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Washington Wire: What the Mid-Term Elections Mean for Tax Credit Issues

Published by Michael J. Novogradac on Monday, November 1, 2010

Journal cover November 2010   Download PDF

On November 2, voters cast ballots in the mid-term elections. As the Journal of Tax Credits went to press, it was clear that the Republican Party won control of the House of Representatives while the Democrats retained control of the Senate.

The Breakdown
In the House, all 435 seats were up for election. Of the open seats, 157 Republican incumbents ran for re-election and 22 Republican seats were open, while 237 Democratic incumbents ran for re-election and 19 seats were open.

Early returns indicate that the Republican Party has regained control of the House, with a total of at least 239 out of 435 seats. The Democrats had 185 seats and 11 seats were too close to call as we went to press.
Thirty-seven of 100 Senate seats were up for election. Going into the election, the Senate was composed of 57 Democrats, 41 Republicans and two Independents who caucus with the Democrats. Of the seats that were up for election in 2010, 19 were held by Democrats, six of whom retired this year and one who lost in the primary, leaving 12 incumbents who ran for re-election. The remaining 18 Senate seats that were up for election are held by Republicans, six of whom retired and one who lost in the primary, leaving 11 incumbents that ran for re-election.
The Democratic Party retained control of the Senate, but by a smaller margin than it enjoyed before. Initial results indicate that in the 112th Congress, the Senate will be composed of at least 49 Democrats and at least two Independents who caucus with the Democrats for a combined vote of 51. Republicans will have at least 47 seats. As we went to press, the races in Washington and Colorado were too close to call.  

Voters in 37 states also elected governors. Initial reports indicate that 23 of the 37 gubernatorial elections were won by Republicans and 8 were won by Democrats. One governor’s race was won by an Independent. Five races were too close to call at press time: Connecticut, Illinois, Minnesota, Oregon and Vermont.

So what does all this mean?

Changes in Leadership
First, there will be a significant leadership change. It’s widely expected that Rep. John Boehner, R-Ohio, will replace Rep. Nancy Pelosi, D-Calif., as Speaker of the House. Next, Rep. Eric Cantor, R-Va., is expected to become the new majority leader, replacing Rep. Steny Hoyer, D-Md. The majority whip position was up for grabs at press time, as the likely candidate, Rep. Mike Pence, R-Ind., announced that he decided not to seek re-election as chairman of the House Republican Conference; it was not immediately clear who the frontrunners would be for the open leadership position.  

Another major leadership shift will take place at the committee level. Party conferences will convene before the start of the next Congress to elect leaders and determine committee assignments.

As the Journal went to press, it is expected that Rep. Dave Camp, R-Mich., will become chairman of the House Ways and Means Committee, replacing interim chairman Rep. Sander Levin, D-Mich. And the House Financial Services Committee chairmanship will likely be given to Rep. Spencer Bachus, R-Ala., who will take over from Rep. Barney Frank, D-Mass. In addition, Rep. Pat Tiberi, R-Ohio, is expected to become the new chair of the House Select Revenue Subcommittee, taking the gavel from Rep. Richard Neal, D-Mass.

Sen. Harry Reid, D-Nev., retained his position as majority leader of the Senate. And at the committee level, Sen. Max Baucus, D-Mont., retained control of the Senate Finance Committee. Sen. Charles Grassley, R-Iowa, currently the Ranking Republican Member of the Senate Finance Committee, is expected to step down as Ranking Member and be replaced by Sen. Orrin Hatch, R-Utah. Sen. Grassley is expected to become Ranking Member of the Senate Judiciary Committee. The Senate Banking Committee will get a new chairman, as Sen. Christopher Dodd, D-Conn., retired this year. The chairmanship is expected to go to Sen. Tim Johnson, D-S.D., with Sen. Jack Reed, D-R.I. having an outside chance.

In addition to the change in chairmen, a huge swing will take place in committee membership to correlate to each party’s representation as a whole. Based on early returns, the House Ways and Means Committee will have to pare back about 10 Democrats from its roster and add about 10 Republicans. Democrats leaving the Ways and Means Committee include Reps. John Tanner, D-Tenn., Kendrick Meek, D-Fla., and Artur Davis, D-Ala., who are retiring. In addition Reps. Earl Pomery, D-N.D., and Bob Etheridge, D-N.C., lost re-election. This resolves five of the approximate 10 reductions in Democratic seats. Additional reductions are likely to come from the most junior Democratic members of the committee: Reps. John Yarmuth, D-Ky., Brian Higgins, D-N.Y., Linda Sanchez, D-Calif., Danny Davis, D-Ill., and Allyson Schwartz, D-Pa. Two Republicans are leaving the Ways and Means Committee as Reps. John Linder, R-Ga., and Ginny Brown-Waite, R-Fla., are retiring. This leaves about 12 openings for Republicans on the committee. Some Republican candidates for these seats include Reps. Erik Paulsen, R-Minn., Lynn Jenkins, R-Kan., Adrian Smith, R-Neb., John Campbell, R-Calif., Kenny Marchant, R-Texas, Tom Price, R-Ga., and Michelle Bachmann, R-Minn. It is also possible that some newly elected members of the House could get a seat on Ways and Means, which is what Newt Gingrich did 1994.

Similarly, the House Financial Services must add about 10 Republicans and pare back about 10 Democrats from its membership. On the Democratic side, two Financial Services members did not run for re-election, and 10 members lost re-election, including the second most senior Democrat, Rep. Paul Kanjorski, D-Pa. This means there is room for about two more Democrats. Three Republican members of the Financial Services Committee did not seek re-election, so there is room for about 13 more Republicans.

On the Senate Finance Committee, Democrats currently hold three more seats than Republicans. Depending on an agreement on committee structure between Sen. Mitch McConnell, R-Ky., and Senate Majority Leader Reid, the difference of three likely needs to be reduced to one. Sen. Jim Bunning, R-Ky., is retiring, so there is room for one to three more Republicans. For the Democrats, Sen. Blanche Lincoln, D-Ark., lost her re-election bid. As a result, Democrats may need to remove a member, depending on the number of additional Republican members. Early reports indicate that the potential Republicans being considered for the Senate Finance Committee are Sens. John Thune, R-S.D., and Johnny Isakson, R-Ga. In addition, Sens. Jim, DeMint, R-S.C., Richard Burr, R-N.C., Bob Corker, R-Tenn., Dan Coats, R-Ind., and Tom Coburn, R-Okla., are candidates for Senate Finance membership.  

Likewise, the Democrats advantage on the Senate Banking Committee will need to be reduced from three to about one. Two Democrats on the committee—Sens. Christopher Dodd, D-Conn., and Evan Bayh, D-Ind.—did not run for re-election, and one—Sen. Michael Bennet, D-Colo.—is in a race that was too close to call as the Journal went to press. As such, additional reductions are likely not necessary. For Republicans, three members are not returning: Sens. Bunning, Robert Bennett, R-Utah, and Judd Gregg, R-N.H. As a result, there is room for three or four new members of the Senate Banking Committee.

Post-Election Landscape
With a Republican House and a Democratic Senate, albeit with less dominant control, nothing will pass Congress without broader bi-partisan support. This is expected to translate into an even greater focus on spending restraint, and more support for tax cuts.

In the meantime, there are a number of items still waiting for the lame duck session of Congress to consider, including appropriations bills or another continuing resolution. The lame duck session is scheduled to convene November 15. The lame duck will have one more Republican and one less Democrat than the current Senate mix, as Sen. Ron Kirk will take his Illinois Senate seat, which is currently held by a Democrat, once his election is certified by the Secretary of State. During this session, Congress is also likely to consider a number of tax provisions such as the 2001 and 2003 tax cuts, the estate tax, alternative minimum tax relief and tax extenders. As the ripples of the mid-term election settle over the coming weeks and months, stay tuned to future updates in the Journal of Tax Credits to learn what they will mean for the tax credit community.

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