Key Takeaways
- Democrats will return to Washington with control of Congress and more power to push legislation.
- There will be a divide between those who want to focus on legislation and those who want to focus on investigations.
- To help pay for their proposed spending increases, they may look to reverse tax provisions in the One Big Beautiful Bill Act.
- Tax-writing committees face loss of senior lawmakers.
- Liberty Global takes tax dispute over economic substance to Supreme Court.
After Tuesday night’s decisive midterm victory, it’s clear that Democrats will return to Washington with control of Congress and much more power to set the agenda.
What that will mean for policy—including tax policy—is much less clear, with government divided between a Republican president and the Democratic legislative branch.
It’s unlikely that lawmakers would be able to come to agreement on big legislation like last year’s One Big Beautiful Bill Act. It’s a safe bet that there won’t be major changes to the tax code in the current partisan atmosphere. But what else to expect comes down to how Democrats handle an interesting dynamic and tension in their perceived mandate from voters.
They indicate they will focus on certain investigations, including the alleged immunity agreement made with the Internal Revenue Service over Trump’s personal taxes, or how the agency shared taxpayer data with the Department of Homeland Security and other parts of government. With the power of the gavel, Democrats can dig into the operations of government and demand that administration officials come forward to testify. As Sen. Ron Wyden, D-Ore., the likely new chairman of the Senate Finance Committee summed it up in a one-word tweet, "Subpoenas."
But there’s also a fear among Democrats that by focusing too much on Trump, they could lose sight of the voter concerns that returned them to power, such as affordability and upheavals in the economy. These were themes that incoming House Speaker Hakeem Jeffries pressed in his victory speech.
“When you work hard, and play by the rules, you should be able to live an affordable life, a comfortable life, and a good life,” Jeffries said. “That's the American dream, and House Democrats will work hard to return it to every single person in this land.”
Since election season began, Jeffries has said that one of the top concerns of his party, once in power, will be to reverse the cuts in Medicaid spending and other programs in the OBBBA. Democrats may also want to include new revenue in their proposals to cover the increases in spending, and one of the first places to look would be in the tax provisions of the OBBBA, such as the top individual tax rates or corporate tax benefits.
Any legislation Democrats manage to advance in Congress would likely run into a Senate filibuster or a Trump veto. But you never know when defeated proposals might rise again. Trump and Democrats will have to get together and agree on must-pass bills like government funding, and one of those provisions could end up on the bargaining table.
But this will likely hinge on how much time Democrats want to spend legislating, and how much they want to spend putting the White House under a microscope.
Recent Tax Pieces:
Navigating Senior Departures Is First Big Hurdle for W&M Dems – Jared Serre, Tax Notes ($):
Lloyd Doggett of Texas and John B. Larson of Connecticut, each with more than two decades of tenure on the House Ways and Means Committee, are leaving Congress at the end of 2026. Along with Danny K. Davis of Illinois, the three departures represent nearly seven decades of combined committee knowledge headed out the door as Democrats step into the House majority.
Doggett has developed a reputation as a bridge between the caucus’s progressive and moderate wings on tax issues, while both Larson and Davis have spent years as leading voices on entitlement reform. With the departure of all three at once, committee leaders will need to plug a litany of holes to legislate effectively next Congress, multiple sources told Tax Notes.
Liberty Global to Seek Supreme Court Review of Tax-Case Loss – Michael Rapoport, Bloomberg Tax ($):
That strategy attempted to take advantage of a mismatch between effective dates in the 2017 tax-overhaul law. But the appeals court disallowed the deductions the company had claimed, saying that the economic substance doctrine applied to attempts by taxpayers like Liberty Global to use tax code provisions to get a benefit that Congress didn’t intend.
The IRS has been invoking the economic substance doctrine more often in court cases in recent years, as a tool to challenge what it sees as tax abuses.
Tax-the-Rich Pressure Is Here to Stay as States Debate Policies – Michael J. Bologna and Brad Hooker, Bloomberg Tax ($):
Voters appear poised to reject a rollback of the so-called millionaires tax in Washington, based on results tallied so far. A plan to place limits on the way the Massachusetts millionaires surtax is pulled into the state budget without triggering an automatic rebate also is expected to fail. A Colorado proposal adopting a graduated income tax with a new 8.4% top bracket for millionaires is nearly tied as the votes are still counted, and a competing plan to cap the state rate at 4.4% is losing by five percentage points for now. Chicago voters supported an advisory measure that recommends Illinois impose a 3% income tax surcharge on millionaires.
California’s much more ambitious attempt to tax billionaire wealth, Proposition 40, remains unresolved, but the latest results indicate it is unlikely to pass. Still, California voters approved Proposition 3, which permanently boosts taxes for top wage earners rather than allowing the top rates to expire in 2031. The initiative drew little opposition and even won support from billionaires fighting the wealth tax.
Tax Policy To Watch After The Midterm Elections – Asha Glover, Law360 Tax Authority ($):
Both chambers of Congress are scheduled to return to Washington on Nov. 9, leaving lawmakers with just five weeks in session before the end of the year. Depending on the results of the midterms, lawmakers could agree to pass several popular bipartisan proposals, including a package of several IRS taxpayer service changes, Marc Gerson, a member of Miller & Chevalier Chtd., told Law360.
"If this was a normal year, you would say, 'Oh, my god, there's this critical mass of stuff,'" Gerson said, pointing to legislation meant to improve tax administration, create a tax framework for crypto and digital assets and extend the Work Opportunity Tax Credit.
The ‘Wild West’ of NIL Taxation Persists – Kelsey Brooks, Tax Notes ($):
Thad Madden, an NIL tax consultant and former IRS revenue officer, said that the biggest issue for him regarding NIL taxation is that “the young men and women competing in college sports and attending college . . . they’re responsible for paying the taxes on their own, preferably in the form of quarterly estimated tax payments throughout the year.”
Robert Raiola, director of the Sports and Entertainment Group at PKF O’Connor Davies, said the NIL landscape “is really starting to keep us busy.”
Public Domain Supervillain of the Week
Every week, a new villain from the Golden Age of comics, who's fallen out of favor.This week's entry: Ali Pasha.
Debut Year: 1939
Debut Publication: Jumbo Comics #5
Arch-nemesis: Stuart Taylor (see Dec. 10 post)
Evil Plan: By forcing a scientist to build him a time-traveling transportation device, he hopes to conquer all of Earth.
Abilities: Aside from his wealth and henchmen, he can use hypnotism to force others to bend to his will.
