CNBC's "Squawk Box" team discusses what to expect from policy and politics in 2026 with Tobin Marcus, head of U.S. policy and politics at Wolfe Research.

Washington

Tobin Marcus, Head of U.S. Policy and Politics at Wolf Research, provided analysis on anticipated economic and political developments for 2026. He highlighted significant individual tax relief measures set to take effect, which are expected to stimulate the economy, though he expressed caution about the incremental impact of corporate tax breaks on new investment, particularly outside of high-demand sectors like AI and data centers.

On the political front, Marcus suggested that Democrats are favored to maintain a narrow majority in the House, while Republicans are strongly favored in the Senate. He noted that only a substantial economic growth surprise could alter these projections, and he expects the Senate filibuster to remain in place through 2027.

Looking at narrow Democratic House majority in 2026, says Tobin Marcus

All right, let's take a look at what the markets can expect from Capitol Hill and government policy in 2026. Joining us now is Tobin Marcus, Wolf Research Head of U.S. Policy and Politics. Tobin, good to have you on. If you bundle together all of the policies that are kicking in, obviously some of the tax breaks, some of the CapEx expensing, along with, I guess, what's happening on the spending side of fiscal and deregulation, what do you think is the net effect for economic growth over this year? Thanks for having me. So, I think that at the highest level, we're pretty clearly heading into a stimulative environment in 2026, and the question is really just how stimulative. But there's been a lot of debate over the course of the past few months about whether or not the economy's slowing down, whether or not the labor market's cracking. We've always thought through that whole debate that we really kind of just need to hold on until the spring when we have a lot of tax relief coming through on the individual side. The one big beautiful bill included a lot of individual tax cuts, those tax on tips and overtime and a larger standard deduction and so forth. And importantly, those tax cuts cover the entire year of 2025, but largely weren't realized in 2025. So that's all going to show up in tax filing season. So that'll be a big shot of stimulus, probably the most important thing. Some debates about exactly how it looks on the corporate side, some questions about whether or not we get some additional forms of stimulus like tariff refunds ordered by the Supreme Court. But one way or another, we do see significant tailwinds for growth. Yeah, I guess on the individual side, it's relatively straightforward to try and quantify it. And I think there are pretty good estimates of what that's going to mean in terms of, you know, cash in pockets for households. In terms of the corporate decision making relative to the CapEx tax breaks, obviously these are policies that are intended to kind of pull forward investment in some kind of productive assets. And I just wonder, given that we've already been in this CapEx boom that's been driven by this secular theme, what we're expecting incremental to that? Yeah, so our view is more cautious on how much genuinely incremental CapEx is induced by these tax cuts. So again, the idea is, you know, you put in your money, if you can expense it right away, get the cash tax benefit in year one, that's going to incentivize companies to do more CapEx. And we're somewhat skeptical that's going to really play out. As you mentioned, obviously we have one very, very hot sector for AI, or for CapEx, which is AI and data centers. But there are capacity constraints there, right? Every chip is being spoken for, every turbine is spoken for several years out. And then we look at the rest of the economy, we look at smaller manufacturers, for instance, which is really where this should make the most difference, because they live in a non-gap world. The cash tax flows are what really matter. You know, that's where companies have been more in a defensive crouch. And we're on certainty. We're on policy uncertainty. We're on the direction of the economy. It seems to have been a holding back investment, and we think that's probably going to continue to be the case. So, you know, still a benefit for markets, still sort of a boost for assets, but not necessarily translating into real economic activity. So Tobin, I'm trying to handicap the midterms, and with what you just said about a re-acceleration with the economy, but not a boom, I don't know whether that's enough to change what the calculus looks like right now, and I'm not sure whether you agree with what the calculus is. I also don't know what to think of the Obamacare, pandemic era subsidies, and whether you are seeing some Republicans start to break off, and whether something's possible there, whether it's a one-year or two-year or something. And I don't know whether that would even help the Republicans in the midterm. So I guess I... Yeah, so on the latter question first, yeah, with ACA subsidies, I definitely do think that's still possible. I think what we need there, if that's going to get done, it's going to involve some leadership from President Trump. I think there's well more than enough sympathy on the Republican side. It's a divided party, but there are enough Republicans who want to get that done that if President Trump decides he wants to get it done, I think he can get it through Congress. But thus far, the White House hasn't really... Would that help? I think it would help somewhat. Can they hold on? What do you think? They lose the House and keep the Senate, or...? Yeah, that's certainly the base case. I think Democrats are clearly favored in the House. Republicans are strongly favored in the Senate. Democrats would need to flip Ohio and Iowa, or Ohio and one of the two of Iowa and Texas to flip the Senate, in addition to doing everything else they need to do, which is very challenging. So I mean, we're probably looking at a narrow Democratic House majority. And I think you would need to see a real big upside surprise on growth to change that outlook. But if it's still divided, then the filibuster stays. You don't see the Republicans getting rid of it, and you don't see the Democrats being able to do that after the midterms either, because I think they would. Yeah, I think the filibuster is eventually going to go away when one party needs to get rid of it to do something they want to do, but I don't think we're there yet in 2027.

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Al Mukalla

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Kyiv

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Breakdown