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November 18, 2022

What to expect in Washington (November 18)

Republicans officially secured control of the House for the next Congress, ushering in an era of divided government, with Democrats controlling the Senate and the White House. An article in the November 17 Wall Street Journal said that divided government dims prospects for major legislation and puts "President Biden on defense as the new Congress investigates his administration." The article said, "Republican leaders say their plans include boosting border security … encouraging more pay for police and reversing Democrats' plans to expand the Internal Revenue Service. They will also use their oversight authority to investigate the Biden administration and the president's family."

However, "given how the midterm picture appeared entering this year, keeping the Senate and narrowly losing the House are both huge accomplishments and an extraordinary stroke of political luck for Democrats," the New York Times said in a story that suggested the GOP House majority could provide a useful foil for President Biden to draw political distinctions ahead of the 2024 elections.

A single-digit House majority will pose challenges for Republican unity, as a similarly close margin for Democrats the past two years has. A separate NYT analysis said, "House Republicans are pushing the incoming team to agree to rules changes that could hamstring the leadership in their ability to bring bills to the floor, an approach that could threaten necessary legislation, such as an increase in the debt limit. Republican leaders could — and probably would be forced to — seek votes from Democrats, but too many concessions or too much cooperation across the aisle will likely spark a rebellion from within."

Leadership — Speaker Nancy Pelosi (D-CA) announced November 17 she would not seek re-election as the top Democrat in the House but will remain in Congress. Majority Leader Steny Hoyer (D-MD) will also step down from his leadership post. Rep. Hakeem Jeffries (D-NY), chairman of the House Democratic Caucus, is expected to seek the top Democratic spot but has not formally announced his intentions. "Jeffries is expected to be joined by Reps. Katherine M. Clark (D-Mass.) and Pete Aguilar (D-Calif.), who will seek the No. 2 and No. 3 positions," the Washington Post reported. "Rep. James E. Clyburn (D-S.C.) will leave his post as House majority whip but become an assistant leader, a position that will now be fourth in the leadership structure."

A New York Times op-ed, which noted that Rep. Pelosi hailed from a Baltimore political family and became the first female House Speaker in 2007, said "she has been a strikingly effective leader" in part by focusing more on "getting stuff done" with "a shrewd sense of the political pressure points of allies and opponents alike" as opposed to being concerned about her public image.

Politico Morning Tax reported that House Ways and Means Committee Chairman Richard Neal (D-MA) has announced his intention to remain as top Democrat on the panel.

Lame-duck session — The outlook for the lame-duck session of Congress remained largely unclear as the first week in session after the elections was marked by uncertainty over House control, House and Senate Republican leadership elections, and the announcements regarding Democratic leadership changes. The must-pass priority of the lame-duck session, which will resume after next week's break for Thanksgiving, is extending government funding beyond December 16. An omnibus appropriations measure through the duration of the fiscal year is still viewed as more likely than another continuing resolution through an earlier date in 2023, for reasons that include the retirements of top Senate appropriators Pat Leahy (D-VT) and Richard Shelby (R-AL), who have been in Congress for 48 years and 36 years, respectively.

It remains to be seen what can be appended to the omnibus, including health items and a potential tax package that is complicated by a partisan stalemate over whether to include a Child Tax Credit enhancement, which Democrats insist upon as a condition of supporting business tax items in the package.

"Some tax legislation is still possible, thanks to bipartisan momentum for expanding tax breaks for retirement savings," the WSJ said. "There could be a deal to extend expired tax breaks and prevent some business-tax increases scheduled to take effect under a law passed in 2017."

Global tax — An EY Tax Alert has details on yesterday's statement by UK Chancellor Jeremy Hunt calling for tax increases and confirming he will implement the Base Erosion and Profit Shifting (BEPS) Pillar Two rules put forward by the OECD.

Please note What to Expect in Washington won't be published next week when Congress is away for Thanksgiving.

Today, November 18 (12 p.m.), is the EY Webcast, "Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments." Register.


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