This past Saturday, the Associated Press declared that Joe Biden won the presidential election and will be the 46th president of the United States. Some of the Senate election results are still uncertain, and one likely electoral outcome is that Joe Biden will enter the White House in January with a Democratic House and Republican Senate. A Republican Senate likely means that Biden’s tax agenda isn’t going anywhere, but it doesn’t mean that there will be no tax legislation.
Biden ran on a tax plan that would raise taxes almost exclusively on high-income households by scaling back parts of the 2017 Tax Cuts and Jobs Act, raise payroll taxes for high earners, raise the tax burden on capital gains and dividends, and raise the tax burden on corporations.
Passage of Biden’s proposals relies on a majority in the
Senate and the House. With a Democratic majority, most — but not all — of his
agenda could have been passed through budget reconciliation. This process
allows certain legislation to pass the Senate with a simple majority.
Without a Democratic majority, however, Biden’s proposals to
increase taxes are unlikely to go anywhere. Senate Republicans would need to
agree to repeal or scale back major parts of their legislative achievements from
the past four years.
Instead, what could drive the tax policy debate are a set of
tax changes scheduled to occur over the next couple of years. The 2017 tax act,
to hit an arbitrary goal of a $1.5 trillion tax cut over 10 years, included several
tax increases that kick in during Biden’s first term. These include changes to
the tax treatment of research and development (R&D) costs, net interest
expense, and bonus depreciation. In addition, there are other temporary changes
to the tax code that were passed as part of the CARES Act, the COVID relief
bill, set to expire.
Experience over the last decade with temporary tax policies suggests
that lawmakers are unlikely to allow these changes to go into effect.
One potential outcome is that lawmakers include some of these changes in an extenders bill. It has become an annual tradition over the last decade for lawmakers to temporarily extend or delay upcoming tax changes with last-minute legislation. This collection of policies is usually referred to as “tax extenders,” and is rightly criticized by groups across the political spectrum.
Another possibility is that lawmakers could come to a bipartisan agreement to permanently deal with some of these expiring tax provisions. This was done in the PATH Act in 2015, which made the R&D tax credit, Section 179, and expansions to refundable tax credits part of permanent law. The PATH Act could be a model for additional bipartisan legislation, and one senator, Mitt Romney (R-UT), has already signaled a willingness to work across the aisle.
It is also possible that one or more of these expiring provisions could be addressed in a bipartisan COVID stimulus package. For example, lawmakers may trade canceling some of the scheduled business tax increases, a Republican priority, for an expanded Child Tax Credit, a Biden and Democratic Party priority.
Although it will be a far cry from the tax plan Biden ran on, expect lawmakers to address tax policy over the next couple of years.