What to Expect on Taxes From the New CongressWhat to Expect on Taxes From the New Congress

As we wait with bated breath for the last of the Congressional races to be called, the big things are certain—Democrats will regain control of the House of Representatives with more than a slim margin, while Republicans remain in control of the Senate likely with a somewhat wider margin. 

But we know more. Let’s peek into the Democrats’ intentions on taxes, and not just yours. President Donald Trump is about to find out the extent of their authority at the Internal Revenue Service, too. 

Revisiting Tax Reform

With the shift in power in the House, what we know for sure is that the 2017 Tax Cuts and Jobs Act—so hard fought for—will be relitigated in hearing after hearing in the House Ways and Means Committee by Democrats who were shut out of crafting and passing it. Now that they’re in control, expect outrage, fireworks and lots of graphs and charts, from both sides, showing the massive and unfair tax cuts for the undeserving wealthy (in the Democratic charts) and the explosive growth in jobs the economy brought by sensible tax cuts for small business owners (in the Republican charts).

And Democrats have a lot of material to work with. They’ll use their newly won power to point out that big chunks of the Act are glitchy, if not worse—everything from significant typos affecting depreciation to the new pass-through deduction, which appears to benefit certain workers but not others who are similarly situated. 

Following these hearings, Democrats intend to rewrite the Tax Code—in their image. What does this mean?  Higher tax rates for the wealthier among us to help pay for lower tax rates for those at the bottom. Keep in mind though, almost half of Americans don’t pay federal taxes, so the “bottom” really isn’t the bottom, it’s more like the voting middle. This Robin Hood approach is really a “go for broke” approach, because it can’t pass the Senate or be signed into law by the president.  But, it does have the luxury of riling up the Democratic base. 

On the other hand, Democrats could settle for smaller legislative wins that could show voters they can effectively lead. But that won’t get the same reaction from their base. Odds are on a mixed bag that looks like grandstanding for the die hards in their base, coupled with doing the people’s business by cleaning up a messy new tax bill, bit by boring bit.

New-Found Subpoena Power

That said, House Democrats will most certainly get their fill of excitement with their newly won oversight authority. They’ve already said they will ask the IRS for President Trump’s tax returns, and they have the authority to get them. 

Adding to that circus, Democrats have 64 outstanding subpoena requests that House Republicans have blocked. And that’s with one hand tied behind their back as the minority party. Just wait until they get the keys to the House of Representatives kingdom. 

Upper Chamber Priorities

As for the Senate, the perspective change comes in the form of an important personnel change. With Sen. Orrin Hatch (R-UT) stepping away from leading the Senate’s tax-writing committee and retiring from the Senate, a very powerful spot opens.  And both Sen. Chuck Grassley (R-IO) and Sen. Mike Crapo (R-ID) are vying for the Chairman’s gavel. The smart money is on Grassley, who many view as having earned the new spot after—as Chair of the Judiciary Committee—getting two Supreme Court nominees over the finish line. Moreover, the next in line at the Judiciary Committee, Sen. Lindsay Graham (R-SC), has shown in the Judge Brett Kavanaugh hearings that he’s more than capable of filling Grassley’s big shoes. 

This isn’t Grassley’s first rodeo as Chairman of the Senate Finance Committee. During his last tour, he was certainly remembered for all the investigations he prompted and oversight he conducted—politics notwithstanding. Query. Who’ll be the next set of targets. 

From a legislative perspective, expect Grassley to take the lead on fixing the Act particularly if his counterpart on the Ways and Means Committee decides to prioritize going over the president’s tax returns line by line. Grassley sat right next to Chairman Hatch as he cobbled together the Act and knows better than most where the problems are and likely what it will take to fix them. And, at least in the Senate that means bipartisan tax legislation, so compromise will be key. Look for Democrats to push for their top priority of softening the $10,000 state and local tax deduction (SALT) cap.

Lots ahead for next year. Stay tuned. You just may be surprised.