Midterm Election Results: Federal and State Outcomes and Their Tax Implications

Now that the midterms are in the rearview mirror, we have a clearer picture of what the 120th Congress will look like. Democrats defied the odds to flip at least seven Senate seats and dozens of House seats. With a united Democratic Congress and a Republican president, the question now becomes: what tax legislation can pass in this environment?

Key Takeaways

• Limited time in 2026: Congress has only 18 legislative days left, so any tax bills that move will most likely be bipartisan and attached to must-pass legislation.
• Committee turnover: Senate Finance is expected to add at least seven new members and Ways and Means at least 15.
• Narrow changes are likelier: Smaller bipartisan measures, such as changes to the Child Tax Credit and Earned Income Tax Credit and added IRS funding, have a better chance of becoming law than broad proposals.
• State-level impact: Ballot measures on wealth taxes, property taxes and data center incentives, plus shifts in state party control, could drive further state tax changes.

What Tax Legislation Could Still Pass in 2026?

When Congress returns, they will have only 18 legislative days to complete a laundry list of tasks. Congress must still find a way to fund the government past December 11, 2026, as well as pass other large, “must-pass” bills such as the National Defense Authorization Act (NDAA), the Foreign Intelligence Surveillance Act (FISA), the Surface Transportation Reauthorization Act (the Highway Bill), and the Farm Bill.

These types of bills can present both an opportunity and a challenge for any last-minute tax legislation. There is a chance some legislation, such as Premium Tax Credit (PTC) and Work Opportunity Tax Credit (WOTC) extensions, could be attached to these larger bills. On the other hand, the time-sensitive nature of these bills can leave little room for negotiations on attaching additional provisions.

The bills most likely to become law in the time remaining in the 119th Congress are bipartisan in nature. For instance, the Taxpayer Services and Assistance Act could pass either as a stand-alone bill or attached to larger legislation. This bill passed the Senate by unanimous consent on September 30, 2026, which shows the strong bipartisan support for the bill. Other legislation includes extensions for WOTC, PTC, and CHiPs credits and a bill that would create a credit of up to 30% for qualified film and television production. Finally, a bipartisan package addressing some aspects of taxation of digital assets could see movement in the last days of 2026 as well, though that is less likely. None of these are “must-pass,” though, so they could easily fall by the wayside until the 120th Congress is sworn in.

What Do the Midterms Mean for Tax-Writing Committees?

Currently, Republicans have 26 seats on the influential House Ways and Means Committee, while Democrats have 19. On Senate Finance, Republicans have 14 members to Democrats’ 12 members. These numbers will likely flip in the next Congress.

Even without major democratic wins, the key financial and tax-related Committees were expected to have significant turnover due to retirements and incumbents losing their primaries. On the Republican side, six members of the Senate Finance Committee and five members of the Ways and Means Tax Subcommittee are leaving Congress. At the same time, Democrats lost one member from each committee.

The high turnover combined with significant majorities for Democrats and members rotating to other committees will result in several new members on these committees, potentially in the double digits. Overall, expect the Senate Finance Committee to see at least seven new members, and Ways and Means to add at least 15.

What Legislation is Expected in the 120th Congress?

The 120th Congress will be sworn in on January 3, 2027, and Democrats are expected to hit the ground running with a 100-day agenda tackling a wide range of issues. Despite their large majority in the House and Senate, they will still be stymied by the presidential veto power. While Democrats are still expected to introduce ambitious bills addressing issues such as healthcare affordability, reviving Inflation Reduction Act energy credits, and repealing portions of the One Big Beautiful Bill Act, it is unlikely any of these bills would become law.

Instead, small, bipartisan changes are more likely to be signed into law. For instance, bills expanding the Child Tax Credit, Earned Income Tax Credit, or the Premium Tax Credit could gain enough support to be signed into law. Increased money for the IRS is also expected, likely through a budget bill in 2027. Housing tax incentives could also be negotiated.

Of course, many of these will need to be paid for, or risk further increasing the national debt. Democrats will likely look to corporate taxes, estate tax reform, and certain tax reduction techniques to pay for these changes. Carried interest is also always on the table, especially as President Trump has expressed support in the past for repealing the preferential treatment.

What Impact Will the Midterms Have on State Tax?

While most of the focus has been on the Federal election outcomes, there were several state-level races and initiatives that will have significant impacts on state-level taxes.

Democrats Control More States

Six new states appear to be on track to have what is known as a trifecta, meaning both chambers of their legislature and their governor are members of the same party. Pennsylvania, Wisconsin, Minnesota, Michigan, Nevada, and Arizona appear to have Democratic-controlled legislatures and Democratic Governors, though some votes are still being counted. This will bring the total number of Democratic trifectas to 22. Republican trifectas went from 23 to 19, with 9 states still having split leadership going into 2027. With Democrats now in complete control of 22 state legislatures, more legislative changes in approaches to taxation could be on the horizon.

Wealth Tax Initiatives

Voters in California and Washington made their voices heard on three different wealth tax initiatives. In Washington, voters decided to keep the new millionaires’ tax, while in California, they rejected an initiative that would have levied a one-time 5% tax on individuals with more than $1 billion in total wealth. At the same time, California also voted to make an income tax surcharge that directly funds public education permanent.

Property Taxes

Several states had ballot measures reducing or eliminating property taxes. Florida, for instance, voted to increase its homestead exemption, while Tennessee voted to completely eliminate property taxes. Other states introduced limits on personal property taxes.

Data Center Initiatives

States and localities had over 40 ballot initiatives restricting data center growth, building, or tax incentives. An overwhelming majority of these measures passed, with 43 of the 44 having passed as of publication. Many of these initiatives attempted to curb tax incentives given to data centers, highlighting how much of a political lightning rod data centers have become in 2026.

The results of all the elections may not be fully resolved for days or even weeks, depending on the state. EisnerAmper continues to monitor the results and legislative developments. Follow us to remain updated on any changes as the new Congress settles in.

If you want to understand how these changes could affect your specific situation, reach out to your EisnerAmper advisor or contact our team. We can give you an informed opinion on what to expect and how to prepare.