Navigating a New Congress with a Divided Government

During the 118th Congress, lawmakers are facing a steep climb to advance their priorities. With a divided Congress and slim margins in both chambers, getting anything to the president’s desk is going to be a big lift, but understanding the parties’ respective agendas and where they may overlap can go a long way toward navigating the policy arena in Washington, DC.

Democratic Priorities: Taxing the Wealthy and Increasing Spending

Democrats in Congress are closely aligning their work with President Biden’s agenda, which he outlined in his Fiscal Year 2024 Budget Proposal released in early March. In this budget proposal, which reads as a legislative wish list out of the White House, we saw several proposals to increase taxes on the wealthiest taxpayers. These include a 25 percent minimum tax on anyone with more than $100 million in assets, increasing the top individual income tax rate and levying it on capital gains, increasing the corporate tax rate to 28 percent, and many more. Beyond the trillions of dollars in tax increases, the budget would expand tax benefits for working families and the middle class, while also increasing both domestic and military spending. Many policies that didn’t make it over the finish line in the 117th Congress remain on the to-do list, including increased investment in early childhood care and education programs, paid family and medical leave programs, drug price negotiations reforms, and a larger child tax credit. In short, this agenda is aspirational, but there may just be a few areas of agreement with the other side of the aisle.

Republican Priorities: Renewing Tax Breaks and Laying the 2024 Groundwork

Republicans now control the House, which slashed any hopes of Democrats achieving a vast majority of the aforementioned policy changes. And many Republicans’ primary aim this Congress is to show voters that the Biden White House and Democratic Party aren’t delivering, while also making the case for why they should be put in power in 2024. So the question is, how will they achieve this? Oversight is a key theme for Republicans this Congress. Whether it is through hearings in newly stood up committees in the House, or leveraging their subpoena power to learn more about the Biden Administration’s activities over the past two years, GOP leaders will be leaning on their oversight power to drive their agenda. The Ways and Means Committee, now controlled by Chair Jason Smith (R-MO), recently approved a fairly extensive oversight agenda that is expected to hold the attention of the committee and its hearing schedule for the foreseeable future, and the same is expected in other committees as well. In addition to oversight, the renewal of expiring provisions from the GOP tax bill that passed in 2017 is already on the table. Many of the individual tax cuts in the Tax Cuts and Jobs Act are set to expire in 2025, which Congress will need to extend or make permanent so taxpayers don’t see a spike in their tax bills come 2026. A bill to make those provisions permanent has already been introduced this Congress, likely with the intent to begin the conversations before the 2024 presidential election. So, these priorities don’t necessarily line up with those of the White House and Democrats, but all hope for legislative success this year is not lost.

Bipartisanship and Big Bills

With Republicans’ narrow control of the House and Democrats’ narrow control of the Senate, any hope for passing legislation will require bipartisan support and quite a bit of old-fashioned negotiating. Both parties want to show voters that they can govern ahead of 2024, so there are some areas where we could see an effort to find a consensus. For example, while no Democrat voted for the 2017 tax bill, the expiring tax cuts that would hit the middle class may be an incentive to work with Republicans on extending those cuts. Another example is the child tax credit (CTC). Both parties have signaled a willingness to expand the CTC, but they have yet to come together on the requirements for access. Uncertain economic conditions and the potential to advance other priorities along with it might just push them to make a deal. What we do know is that any big spending or revenue raising bill this year is going to take a lot of energy. What that means in practice is that individual bills, especially in the tax space, will almost certainly not move on their own. Instead, keep an eye out for a larger package – closer to the end of the year – that may serve as a vehicle for any final negotiated items before we turn to 2024 and the next presidential election.