Should Democrats sweep the House, Senate and presidency in November’s election, there will be major implications for tax policy in general and affordable housing, community development, renewable energy and historic preservation tax incentives in particular.

The implications of a Democratic sweep are the focus of a Novogradac special report, “Blue Wave Effects: What a Democratic Sweep Could Mean for Affordable Housing, Community Development, Renewable Energy and Historic Preservation.”

Democratic candidate and former vice president Joe Biden holds a lead over President Donald Trump in national polls and in many battleground states. Democrats hold a significant edge in the U.S. House of Representatives. The U.S. Senate (where Republicans currently hold a 53-47 edge) is considered at least a tossup and possibly leaning toward a Democratic majority after the Nov. 3 election.

While where the state of the nation will be in early 2021 is an open question–one that involves the status of the COVID-19 pandemic and related economic fallout; the outcome of the Republican plan to fill the seat of the late Supreme Court Justice Ruth Bader Ginsburg; whether the election results are challenged and more–leadership by Democrats in both chambers of Congress and the White House would bring profound change. Under a Biden presidency, such issues as health care, the environment, racial justice and infrastructure would likely move to the forefront, particularly during the first 100 days of his administration, the traditional period in which new presidents focus on getting priorities passed by Congress.

The death of Justice Ginsburg and Senate Majority Leader Mitch McConnell’s push to confirm a replacement during the current term of Congress and potentially before the November election will likely create a firestorm that would put immediate pressure on Biden to address the high court in the case of a Democratic sweep. If McConnell is successful in confirming a replacement for Ginsburg, Biden and Senate Democrats would likely be under great pressure to eliminate the filibuster so that a law to expand the Supreme Court could be passed and Biden could appoint liberal justices.

Meanwhile, provisions relating to the low-income housing tax credit (LIHTC), new markets tax credit (NMTC) and other tax incentives could be attached to early Democratic legislation if there is a sweep, with expansion or enactment of new provisions coming as early as 2021. However a push by Biden and the Democrats on the Supreme Court could result in tremendous Republican resistance, possibly delaying legislative action.

While a specific tax bill–such as one championed by Republicans when Trump took office in 2017–hasn’t been atop the list of consensus Democratic priorities, many tax provisions could be included in other legislation. Particularly influential players in tax-policy bills or other legislation would likely include moderate or swing-state Democratic senators, since their support would be needed for legislative passage, presuming a narrow Democratic majority.

There are 12 close Senate races, of which Democrats need to win six for a majority. Of those 12 seats, 10 are currently held by Republicans.

The outcome of those races would determine some tipping-point Democratic senators. There are also five more incumbents (Joe Manchin, D-W.Va., Kyrsten Sinema, D-Ariz., Mark Warner, D-Va., John Tester, D-Mont., and Angus King, I-Maine) who would be crucial for Biden to keep on his side to pass difficult legislation.

In a Senate controlled by Democrats in 2021, top committee and leadership positions would likely be held by advocates of key community development and affordable housing provisions, including sponsors and co-sponsors of the Affordable Housing Credit Improvement Act, the New Markets Tax Credit Extension Act, the Historic Tax Credit Growth and Opportunity Act, the Clean Energy for America Act and the Move America Act. The committees and leadership position of those senators improve the odds that existing incentives could be expanded and proposed incentives could pass.

Biden has made many specific proposals for general tax policy, including increasing the corporate tax rate from 21 percent to 28 percent, a minimum tax on book profits and taxing capital gains as ordinary income for taxpayers who earn $1 million or more per year.

Biden’s proposal to increase the corporate tax rate to 28 percent would bring in an estimated $3.4 trillion to $3.7 trillion in federal corporate income taxes from 2021 through 2030. This higher corporate tax burden could lead to higher tax credit equity prices, even with an increase in the volume of community development tax credits, although the exact affects and timing would depend on multiple cross-cutting factors.

New community development tax incentives could be enacted under a government headed by Democrats. Proposals such as the neighborhood homes tax credit, manufacturing communities tax credit, middle-income housing tax credit, infrastructure tax credit and renters tax credit would likely be favorably received.

Should Biden win the presidency and Democrats control both houses of Congress, there would also be a shift in how the White House addresses budgeting and regulatory issues, including more money for the U.S. Department of Housing and Urban Development (HUD), potential regulatory changes to the Community Reinvestment Act (CRA) and rollbacks of Trump-era regulation changes.

The Congressional Review Act would provide an opportunity for Democrats to roll back recent Trump administration rulings. Also in play is Trump’s plan to remove Fannie Mae and Freddie Mac from conservatorship, with the possibility of shifting the agencies to a position of regulated utilities.

It’s been more than a decade since Democrats controlled both houses of Congress and the White House, but if Democrats sweep in November, there will be major implications for the affordable housing, community development, renewable energy and historic preservation communities. Legislation to advance the LIHTC, NMTC, historic tax credit, renewable energy investment tax credit and production tax credit, and the opportunity zones incentive could pass, as could new provisions. Funding and administrative oversight would likely see dramatic changes from the Trump administration.

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