Key Tax Impacts CFOs Should Monitor in Midterms

Dane Ware, a CPA and manager at global tax services firm Ryan, has shared his insights on how the outcome of the upcoming midterm elections could significantly impact corporate tax policy. Central to the decision-making process for companies contemplating capital expenditure, is understanding the potential changes to the One Big Beautiful Bill Act (OBBBA).

A closer look at the OBBBA

According to Ware, companies should be closely examining the legislative history and party priorities associated with the OBBBA, the Tax Cuts and Jobs Act, and the Inflation Reduction Act to set their post-election expectations.

Stable Provisions

Ware suggests that four provisions in the tax code are unlikely to be altered. These include the 100% bonus depreciation, the EBITDA-based Section 163(j) interest deduction, the international tax provisions and immediate deductibility of domestic research and experimentation (R&E) expenses. Ware argued that these provisions are expected to remain due to two primary reasons. Firstly, most taxpayers, both corporations and individuals, have already realized significant benefits from the OBBBA. Secondly, legislative history shows that a slim majority in Congress typically struggles to overturn permanent provisions with no set expiry date. Ware also hints that a potential legislative gridlock post-election, coupled with a static executive branch, could work in favor of these provisions.

Provisions at risk

Ware identifies two categories that pose a substantial election risk: the Section 168(n) manufacturing building deduction and the accelerated sunsets on renewable energy tax credits. A gridlocked Congress would be detrimental to these provisions due to the negotiation typically needed for extension packages. Ware suggests Democrats would aim to restore the Inflation Reduction Act’s original timeline for sunsetting renewable credits, while Republicans would strive to maintain the current OBBBA status quo. If Democrats gain significant control post-election, they may scrutinize OBBBA provisions to fund renewable credit extensions.

Preparatory steps for companies

Regardless of the election outcome, Ware advises companies to plan for continuity of OBBBA provisions in the short term. Any reversal of these would require a substantial Democratic majority in both legislative houses and broad public support. In anticipation of potential changes, companies should model various OBBBA repeal scenarios against their tax projections. They should also consider purchasing discounted renewable energy tax credits to offset liabilities for current or previous tax years. Ware emphasizes the importance of ongoing monitoring of state tax implications, which could influence investment timing decisions.

Potential changes to corporate tax rate

Ware also highlighted the ongoing debate around the base corporate income tax rate and specific Internal Revenue Code (IRC) corporate tax provisions. Democratic proposals include increasing stock repurchase tax rates, imposing stricter executive compensation rules, and a possible 28% corporate income tax rate in future. On the other hand, Republicans argue for economic growth through tax breaks. Each approach has its trade-offs though. For instance, raising the corporate rate could slow economic activity, while unregulated tax breaks might increase the federal deficit.

Planning for the post-election scenario

Ware advises companies that the planning process for a divided Congress should not differ significantly from that for a gridlocked or tight-majority one. In case of a Democrat win in only the House or Senate, any tax bill would still need to pass the other chamber and receive President Trump’s approval. Although a majority in one chamber allows Democrats to negotiate their top priorities, the late stages of the president’s term combined with the need to defend their own tax policy makes any reversal of OBBBA challenging. Ware suggests that companies should anticipate a short-term period where OBBBA tax provisions continue through 2026 and reassess the political landscape before making significant planning decisions in 2027.