06 November 2024

What to expect in Washington (November 6)

Former President Donald Trump is set to return to the presidency in 2025 as the projected winner of the election over Democratic candidate Vice President Kamala Harris, the Senate has flipped to Republican control for next year, and control of the House has not been determined. Whether there is a red sweep or divided government when House races are decided will determine if Republicans can proceed with what they have suggested will be a massive budget reconciliation bill to extend TCJA tax provisions at the end of 2025 and more, with policy changes expected to be included on health and other issues; or if they will be required to negotiate with Democrats to craft a bill to meet the 60-vote Senate filibuster threshold in order to avoid going over the tax cliff.

Republicans are projected to have at least 52 Senate seats and control of the chamber with the highly anticipated victory of Republican Jim Justice to succeed the retiring Joe Manchin (D-WV) in West Virginia, plus the projected losses of Senators Sherrod Brown (D-OH) in Ohio and Jon Tester (D-MT) in Montana. Senator Bob Casey's (D-PA) re-election race in Pennsylvania is too close to call, and he is trailing slightly. Senator Tammy Baldwin (D-WI) is slightly ahead in her re-election race in Wisconsin, as is Rep. Elissa Slotkin (D-MI) in her bid to replace the retiring Senator Debbie Stabenow (D-MI) in Michigan, and both races remain uncalled.

The presidential race was determined across seven battleground states. Among those states, Former President Trump has already been projected to win North Carolina, Pennsylvania, Georgia, and Wisconsin, with Michigan, Arizona, and Nevada yet to be called, according to CBS News.

Observers said last night that it will take days to determine control of the House, as expected. Current Speaker Mike Johnson (R-LA) expressed confidence that Republicans would retain control in 2025. Republicans are projected winners in nearly 200 House races, a slightly fewer number for Democrats, and at least 50 uncalled, including five in California and two in Arizona.

Looking ahead to the 2025 tax cliff, Senator Mike Crapo (R-ID) is set to become the next Chairman of the Senate Finance Committee. A red sweep would increase the likelihood of legislation to extend expiring TCJA provisions to all income groups, as opposed to a potential Democratic-led House likely insisting that the provisions be pared back for higher incomes as in the end-of-2012 Bush tax cuts extension.

Regarding revenue offsets, Senator Crapo has asserted that "extending current tax law has never been offset by Congress," including the 2012 bill, and President-elect Trump has suggested that economic growth would cover the cost of TCJA extensions. That view may not be shared by other Republicans given mounting deficit and debt concerns, raising the prospect of some revenue offsets even under full GOP control, including a potential increase in the corporate tax rate.

There is also uncertainty about how Republicans in Congress will regard Trump's additional tax proposals beyond TCJA extensions. He has proposed a family tax credit for caregivers who care for a parent or loved one, exempting tip and overtime income and Social Security benefits from tax, making auto loan interest tax deductible, providing tax relief for expats, and restoring the SALT deduction. "I'm not endorsing or not endorsing any of those ideas," Senator Crapo said in September, referring to Trump's tax proposals. "I think that we are going to have a very broad, deep discussion." Senator John Thune (R-SD), the current second-ranking Republican and vote-counting Whip, said in a September 18 Washington Post report, "We'll take them very seriously and into consideration as we try and put this thing together."

If Republicans control the House next year, in addition to the White House and Senate, rolling back Inflation Reduction Act (IRA) energy tax credits would be a likely target to raise revenue. President-elect Trump has also recently criticized the CHIPS and Science Act, and Speaker Johnson said Republicans may seek to roll back those provisions as well.

In health care, a Republican-controlled Congress will be tasked with whether or not to extend the enhanced premium tax credits to purchase Affordable Care Act (ACA) exchange plans, which are set to expire in 2025. While allowing current tax credits for ACA exchange plans to expire may not raise scorable revenue from government scorekeepers, Republicans could point to savings as a justification for spending elsewhere.

Senator Brown's defeat means there will be new top Democrat on the Banking Committee, and the new GOP majority means that Senator Tim Scott (R-SC) will likely become its new chairman. Scott has outlined an agenda based on capital formation, rolling back regulations and building a regulatory framework for digital assets. Senator Scott's name has been mentioned as a potential Cabinet secretary in a Trump presidency; if Scott were to accept such a position, the next Republican in line to chair the committee would be Senator Mike Rounds (SD), a conservative who has often sought bipartisan consensus on legislation.

On the Democratic side, the order of Banking Committee seniority after Senator Brown is Jack Reed (RI), Tester (MT), Mark Warner (VA) and Elizabeth Warren (MA). With Senator Reed likely choosing to retain the top spot on the Armed Services Committee, Senator Tester defeated in his re-election race, and Senator Warner a good bet to remain the top Democrat on the Intelligence Committee, Senator Warren would become the next ranking Democrat on the Banking Committee. Warren has earned a reputation as a fierce critic of big banks and private equity firms and a defender of the Consumer Financial Protection Bureau (CFPB).

Today, November 6 (4:30 p.m. ET), is the EY Webcast, "Post-election 2024: key insights for business leaders."

Friday, November 8 (12:00 p.m. ET), is the EY Webcast, "Special post-election edition: Tax in a time of transition."

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young

Document ID: 2024-2039