How the U.S. midterm elections could affect companies’ profits
A Republican takeover of Congress would reshape the fiscal and regulatory landscape for a wide range of businesses that have grappled for nearly two years with Democratic efforts to boost taxes and tighten rules. Next week’s midterm elections are expected to usher in a new era of divided government, with polls showing Democrats losing control of the House and possibly the Senate. That would spell the end of President Joe Biden’s agenda.
For businesses, the biggest impact of a GOP ascent would be the end of one-party economic policy. Democrats would no longer be able to use the partisan budget maneuvers to ram through tax increases, change Medicare drug policies, and pass pandemic relief spending that many economists say helped fueled inflation.
Even in a divided government, though, there may be room for compromises on border security and legal immigration that could address the labor shortages vexing US industries, along with possible agreements to streamline permitting and leasing for energy projects. Yet, GOP lawmakers are vowing to investigate Biden’s administration, reject his appointees to key jobs and wage a fight over the US debt limit that risks rattling markets — politically charged moves that could interfere with any bipartisan deal-making.
With a week until Election Day, here’s a look at what’s at stake for business:
• Republican Congress would put brakes on business tax increase: Democrats came within one Senate vote of raising the corporate tax rate to 25% and imposing a global minimum profits tax. The risk of that being resurrected goes away if the GOP takes the House as expected, along with the chances of a windfall profit tax for oil companies. The midterm outcome will also likely shape December talks on renewing research and development tax breaks.
Republicans have said that in the majority they will push to extend expiring provisions of the 2017 tax cuts signed by former President Donald Trump tax cuts. Two provisions of that law are especially valuable to businesses: the 20% deduction on qualified income for many pass-through entities that expires in 2025 and bonus depreciation for qualified business purchases that phases down fully in 2027.
Anti-tax activist Grover Norquist predicts a GOP Congress would negotiate with the White House a two-year extension of those provisions before the end of 2024.
Former top Senate GOP aide Rohit Kumar, now at PWC, predicts the GOP would force tough votes on a reconciliation bill extending the Trump tax law to pressure moderate Democrats to agree to small business relief. “That would set the table for a final negotiation in 2025,” he said.
• Energy production could get boost, climate measures pared: Republicans plan to push for expanded domestic energy production if they take the majority and will try to use voter frustration over high gasoline prices to get the Biden administration to go along. The House Energy and Commerce Committee will look to boost development of hydrogen projects, streamline permitting and development of nuclear power plants, and accelerate approval for liquefied natural gas export facilities, Representative Bill Johnson, an Ohio Republican who serves on the committee, said.
Those measures, if enacted, would benefit companies such as nuclear operator Southern Co., small modular reactor maker NuScale Power Corp., and liquefied natural gas exporter Cheniere Energy. They could benefit drillers like Halliburton and oil producers such as Exxon Mobil. Johnson also plans to target a Biden administration rule phasing out some natural gas furnaces that drew the ire of the American Gas Association, which represents utilities such as Dominion Energy, Inc. and DTE Energy Co.