With polls having long shown their party poised to take full control of Washington, Democratic tax-writers had been limbering up to significantly revise the Internal Revenue Code in 2021. But now the question of who controls the Senate, and by what margin, is much less clear. Should Democrats manage to claw their way to wins in Georgia and a bare majority in the upper chamber, they’ll need absolute consensus within their caucus to muster the votes for any partisan tax vehicle. Alternatively, if the conventional wisdom that the GOP will win at least one if not both Senate races comes true, the Biden administration could very well find themselves facing at least two years of divided government. The tax policy ramifications are significant.

While the Biden campaign has never been overly specific with its tax policy prescriptions, its themes are crystal clear. Restoring progressivity to the tax code; shutting down the games that sophisticated US multinationals play to avoid taxation; using tax policy to achieve energy and environmental policy objectives; employing both carrots and sticks to encourage domestic manufacturing; and raising revenue through the tax code to offset new progressive spending priorities. Specific elements culled from campaign documents include increasing the corporate rate, raising taxes on highly compensated individuals, and adding a new 15 percent minimum tax on book profits for corporations making over $100 million. Importantly, Biden has also pledged not to raise taxes on those making less than $400,000 per year, limiting Democrats’ range of motion on the individual side of the code.

Republicans, on the other hand, are looking to extend or make permanent a handful of important TCJA provisions that otherwise will expire during the Biden Presidency. Also, they have an ever growing stockpile of corrections to the 2017 bill, and pro-business tax break proposals to address the economic effects of COVID. So, it seems to us that there may be the raw material at hand for some bipartisan deal making, especially now that President Trump’s confrontational approach to Congress will be replaced by an Administration headed by a very experienced back-room negotiator.

Early in 2021, we will see the transmittal to Congress of the President’s tax legislative blueprint as part of the budget process. That seminal document, along with the inevitable back and forth that will occur when the Secretary testifies on the Hill before the tax writing committees, and along with a veritable tsunami of reintroduced tax bills by Members and Senators, will frame up the guardrails of what may be doable in this Congress. 
If the GOP continues to control the Senate, there will inevitably be a push from progressive activists and House Members for Biden to do as much as he can via the tools at his disposal that do not require congressional approval, such as executive orders and administration rulemakings. However, with regard to tax, it will be difficult for the Treasury and IRS to do much more than work around the edges of tax policy without new legislation. Look for the new administration to revisit any of the TCJA rulemakings that aren’t yet final, but don’t expect any dramatic changes in direction without prolonged rulemaking.

Pending the outcome of the Georgia run-off elections, our guess is that the 21 percent corporate rate appears safe for the time being, along with some other permanent TCJA provisions targeted by progressives. While there will very likely be a renewed assault on oil and gas specific provisions in the Code, Members and Senators from oil and gas areas may be able to preserve some if not all of them. Areas we see as potentially open to bi-partisan deal making include COVID-related economic recovery incentives, extension of expiring tax provisions; infrastructure rebuilding tax policy; energy and environmental tax incentives; and retirement savings. If government is indeed divided in 2021, look for a sharp focus on potential swing vote Senators like Joe Manchin (D-WV), Kyrsten Sinema (D-AZ), and in-cycle Senator-elect Mark Kelly (D-AZ).