pass legislation.

ACA Subsidies and Political Dynamics

• ✅ The possibility of extending ACA subsidies remains, potentially requiring leadership from President Trump to rally Republican support.
• 🤝 There is sufficient sympathy within the Republican party to pass such measures if President Trump prioritizes it.
• 📊 The impact of extending ACA subsidies on Republican midterm performance is uncertain, but the current political landscape points towards a divided Congress.