With the mid-term elections coming to a close, Republicans have gained control of the House of Representatives, ending full Democratic control of Washington and making things more interesting. With the Democratic party retaining control of the Senate and the Republicans controlling the House, Congress is divided, meaning the legislative process will take on a new layer of complexity.
The recurring theme of uncertainty from the past two years is the only true way to describe what a divided congress means, but one thing is for certain: planning will be more important than ever so your business is able to maintain momentum and respond accordingly, no matter what happens in congress.
There is an endless host of issues that will be impacted by a divided Congress, but we will focus on taxes and energy/climate issues that could have a major impact on your business.
What does this mean for future tax legislation?
In short‑ more questions than answers.
President Biden’s key 2020 campaign goals of raising taxes on high net-worth individuals and corporations will have no legs in a divided Congress, as well as the proposed taxes on unrealized capital gains and other Biden administration priorities. Biden’s veto will prevent Republicans from repealing tax laws already in place.
Republicans will likely keep a close eye on the IRS and pursue restrictions on how their new money from the Inflation Reduction Act can be used.
Strong momentum across both parties for expanding tax breaks for retirement savings could be rare common ground that results in new legislation. There could also be a deal to extend expired tax breaks and prevent some business-tax increases scheduled under a law passed in 2017.
Many of the key provisions of the 2017 tax law are scheduled to expire in 2025. Lower individual tax rates, higher standard deductions, and a 20% deduction for closely held businesses are on that list and Republicans see those provisions as critical for economic growth and believe taxpayers deserve to know they will continue. The argument from Democrats is that the breaks were favored toward high-income households.
We don’t anticipate a resolution to that debate any time soon, and it will likely be an important topic ahead of the 2024 presidential election.
What does this mean for climate and energy initiatives?
The Biden administration has made a concerted effort to decrease greenhouse gas emissions and meet global climate goals by passing massive legislation including a $1 trillion infrastructure plan and a separate $370 billion package on climate-focused provisions mostly in the form of tax breaks to jumpstart investment in green technologies.
Republicans will likely oppose further spending in these avenues and place more of an emphasis on developing American energy sources.
Like minds on both sides of the aisle may be able to work together to change the permitting process for major infrastructure projects with Republicans claiming that speeding up new oil and gas production would bring energy costs down for Americans, and Democrats agreeing that permitting changes could help ease the path for new energy projects.
There could also be a push from Republicans to slow the implementation of new regulations and more stringent requirements.
Planning and preparation will result in best business outcomes
A divided Congress adds another wrinkle for business owners to consider, as the change could result in outcomes that will have a major impact on your business.
We never advise making business decisions based on potential legislation, but it is more important than ever to seek guidance from a trusted advisor.
Review items like estate planning, 401(k) offerings, entity structure, ESG programs and any other issues related to your business to be prepared no matter what happens in Congress.
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