After the Midterms: What a New Congress Could Mean for Your Taxes

The election moved the agenda, not the tax code

Nothing in the Internal Revenue Code changed on November 3. What changed is the agenda Democratic leaders will bring to the 120th Congress when it convenes on January 3, 2027, and the leverage they bring to every negotiation with the White House.

As of November 12, with some elections still uncalled, AP's count shows Democrats have won 255 House seats and Republicans 168. Twelve House seats are counted as won for neither party in the AP results we have, which don't say why or which way they will go. In the Senate, AP's count as of the same date shows Democrats with a total of 55 seats and Republicans with 44. 

These counts may have changed since. What follows is what Democratic leaders say they will pursue on taxes, and what is realistic with President Trump holding the veto through January 2029.

1. ACA premium tax credits: the first and likeliest fight

The enhanced premium tax credits expired on December 31, 2025, and no law has revived them. For 2026, the §36B credit is back on the original ACA formula: higher required contribution percentages and, generally, no credit above 400% of the federal poverty level. KFF estimated that subsidized enrollees' premium payments rose 114% on average this year.

The issue has already been through one cycle. The Senate rejected two competing extensions on December 11, 2025, and the House passed a three-year extension on January 8, 2026, that never became law. House Minority Leader Hakeem Jeffries has said restoring the credits would be a primary Democratic objective in 2027.

Two points for planning. First, expect a negotiated version, not a clean restoration: duration, the income cap and minimum premium payments are all on the table, and CBO put the cost of a straight extension at $350 billion over 10 years. Second, KFF's Larry Levitt has noted relief could be backdated to January 1, 2027, which would reach enrollees as a refund through Form 8962 reconciliation rather than as lower monthly premiums.

2. Child Tax Credit and EITC: the best odds of a bipartisan deal

Under current law the 2026 Child Tax Credit is $2,200 per qualifying child under 17, with up to $1,700 refundable, subject to the identification-number rules the One Big Beautiful Bill Act (OBBBA) added. OBBBA made the amount permanent and indexed it, but the round-down-to-$100 rule left 2026 unchanged from 2025.

The Tax Foundation expects Democrats to push the per-child credit to $3,000 or more and to expand the EITC, especially for workers without children. Other proposals add monthly payments and a larger child and dependent care credit.

The headline number is the wrong thing to watch. The real fights are refundability (whether the lowest-income families get the full credit), the phaseout thresholds, and the identification-number requirement. A family-credit package has some Republican support, which makes it a more plausible law than most items on this list.

3. Clean energy and housing: big asks, narrow landing zone

OBBBA ended the clean-vehicle credits for vehicles acquired after September 30, 2025, ended the residential energy credits after 2025, and cut off the production credit for many wind and solar facilities placed in service after 2027. Rep. Sean Casten's Energy Bills Relief Act, which would restore them, drew more than 100 Democratic cosponsors.

Full restoration has little Republican support. Targeted credits with constituencies in Republican districts are the realistic ceiling. On housing, Democratic proposals would expand the low-income housing tax credit (already expanded by OBBBA) and create refundable credits for first-time homebuyers and renters.

4. Who pays: high earners, and what California just told us

Every credit above costs money, and Democrats have been explicit about the pay-for: higher taxes on high-income individuals, investors and corporations. Analysts expect proposals to restore a top individual rate of at least 39.6%, possibly with a surtax on very high incomes, alongside changes to capital gains and the estate tax and a corporate rate above 21%.

California offered a live test of the most aggressive version. Proposition 40 would have imposed a one-time 5% tax on the worldwide net worth of billionaires who were California residents on January 1, 2026, measured as of December 31, 2026, with the proceeds directed to state health programs facing OBBBA cuts. It excluded directly held real property and most retirement accounts, and allowed payment over five years.

AP called Proposition 40 for the "No" side. As of Nov 12, 10:00am ET, AP's count shows No at 52.5% and Yes at 47.5%, with an estimated 91% of votes counted; those figures may have changed since.

The lesson for federal policy: a direct wealth tax failed even in California, and a federal one would also face constitutional challenge over apportionment and realization. The federal fight will run through conventional levers: rates, capital gains, estates and trusts. California's billionaires are clear of Proposition 40, not of Washington.

5. The real constraint is the veto, not the filibuster

The filibuster is a speed bump, not a wall: budget reconciliation lets tax legislation pass the Senate with a simple majority. Nothing gets around the President. A veto override takes two-thirds of both chambers, which NBC News reported Democrats do not have.

That sorts the agenda into two piles. High-earner tax increases and full clean-energy restoration will likely pass as messaging bills, draw vetoes, and serve as the template for 2029. ACA credits, family credits and targeted housing incentives are the items that can become law, most plausibly attached to must-pass vehicles such as fiscal 2027 appropriations, a debt-limit deal or the health extenders.

Deficits are the second filter. With the ACA extension alone priced at $350 billion over a decade, every expansion will be negotiated against its offsets, which usually means shorter durations, lower amounts and tighter income limits than the opening bid.

What to do now

• Plan 2026 under current law. Nothing enacted this cycle reaches 2026 returns; year-end moves should assume OBBBA as written.
• ACA enrollees: price 2027 coverage at current-law credits. If a restoration is backdated, the benefit arrives at filing; if it isn't, nobody is caught short.
• Families: don't budget a larger 2027 Child Tax Credit until a bill is signed. Indexing, not legislation, is the only increase you can count on.
• High earners: model a rate-increase scenario for 2029 and later. OBBBA's "permanent" provisions are permanent only until the next unified government. Multi-year decisions on income timing, Roth conversions, entity choice and estate transfers should be stress-tested against higher rates.
• Clean-energy projects: work to existing deadlines. Do not underwrite a project on the assumption that credits come back.

We will update clients as bills are introduced in January. If any of these scenarios affects your planning, contact us before year-end. Call (202) 455-6010 or schedule a confidential consultation.