WASHINGTON -- If Republicans gain control of both houses of Congress in Tuesday's elections, get ready for more tax cuts, a prescription-drug plan for seniors that is favored by the pharmaceutical industry and a renewed push for oil drilling in a pristine Alaskan reserve.

If Democrats grab the reins on Capitol Hill, look for more spending on education and health care, a higher minimum wage and tax cuts aimed at moderate-income workers.

This is a rare election in which control of Congress could shift depending on only a dozen races. The outcome could have a huge effect on the economy and business. Republicans now hold a six-vote margin in the House, while Democrats have a one-vote edge in the Senate. A shift in control to one party would allow it to dominate the economic agenda in the next two years and set the terms of debate for the 2004 presidential election.

Given how few congressional races are still considered toss-ups, Election Day could well produce a continuation of the status quo. That would likely mean the federal deficit would continue to balloon, as lawmakers reach accommodation by approving spending increases and tax cuts dear to both parties.

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Even if one party does win both houses of Congress, and with it the chairmanship of all committees, its narrow margin of control would limit its power. Senate rules allow 40 out of the 100 members to block almost anything in the Senate, and neither party is likely to end up with fewer than 40 seats. But a crisis, such as a severely faltering economy or an Iraqi war that goes badly, could limit partisan bickering and unite Congress behind the president.

Here's a look at three scenarios of how Tuesday's vote will affect business and the economy:

Republican Control

Considering the electoral math, Republicans have a better chance than Democrats at gaining full control of Congress. With the House in hand, the GOP needs to gain only a single Senate seat. About a half-dozen races are still in play. Democrats, by contrast, must keep their tenuous control of the Senate, and gain six House seats, with about 16 House races still up for grabs.

A GOP victory would liberate President Bush to pursue his domestic agenda, which has been stuck in Congress since the defection of Sen. Jim Jeffords of Vermont gave the Democrats a majority in June 2001. And tax cutting is high on the White House wish list -- especially making permanent the Bush tax cuts that are set to expire in 2010. The prospect of the cuts ending, Mr. Bush argues, is creating "uncertainty for people who want to plan their business."

The Bush administration also has plans for far-reaching changes in the U.S. tax code, which are a long shot under any scenario. But they stand a far better chance if Republicans are in charge of both chambers. Mr. Bush already has been briefed on ambitious options being developed at the Treasury department, such as replacing the personal income tax with a national sales tax, or the value-added taxes common in Europe. Another possibility: eliminating many deductions and credits to bring personal-income tax rates down further, particularly for the well-paid.

ECONOMY IN THE BALANCE   The likely impact on business and the economy of the three possible outcomes of tomorrow's congressional elections: Republicans control House and Senate   • Parts of President Bush's tax cuts made permanent.   • Drive for 'tax reform.'   • Defense spending grows.   • Drug industry-friendly Medicare-prescription benefit advances.       Democrats control House and Senate   • Tax cuts and rebates for workers.   • Expansion of unemployment benefits.   • Further crackdowns on corporate excess and subsidies.   • More spending on education, training, homeland security.       Divided control of Congress   • More spending as each party pursues its priorities.   • Stalemate over most tax cuts.

One proposal getting scrutiny at the Treasury was crafted by Michael Graetz, a Yale Law School professor who was a top tax adviser in the first Bush administration. He would impose a value-added tax to replace much of the revenue from the income tax and liberate more than 100 million taxpayers from filing any tax return at all. He would then impose a lower-rate income tax on couples making more than $100,000 and singles over $50,000.

The proposal could be controversial with both Democrats and some Republicans. Democrats fret that any move to a value-added tax could hurt lower-income earners. Some Republicans worry about potential unfairness of creating an income tax that falls only on higher earners.

Even with a Republican Congress, the White House isn't predicting that large-scale tax reform would pass Congress in the next couple of years. Instead, Republicans hope that dangling a coherent vision for a new and improved tax code would make it easier to get smaller tax cuts next year because they could be sold as steps along the road to something more significant. Among the near-term possibilities: helping struggling high-tech manufacturers by making it easier for their customers to write off equipment purchases, and simplifying and reducing taxes on multinationals' overseas profits.

Particularly appealing to congressional Republicans are two ideas kicked around earlier this year as a way to help investors hurt by the sinking stock market: a smaller tax on corporate dividends and broader limits on tax-favored retirement plans.

Lacking the 60 Senate votes needed to pass legislation over a possible Democratic filibuster, Republicans would have a tough time passing many of their pet tax priorities. Senate GOP Leader Trent Lott says he likely would use parliamentary maneuvers to pass some measures with a simple majority. Leading candidates include the dividend tax break and changes in retirement plans, as well as help for small businesses.

Republicans in Congress and the White House also realize they need to move aggressively on the health-care front to blunt strong popular sentiment that Democrats do a better job in this area. Mr. Bush wants to help Republican candidates protect themselves against Democrats who make attractive promises about health care and government-sponsored prescription-drug plans for the elderly. With that in mind, he recently called television cameras to the Rose Garden to announce new rules that would make it harder for big drug companies -- popular villains at the moment -- to block introduction of lower-cost generic drugs.

But don't assume the GOP is abandoning the pharmaceutical industry. A Republican Congress probably would push a White House-backed prescription-drug plan for the elderly of the sort that the industry favors. Republicans don't want to create a Medicare-style government drug-insurance plan. Instead, they would rely more on private companies, encouraging them to compete by offering consumers a choice of more-costly, more-complete coverage or less-costly, high-deductible policies. To keep the price tag down, many Republicans would target benefits at low-income Americans and those with particularly steep medical bills.

With Republicans in charge, Mr. Bush also would stand a much better chance of getting legislation to limit court awards for medical malpractice -- a boon to the insurance industry, hospitals and doctors. He argues that frivolous lawsuits drive up physicians' insurance bills and patients' medical costs, particularly in obstetrics. The president has pointedly raised this issue in North Carolina, the home of Democratic Sen. John Edwards, a former plaintiffs' lawyer who is contemplating a 2004 challenge to Mr. Bush.

Democrats have used their slim majority in the Senate to frustrate several Republican initiatives in conference committees convened to resolve differences between Senate and House bills -- such as the energy bill, for which Mr. Bush has pressed without success. A major stumbling block has been resistance by Democrats to Republican plans to drill for oil in now-protected parts of Alaska's Arctic National Wildlife Reserve. If Republicans retake the Senate, they would have a better chance of pushing that through.

A GOP Congress also would be inclined to give the Federal Energy Regulatory Commission more power to restructure the nation's electricity market. That would allow more deregulation in an industry sullied by the California electricity debacle, despite mounting resistance from states² in the Southeast and Northwest.

Democratic Control

With a half-dozen potential presidential candidates vying for attention, Democrats would find it harder to put together a common agenda than Republicans, who have a leader in the White House to follow. But Democrats controlling both houses would be united enough to stop the president's effort to extend his tax cut permanently or cut taxes substantially more.

If Democrats hold the Senate and capture the House, there would be a growing effort to repeal Bush tax cuts for the highest-income Americans that have become law but take effect in 2004 and 2006. Democrats might try to replace those cuts with a temporary reduction of payroll taxes to help moderate-income workers.

Democratic congressional leaders have been noticeably silent about repealing the Bush tax cuts, despite the deteriorating budget outlook, because they don't want to harm the re-election efforts of Democrats who voted for the cuts last year. But the political calculus changes the day after the election. Democrats have ambitious spending plans, and one way to finance them would be through repealing some of the Bush tax cuts.

Presidential contender Sen. Joseph Lieberman of Connecticut already is calling for "postponing" the rest of the Bush income-tax cuts to pay for a $300 tax rebate for 34 million mostly lower-income Americans and an extension of unemployment benefits. New Jersey Sen. Jon Corzine figures even some lawmakers who voted for the Bush tax cut initially will change their stance once they are safely re-elected. "You'll see a much freer debate after the election," he says.

A few Democratic priorities are likely to win approval without much opposition from the White House, such as the extension of jobless benefits that are about to run out. But as Mr. Bush and the Democrats maneuver for political advantage, other Democratic initiatives would almost surely yield bitter partisan fights and presidential veto threats. The White House, for instance, is unlikely to embrace an increase in the minimum hourly wage from the current $5.25 or Democratic-sized spending increases on education, health care and homeland defense.

Health-care reform also would be a major battleground, with such outspoken liberal critics of the pharmaceutical companies as California Reps. Henry Waxman and Pete Stark and Massachusetts Sen. Edward Kennedy leading the fight. A Democratic package would include legislation allowing patients to sue health-maintenance organizations, which passed both houses last year but died in a conference committee.

A Democratic Congress would probably push hard to expand Medicare to cover prescription drugs for all elderly. Democrats want the government to oversee the drug plan and to use its buying clout to negotiate discounts and assure uniform coverage.

Democratic control would also put some of the House's most liberal members at the helm of committees overseeing business regulation. As chairman of the Financial Services Committee, Massachusetts Rep. Barney Frank would step up scrutiny of corporate accounting and executive compensation. He would also likely push for privacy legislation that could hobble big credit reporting companies, as well as bank and junk e-mail outfits. Massachusetts Rep. Edward Markey would become chairman of the House Commerce Committee's telecommunications panel, giving him a platform to push to reregulate cable television bills -- if only to pressure the industry to moderate price increases.

Fannie Mae, the controversial government-sponsored mortgage giant, would be a winner, though. Its harshest critic, Republican Rep. Richard Baker of Louisiana, would lose the chairmanship of a House financial-services panel. Fannie Mae's stock price climbed about 6% the day after Democrats took control of the Senate last year, notes Tom Gallagher, an analyst for investment advisory firm International Strategy and Investment in Washington. He predicts Fannie would gain if Mr. Baker were dethroned because Democrats aren't as troubled as Republicans by the government's implied guarantees of Fannie Mae's debt.

Status Quo

Public-opinion polls show that a large fraction of Americans, traditionally skeptical of government, prefer a divided Congress. And there remains a substantial chance that once the votes are counted, Democrats will end up with one house of Congress and Republicans with the other.

The safest bet in Washington is that no matter what happens on Election Day, neither party will touch Social Security. In light of the sagging stock market, even the White House has backed off President Bush's campaign pledge to transform the retirement program into a system of private accounts.

The second safest bet: If Republicans and Democrats split control of Congress, the federal budget deficit would continue to grow. The White House talks tough about fiscal discipline and rattles its spending-cut saber. But the parties will be bidding for voter affection with increased spending on popular health-care, education and defense programs. Another terror attack or a war with Iraq would only deepen the fiscal hole.

Counterbalancing these factors slightly is the difficulty a divided Congress would have in passing tax cuts or big spending initiatives. "Congress is so fragmented," laments Dirk Van Dongen, top lobbyist for the National Association of Wholesaler-Distributors who is pushing an anti-regulatory agenda. "On a good day, it's tough to get an award for Mother Teresa through."

Given the deteriorating fiscal situation, even a divided Congress probably would close tax loopholes to raise money, particularly given the public antipathy to big business created by recent corporate scandals. High on the hit list: tax shelters and avoidance schemes that have proliferated in recent years and deny the Treasury billions of dollars it might otherwise collect.

-- Greg Hitt, Shailagh Murray and Sarah Lueck contributed to this article.

Write to Bob Davis at bob.davis@wsj.com³ and John D. McKinnon at john.mckinnon@wsj.com⁴

Updated November 4, 2002 8:16 a.m. EST