While some lawmakers are honing the agenda for the new Republican-controlled Congress in January, the current lame-duck session will likely act on several bills before the end of the year.
In a reversal of power, Republicans seized the control of the Senate in the mid-term elections, winning eight seats for a majority of 53. Seats held by Democrats fell to 46. In the House, the GOP added 12 seats to their existing majority for a total of 244.
Although the Republican majority is not at risk, there are still some House races being tallied and an additional Senate seat in Louisiana to be settled in a December 6 runoff election.
Lame-duck session to keep government moving
In December, Congress must act to keep the federal government operating. Congress has funded the government by passing a continuing resolution, which is set to expire December 11. It is likely that lawmakers will extend the continuing resolution to avoid a government shutdown.
There are also more than 50 tax provisions set to expire before the end of the year unless Congress acts to extend them. These so-called “tax extenders” involve a range of items including tax breaks, deductions, and other provisions. In the past, Congress has passed one-year extensions and has voted either before the end of the year or in January. While the outcome is unclear, there is also speculation that Congress may vote for a two-year extension this year.
President Obama has also proposed the confirmation of Loretta Lynch, U.S. attorney for the Eastern District of New York, as the new U.S. Attorney General. Congress may act now or put the vote off until January.
Will tax reform gain traction?
Broad tax reform will be a major talking point on the GOP agenda. Both parties appear closer on corporate tax reform issues and agree that rates need to come down. In general, both Democrats and Republicans favor a revenue-neutral approach and a reduction in the top marginal tax rate to 25% or 28% from the current 35%.
Individual tax reform is not close to an agreement. Both parties disagree, with one pushing for a revenue-neutral approach, and the other proposing an increase in tax revenue. There is also disagreement on what tax preference items — or deductions — to scale back or eliminate. The result could be inaction if Congress decides not to move forward on corporate tax reform without addressing individual taxes at the same time.
A groundswell of sentiment to repeal health-care law
With Republican control, Congress is more likely to bring a vote to repeal the Affordable Care Act (ACA). The Senate majority doesn’t have the 60 votes to avoid a filibuster by the Democrats, but could proceed within the budget reconciliation process, which requires a simple majority.
Still, the President would veto a repeal of the ACA, and the GOP does not have the two-thirds vote required for an override.
Congress is more likely to propose the repeal of certain provisions of the ACA such as the 2.3% medical device tax, the tax on so-called “cadillac” plans, and the 30-hour work-week standard to determine full-time status to be eligible for employee health benefits. The result would be restructuring pieces of the law rather than a wholesale repeal.
Financial reform, retirement, may be under scrutiny
The financial reform law, Dodd-Frank Wall Street Reform and Consumer Protection Act, may also be teed up for some minor changes under the new Congress. Revisiting some parts of the law, including the structure of the Bureau of Consumer Financial Protection, could be introduced.
Viewed by some as “tax expenditures,” retirement savings incentives may once again be on the table for consideration for limits or cuts. At the same time, investors may see programs to reform the nation’s retirement system rise higher on the agenda. With Senator Orrin Hatch likely to take over as Senate Finance Committee Chairman, his proposed Securities Annuities for Employee (SAFE) Retirement Act, which includes a plan to encourage smaller businesses to sponsor workplace plans, may gain some traction.