Conventional wisdom says that Wall Street likes divided government, but should tax directors feel the same way? Now that the new Congress has been sworn in and is beginning its work, businesses must attempt to determine what the prospect is for tax legislation in the 116th Congress with a Democratic House of Representatives and a Republican Senate and significant turnover in the membership of the tax-writing committees (particularly Ways and Means). Is tax reform at risk of repeal or substantial modification? Is there Congressional appetite to address tax matters that were not included in tax reform? Will progressives' goal of getting and releasing President Donald Trump's tax returns monopolize legislative interest and resources? In addition to answering these questions, businesses must also figure out how to effectively navigate differing political preferences and goals in the two houses of Congress to advocate successfully for legislative change.
In 2017, a unified Republican government brought us the Tax Cuts and Jobs Act. The TCJA contained benefits for businesses--like a reduced corporate income tax rate and immediate expensing--but also introduced new and burdensome provisions--like the base erosion and anti-abuse tax (BEAT). Even the TCJA's architects such as the former chairman of the Ways and Means Committee, Kevin Brady (R-TX), recognized that the TCJA was the start of tax reform, not the end. In 2018, then-Chairman Brady advocated for "Tax Reform 2.0," which focused primarily on individual income tax provisions, and for further refinements to the international tax provisions added by the TCJA.
Like many (if not all) tax bills, the TCJA contained obvious errors in need of technical corrections. In addition, as taxpayers began modeling and applying the new provisions, they discovered effects that Congress likely did not intend when it enacted the TCJA. In drafting regulations, Treasury identified areas where it believed it did not have sufficient regulatory authority to implement the TCJA in an administrable manner. Had Republicans maintained unified control of the government, it would have been reasonable for businesses to expect the new Congress to pass technical corrections legislation and address some of the unintended consequences with little difficulty.
But voters had different ideas. In November, voters sent a Democratic House majority and a Republican Senate majority to Washington. The TCJA was certainly a factor in some...