Many wonder if last week's Democratic sweep of the 2025 off-year elections (including the Virginia and New Jersey governorships) signals a blue wave coming in the 2026 midterm elections. A Democratic tsunami would wash out Republican control of the House, currently controlled by only a few seats, and could even flip the Senate. 

The midterms are far off and clouded by continuing mid-decade redistricting and many anticipated retirement announcements, which significantly impact the election landscape. (Last week's decision by former House Speaker Nancy Pelosi (D-CA) to depart next year may in fact foretell a chorus of retirements among older House Democrats.) However, this week, we're taking a long-distance look at what the tax policy agenda may look like if the midterms result in a divided government starting in 2027.

First, the post-election lame duck period could see Republicans push forward another partisan reconciliation bill before divided government becomes a reality. The ability of Republicans to rally behind a reconciliation bill in an accelerated time period may be challenging, particularly given deficit concerns. That said, we could see an effort to extend or make permanent Trump campaign proposals, such as the qualified tip deductions, or to address proposals dropped from the One Big Beautiful Bill Act (OBBBA), such as the increased 23 percent section 199A pass-through deduction rate and health savings account expansions.

Second, divided government in 2027 would require bipartisan collaboration on tax legislation. Despite the current intensely partisan environment, there are potential areas where the parties could work together. These include tax extenders, the Taiwan "treaty" legislation, retirement savings incentives (SECURE 3.0), tax administration, digital assets, and perhaps even technical corrections; indeed, one or more of these areas could even be addressed before 2027. Whether, and how, to pay for any tax relief would certainly be a significant issue, but a tax increase on the wealthy – as proposed by President Trump during consideration of OBBBA – may come into consideration. 

Presumably, any bipartisan effort would be limited to 2027, before the presidential election season kicks in 2028. #TaxTake

Upcoming Speaking Engagements and Events

Layla will speak at the Philadelphia Tax Conference on November 11.

Layla and Mike will present at the UT Law Oil, Gas, and Energy Taxation Symposium on November 19.

Marc will speak at the UT Law 73rd Annual Taxation Conference on December 3.

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