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2021 – Tax Policy and the All-Important Senate

11 November 2020

While the results of the 2020 general election are still in question, with several states yet to complete vote-tallies, every major news organization has called the win for Democrat Joe Biden, and I think we must take the view, at this point, that he is the likely winner.

Joe Biden has promised a tax increase over the next decade of some ~$3.5 trillion, but that may – or may not – be difficult for him to achieve. The United States House of Representatives (House) will remain under Democrats’ control, despite the loss of several seats; it is unlikely that a President Biden would encounter significant opposition there to raising taxes.

The Senate make-up, however, is far from certain. At present, 49 seats will remain in Republican hands, with North Carolina having called its Senate race for Republican incumbent Thom Tillis, and Democratic challenger Cal Cunningham conceding last night. Democrats will have at least 46 Senate seats. Maine’s Senator Angus King and Vermont’s Senator Bernie Sanders are independents, but both caucus with the Democrats, effectively giving the party 48 Senate votes.

In Alaska, votes are still being counted. As of this morning, Alaska’s Senator Dan Sullivan, a Republican, had 57.5% of recorded votes against 37.5% for Democratic challenger Al Gross, with ~74% reporting. Should Sullivan hold his seat, as seems likeliest, that will give Republicans 50 Senate votes, and Democrats 48, including the two independents.

Georgia’s election, with both its Senate seats up for grabs, while fully reported, did not produce a clear winner in either race, Georgia election law requiring a majority of votes which no candidate garnered. A runoff election will be held on January 5, 2021, which should determine the winners. Both incumbents, Senators Kelly Loeffler and David Purdue, are Republicans.

Why it Matters

For most bills making their way through the legislative process, passage in the Senate requires 60 votes. Assuming for the moment at least one of the Georgia Senate seats is held by its Republican incumbent, that would mean 11 Republican Senators would need to be on board for any Biden-proposed tax increase; this is an extremely unlikely event, though not absolutely impossible.

However, we have in recent decades twice witnessed the use of a procedure known as “Budget Reconciliation;” a process only applicable to bills affecting governmental spending or revenue, and requiring only a simple Senate majority – 51 votes – for passage of the bill in question.

Should the two Georgia Senate seats remain in Republican hands, that would leave Democrats without the simple majority, absent Republican defections, to pass a tax increase under the rules governing Budget Reconciliation bills.

However, if both those seats flip to Democrats, the Senate votes would then be tied at 50 each for Democrats and Republicans, with any tie-breaking vote to be cast by the President of the Senate, which would, under President Biden, be Vice President Kamala Harris. She, one presumes, would not be likely to vote against a Biden Budget Reconciliation.

Under that scenario, President Biden could potentially enact tax increases without a single Republican vote. But he might not have to – some moderate Republican Senators have broken ranks in the past. Nor, in fact, can Biden be guaranteed that every Democratic Senator would vote for his tax policies. Members of both parties have “crossed the aisle” in the past, and may well do so in the future.

So, control of the Senate is still up in the air as of today, and the election remains a nail-biter for those concerned with U.S. tax policy going forward. We will have to wait until after January 5, 20201 to see the final make-up of the Senate.

Stay tuned – in the coming weeks, we will be delving deeper into some of the tax changes Biden proposed during his campaign, as he is likely to craft at least a tax policy statement prior to inauguration on January 20, 2021.

If you would like to discuss how possible tax increases in 2021 could potentially impact your own income tax liabilities, please click here to email me directly.

Until next Wednesday –

Peace,

Eric

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