Results from Midterm Elections could be Death Knell for Year-End Tax Bill

November 10, 2022

With Democrats performing better in the 2022 elections than expected, the fight over two tax provisions could prove lethal for Congress passing a year-end tax bill.

At issue is the argument over extending and expanding the Child Tax Credit (CTC) while also allowing Research and Development (R&D) costs to be expensed. These two tax provisions have been tethered together for months (meaning one will only become law if the other is also enacted) as support for them is largely split along partisan lines.

Democrats support expanding and extending the CTC to what it was in 2021, which Republicans oppose. Meanwhile, Republicans (and some Democrats) support allowing R&D expensing, but many of the liberal lawmakers will only support the measure if the CTC is expanded and extended. Both parties must support these measures for them to pass Congress and currently that level of backing does not exist.

The outcome of the 2022 elections was expected to put this argument to rest. A so-called “red wave” was supposed to usher in a Republican majority in the House and Senate. Democrats were expected to feel defeated, drop their defenses, and agree to decouple the CTC from the R&D, which would allow R&D expensing to pass Congress. (The full ask for the CTC would cost roughly $1 trillion over ten years and would be very expensive to enact.)

With control of Congress still up for grabs after Tuesday’s elections, Democrats are likely to feel emboldened and maintain their pre-election position on these tax measures. Meanwhile, Republicans could feel a little bruised by the election results (even if they win the majorities) and preserve their pre-election stance on these measures as well.

In short, the current argument over these measures could continue. And if it does, passing a year-end tax bill seems unlikely.

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