Tax policy changes course while current-law planning continues

Democrats will control the House and Senate when the new Congress convenes in January, but they will lack the 60 Senate votes generally needed to advance major legislation, and any legislation they pass will go to a Republican president with veto power. Those constraints make sweeping tax changes difficult, but they still leave room for narrower measures that can attract bipartisan support.

The challenge for business leaders will be distinguishing political posturing from concrete tax developments that could affect their businesses. A practical response would be to distinguish between what can be acted on now, what should be prepared for and what should be monitored, at both the federal and state levels.

Act on current-law opportunities

The irony of a divided government is that it provides an increased level of certainty: Given the limits on the incoming majority's power, existing opportunities are unlikely to change significantly in the near term. That gives businesses a firmer basis for planning.

Current law may support accelerating an investment, changing its structure or coordinating tax planning more closely with operational and financing decisions. For example, the One Big Beautiful Bill Act (OBBBA) in 2025 significantly changed the rules affecting bonus depreciation, the business interest expense limitation, and research and development costs. A company planning an equipment purchase, expansion, financing arrangement or R&D investment can evaluate the available tax treatment now rather than waiting for another major tax bill.

Prepare for known planning windows

Some recently enacted tax provisions have limited lives. For example, the special depreciation allowance for qualified production property offers an immediate deduction for certain investments, generally for construction that begins before 2029 and property placed in service before 2031.

Temporary provisions create a measure of uncertainty within the relative certainty of current law. Even though a future Congress may extend, modify or allow them to expire, the scheduled change date gives businesses a set point in time to incorporate into forecasts and investment models. Considering potential termination dates is useful for multiyear capital projects, manufacturing investments and other long-term commitments.

Modeling a project under current law including known termination dates can show how sensitive the economics are to tax policy, how timing affects the result and whether an investment could remain viable across several possible outcomes.

Beyond the next two years, scheduled expirations of certain OBBBA provisions in 2028 create an inflection point for revisiting longer-term forecasts as the 2028 legislative picture comes into focus. Businesses relying on temporary provisions could update scenarios incrementally:

• 2026–28: Execute planning under tax provisions already enacted
• 2027–28: Monitor bipartisan tax legislation
• 2028: Prepare for scheduled OBBBA expirations that could become bargaining points in an evolving legislative environment

Scenario planning does not depend on predicting the next electoral or legislative vote. Its purpose is to identify which decisions could be affected by a rule change and preserve options while those options remain available.

The same discipline applies to business owners and high-income individuals. If the debate points toward higher individual rates or narrower manufacturing incentives, modeling can show whether to accelerate an investment, transaction or other planning step into the current-law window.

Monitor the agenda, not every headline

Democratic leadership of the Senate Finance and House Ways and Means Committees can shape federal tax policy even when legislation stalls. Committee chairs control agendas and can use hearings, investigations and oversight to elevate priorities and scrutinize tax practices. Businesses with tax positions that depend on aggressive interpretations of the tax law, novel structures or politically controversial incentives may face a challenging oversight environment even if the tax law itself does not change.

The likely chairs of the taxwriting committees in Congress have offered previews of their areas of interest. Sen. Ron Wyden (D-Ore.), expected to return to the Senate Finance gavel, has long focused on taxing high-wealth individuals and large corporations, with past proposals including an annual tax on billionaires' unrealized gains, ending the carried interest preference, a higher stock buyback excise tax and tighter international and pass-through rules. He has also used the committee's investigative resources aggressively on issues such as private placement life insurance, partnership use by wealthy taxpayers and IRS enforcement. In the House, Rep. Richard Neal (D-Mass.), expected to chair the Ways and Means Committee, is likely to emphasize affordability: Affordable Care Act premium tax credits, an expanded child tax credit, low-income housing tax credits and retirement security. His record of bipartisan work on retirement and housing may make those issues practical candidates for bipartisan deals.

Democratic tax writers have also signaled interest in IRS enforcement as well as overall tax administration, tax treatment of artificial intelligence and data centers, taxation of digital assets and clean energy. Many of these issues will likely be at the forefront of Congressional attention through 2027 and into the 2028 presidential election, and proposals that look like messaging today could become the starting point for legislation in 2029 if the balance of power shifts.

However, a hearing or proposal does not necessarily signal an imminent change in tax law. Some proposals will mainly highlight a political position. For example, restoring expired clean energy incentives or taxing carried interest as ordinary income may serve chiefly as statements of Democratic priorities, given the likelihood of a veto.

Other proposals may have a more viable path because they enjoy bipartisan support or can be attached to must-pass legislation. A digital asset taxation framework has already passed the House Ways and Means Committee on a bipartisan vote, and the work opportunity tax credit, housing and retirement measures and other temporary provisions may also attract bipartisan interest, including during the lame-duck session. Businesses that rely on expiring provisions should know where those extenders stand in the coming weeks.

Businesses can assess emerging proposals by asking whether they have meaningful bipartisan support, a viable legislative vehicle, and a direct effect on a specific investment or operating decision. Those factors help determine when a development requires scenario modeling rather than continued observation.

Don't overlook the states

Federal gridlock does not mean state tax policy stands still. Many state legislatures will spend their 2027 sessions deciding whether to conform to or decouple from OBBBA provisions such as bonus depreciation, domestic research expensing and the qualified production property allowance, which can create meaningful differences between federal and state taxable income. States facing budget pressure, including from reduced federal funding, may also consider surtaxes on high earners, pass-through entity tax changes, broader sales tax bases or new digital and service taxes. Multistate businesses should model state conformity alongside federal provisions rather than assume the federal benefit carries through.

Turn policy clarity into business clarity

The midterm results do not require middle market businesses to pause tax planning. Current law offers opportunities that inform today’s business decisions. Temporary provisions create planning windows. Committee agendas, a narrower set of bipartisan proposals and state conformity decisions will indicate where future change is most plausible.

Again, the practical approach is to act on what is known today, use the certainty that divided government provides and stay ahead of what may come next. Businesses don't need to track every development in Washington or the state capitals; a conversation with an advisor about which decisions are actually affected is often the best place to start.