For the first time since taking office two years ago, President Trump will have to maneuver through a divided Congress. Once the remaining House contests still too close to call are settled, the new Democratic House majority is expected to be approximately 230 seats (a majority is 218 seats and Republicans currently hold 235 seats) while Republicans are expected to expand their current 51 seat majority in the Senate by a net gain of two or three additional seats. Democrats also won some state houses previously held by Republicans (Illinois, Michigan, Wisconsin, Kansas, Maine, New Mexico and Nevada), but fell short in others, notably Ohio and Florida.

The 2018 elections were particularly tough on tax writers in both the House and Senate chambers: House Ways and Means Republicans Peter Roskam, Erik Paulsen, Carlos Curbelo and Mike Bishop were defeated, while Senate Finance Committee Democrats Bill Nelson and Claire McCaskill lost their seats along with Republican Dean Heller.

Given the overall shift of the House from Republican to Democratic control, it is likely that some Republican vacancies on the Ways and Means Committee will not be filled due to this loss of the majority, while the current Republican to Democratic ratio on the Finance Committee (14 to 13) will likely expand to a two-seat majority. On top of all this, there will be new chairs soon to be seated at the helm of each chamber's tax-writing committees.

The incoming chairman of the Committee on Ways and Means, Richard Neal of Massachusetts, has described himself as a legislator from a previous era in which members crossed the political aisle regularly to achieve results. Neal, who first was elected to Congress 30 years ago after serving as mayor of Springfield, Massachusetts, has a reputation of working constructively with his Republican colleagues and a willingness to compromise in order to get legislation passed.

Assuming Democrats decide to retain the current number of available Ways and Means Committee member slots, foregoing any increase or decrease, they would under such circumstances be expected to name eight or more new Democrat members. Mr. Neal has further indicated that he is seeking to name only experienced legislators with a profile similar to his of working constructively to enact legislation, and will not name freshmen members to the Committee. As to his own politics, Mr. Neal has a generally liberal voting record and supports the Democratic House Leadership with few exceptions and is a close ally of Nancy Pelosi (D-CA), currently Minority Leader of the House, who despite some controversy is expected to become Speaker of the House in the new Congress.

Mr. Neal, who led the Democratic opposition to the Tax Cuts and Jobs Act (TCJA) in the Ways and Means Committee, favors tax simplification, the elimination of the individual alternative minimum tax, which he believes disproportionately harms lower income taxpayers, and favors closing tax loopholes that encourage US companies to shelter income overseas (a view which appears not to have changed significantly following the TCJA), and has been the author of proposed legislation to close the so-called foreign reinsurance loophole.

Mr. Neal, who will have a key role in the consideration of new trade agreements, including revisions to NAFTA, has voted against providing both Democratic and Republican presidents so-called fast-track authority to negotiate trade agreements with foreign nations without allowing amendments in the Congress, and also voted against the original NAFTA. It remains unclear at this time whether House Democrats will be willing to provide the votes to give the President victories with respect to newly negotiated trade deals, including the new NAFTA, which is not expected to be considered until the new Congress takes office in January.

There are indications that Senator Charles Grassley (R-IA), the current chairman of the Senate Judiciary Committee, will exercise his right under Republican committee rules to reclaim the chairmanship of the Finance Committee for the next two years. If this occurs, the Committee will have at its helm a chairman who previously chaired the Committee for four years and has a great deal of experience. Should Grassley chose to stay at Judiciary, then Senator Mike Crapo (R-ID) is next in line to chair the Finance Committee. In either event, tax policy on the Republicans side of the Senate in unlikely to change significantly.


Although Republicans will remain in the majority in the Lame Duck session in both chambers, Senate Democrats have the ability to block legislation during this short time in light of Republicans falling far short of the 60-vote threshold required to advance legislation in the Senate. As a result, Democrats will need to decide whether they intend to support a potentially robust agenda in the Lame Duck session, or wait until they take office as a majority in the House in January.

Besides funding for the United States government beyond the fast-approaching December 7 deadline, there are a number of other issues that could be considered during the Lame Duck session, which could include: (1) the Retirement Enhancement Savings Act (RESA), which has strong support in the Senate, some provisions of which were included in the Tax Reform 2.0 legislation that passed the House just before the pre-election adjournment; (2) extensions of close to 30 popular tax expenditures (credits and other incentives) that have strong support in the Senate and among House Democrats – there appears to be a consensus in the Senate to extend all of these, while current Ways and Means Chairman Kevin Brady has said that he is willing to extend only some of them; (3) both tax and non-tax related provisions to assist individuals and businesses affected by recent weather-related disasters; (4) technical corrections to the TCJA; and (5) modifications to some TCJA provisions that are unpopular with stakeholders, especially in the international area, and that are unlikely to be addressed in regulations.

The outcome of this lame duck session will depend on a number of factors, including the mood of the members when they return next week and the extent to which the President embraces in some constructive fashion the new Democratic majority in the House in the hopes of finding common ground. Democratic leaders, for example, have indicated that any attempt by the Administration to threaten a shutdown of the government over funding for a border wall, which House Democrats will not support, could doom any spirit of cooperation in the lame duck. On the other hand, Mr. Neal has indicated his desire to move forward with consideration of what's known as the tax extender provisions, some additional weather-related disaster provisions and potentially some narrow technical fixes to tax reform. Mr. Neal and Mrs. Pelosi have also indicated concern at having been left out of the House consideration of RESA and, as a result, will not be supporting its inclusion as is in any lame duck legislative package without any expansion of the policy to included Democratic priorities.

The lame duck session is expected to start on November 13 when Congress officially returns to Washington, DC, and will run until Congress adjourns at year's end, which is anticipated to be the second or third week of December.


Procedural and organization issues will dominate early in 2019 as new chairmen take over the tax-writing committees in both the House and Senate.

With respect to the prospect for tax issues during the lame duck session, there are legitimate reasons why likely incoming Ways and Means Chairman Neal may prefer to dispose of some of these outstanding issues prior to the start of the new Congress in January 2019. First, having been out of power in the House of Representatives for eight years now, Democrats will need to organize themselves as the majority party once again in the House, and the new Ways and Means Committee will need time to prepare a prioritized legislative agenda. If Mr. Neal is to swiftly advance the Democrat's tax priorities, he needs to be as little burdened as possible by these outstanding issues. Second, while they were in the minority, Democrats had much smaller staff and space allocations than did the majority Republicans, which is the normal course for minority versus majority party staff/budget allocations. Mr. Neal will need to hire and orient a much larger staff, who may or may not have yet had committee experience, in order to handle his new responsibilities and carry out the new committee agenda.

The last two Presidents took advantage of the special rules under the budget reconciliation procedures (which require only a simple majority in the Senate) to enact major fiscal reforms (the Affordable Care Act under President Obama and the TCJA last year), but it appears very unlikely that House Democrats will agree to a set of procedures that dilutes the power of their Senate colleagues in the new Congress. As a result, any new tax legislation in the 116th Congress is likely to require the traditional 60-vote threshold in order to pass the Senate. Even under the best current projections, Republicans can only expect to hit a maximum of 54 Senate seats at best, which would leave them six or more votes short of the 60-vote threshold.

Divided government is capable of, and has often produced constructive results, but that will depend on the willingness of the President and the political leaders in Congress to compromise and co-operate. Mr. Neal has indicated that he intends to govern with an understanding of the limitations that divided government will impose, and instead will seek to find common ground with Republicans in the Senate and with the President, while the anticipated incoming Senate Finance Committee Chairman Senator Grassley, spent his previous four-year term as Finance Committee Chairman working very closely with the ranking Democrat, Max Baucus, showing he too has a desire to work across the aisle.

On a positive note, the elements clearly exist to allow for more cooperation on some key issues if history and recent comments of these two anticipated Chairmen are any indication.



Mr. Neal has had preliminary discussions with senior Administration officials on the possibility of cooperating on a major infrastructure program, an issue that neither the President nor Congress had the bandwidth to tackle alongside prioritization of both health care and tax reforms during his first two years in office; the desire to do infrastructure has growing bipartisan support. During the 2016 transition, the President-elect specifically proposed a plan to create a trillion dollar infrastructure bank funded partially through a federal contribution, most likely in the form of tax credits.

Prospects for the success of the Trump proposal or any infrastructure package, will certainly be dictated as it has been in any recent past infrastructure package effort by whether there are demands that an infrastructure package be fully or partially offset, which has presented a substantial and, to date, insurmountable challenge to success. Democrats are likely to call for cost offset of any package through increases in the individual and/or corporate tax rates, while conservatives may demand that the offset be in the form of spending cuts; there could also be compromise to be had in some combination of the aforementioned funding offset approaches.

Modifications to the TCJA

The election campaigns and results suggest that the TCJA was not a popular issue with the public, especially in suburban Republican districts. In fact, four Republican House Ways and Means Committee Members lost their seats despite their advocacy for tax reform.

The public perception of the TCJA trended towards the belief that it was weighted too heavily towards wealthy individuals and corporations and as a result, House Democrats are likely to pursue legislation to refocus tax reform on the middle class, possibly by raising the upper individual rates from the current 37 percent back to the pre-tax reform 39.6 percent rate, and possibly increasing the corporate rate from 21 percent to close to 25 percent. Democrats picked up seats in high tax states – New York, New Jersey and Illinois especially – by attacking the TCJA provisions that limit the deductibility of state and local taxes to $10,000 and are expected as well to seek to restore this benefit (Mr. Neal's home state of Massachusetts has a high local rate as well).

House Democrats are likely to meet stiff resistance from Senate Republicans to changes to the TCJA, and the ultimate question will be whether, and to what extent, the President will be willing to negotiate a deal that would alter aspects of the TCJA, something he suggested he would consider in a post-election press conference earlier today.

There are also some substantive aspects of the TCJA that need modification, especially in the international area, and the willingness of House Democrats to tackle these issues in 2019 may depend on the willingness of Senate Republicans the President to agree to some Democratic priorities.

Tax extenders

Congress recently extended thirty or so popular tax expenditures through the end of 2017 and a smaller number through the end of 2019. There will be an effort in the lame duck session to extend the provisions that expired at the end of 2017 for an additional two years (2018 and 2019), but it appears unlikely that those provisions set to expire at the end of 2019 will be extended during the lame duck period As a result, proposals to extend these provisions will be considered in 2019.

Prospects for the extenders are greater with Democrats in control of the House, but members will have to resolve whether to offset the cost of extending the provisions in an environment of growing deficits.

Multiemployer pension plans

In the Budget Act of 2018, Congress created the Joint Select Committee on Solvency of Multiemployer Pension Plans, with a mandate to report recommendations by the end of 2018. Those recommendations are expected to form the basis for legislation to be considered sometime in 2019.


Democrats report that healthcare, and especially the protection of individuals with pre-existing conditions, was a major factor in many winning campaigns. It is very likely that House Democrats will move early on legislation to bolster some parts of the Affordable Care Act (ACA). Additionally, we can expect to see Democrats heavily focused on the issue of drug pricing, which may also be an area where Democrats and the President can find common ground.

Moreover, we may also see some movement toward final ruling on the payout of Risk Corridor payments to those co-op insurance plans created by the ACA that ultimately collapsed from insolvency. The ACA provisions on this point failed to articulate any budget neutrality requirement for this provision, however, it is implied elsewhere in the law causing the point at issue.

Deficit reduction

The growing national debt is likely to be a major challenge in the next Congress, with Democrats putting the blame on the TCJA and Republicans on spending for deficits now projected to exceed $1 trillion a year over the next decade. The possibility of a compromise involving both some spending cuts and tax increases (most likely not through rate increases) could pose challenges to the business community.

The wild cards

This President has shown an ability to shift his position and political alliances with relative ease, and when necessary, to compromise with Democrats. The budget deal he reached with Congress early this year resulted in large part from a deal struck with Democratic Congressional leaders Charles Schumer and Nancy Pelosi.

Within hours of the election. Senate Majority Leader Mitch McConnell announced that he had begun discussions with Mrs. Pelosi and that he had worked closely with her earlier in their careers when they both served on the appropriations committees. Both are experienced legislators who know how to cut deals.

It is very rare for one party to control all of the levers of power in Washington. As they did in 2010 to President Obama, the voters took that privilege away from President Trump, and appear to have sent a message that they would prefer to see to some bipartisan cooperation in Washington for a change.

Time will tell if these overtures are successful, but certainly in an environment in which the national debt is rising and political compromise is inevitable, the moves of the next Congress and the Administration over the next two years are worth watching very closely.