Budget Reconciliation
During a presidential bid, A President can propose an overhaul of many tax provisions that impact income taxes for individuals and corporations, capital gains taxes, payroll taxes, and estate and gift tax laws. The President will likely receive additional input from the Treasury and his initial proposals may be scaled back before the proposed legislation is formally submitted to Congress for review.
If the Senate is narrowly divided, getting tax legislation through by the budget reconciliation process could be a way forward for many of a President's tax proposals. An explanation of the typical procedure for passing bills is explained below.
Step 1: The President Proposes Tax Legislation
Most recommendations for new tax legislation come from the president and are based on recommendations from the Treasury Department, the IRS, or individuals in business or professional fields. The Treasury Department often has the primary responsibility of drafting proposed legislation.
Step 2: The House Committee on Ways and Means Marks Up the President’s Proposal to Draft Legislation
Our Constitution states that all legislation concerning taxes must “originate” in the House of Representatives. Accordingly, all tax legislation begins its journey through Congress in the House Committee on Ways and Means. The committee holds hearings to listen to testimony on how the legislation will affect the overall economy and specific interest groups. Once the hearings are concluded, the committee members meet in a session to “mark up” or revise the proposal and turn it into “draft legislation.”
Step 3: The Full House Passes the Draft Legislation and It Becomes a Bill
The draft legislation is introduced to the full House of Representatives for consideration. If passed by simple majority of the representatives (218 out of 435), the “bill” now moves to the Senate.
Step 4: The Senate Finance Committee Reviews the Bill
The first stop for the tax bill passed by the House is the Senate Finance Committee. The Senate Finance Committee operates similarly to the House Committee on Ways and Means but instead of looking at the president’s initial proposals, the finance committee focuses on the tax bill passed by the House. After holding its own hearings, the committee sends the marked up House bill along with a report explaining the markups to the full Senate for floor action.
The entire Senate debates the bill as reported by the Senate Finance Committee. During the debate, the senators may further amend the bill before bringing it to a vote. However, the bill can meet resistance through a tactic known as a filibuster. Senators use a filibuster to prevent a measure from being brought to a vote by extending debate on the measure. The rules permit a senator, or a series of senators, to speak for as long as they wish, and on any topic they choose, unless three-fifths of the senators (currently 60 out of 100) vote to bring the debate to a close. While there was a recent push to repeal the “filibuster,” a repeal was not accomplished and filibuster remains a stall tactic.
However, additional maneuvers have cleared the way for some legislation to avoid filibusters. For instance, budget bills can pass through the Senate via a procedure known as budget reconciliation. Budget reconciliation has generally been used to shrink the deficit through spending reductions, revenue increases, or a combination of the two. Because reconciliation was originally supposed to be used to reduce the deficit, the rule states that only provisions directly impacting government spending or taxes can be passed through reconciliation. This means anything going through reconciliation has to directly impact the federal budget—and if it doesn’t, then the Senate can’t pass it through reconciliation. This rule is referred to as the Byrd rule after Robert Byrd, a senator from West Virginia who was its principal sponsor. The Byrd rule has been law since 1990, and it has been used successfully dozens of times to block so-called extraneous (unrelated) provisions that should not get passed through reconciliation. One of the six criteria used to determine whether a provision in a bill violates the Byrd rule is whether the provision increases the deficit beyond a certain number of years.1 Hence, this is the reason why many tax cuts last for only a small number of years and have sunset provisions.
With budget reconciliation, the Senate can use the fast-track process to consider legislation that brings spending and revenue in line with the budget resolution. Debate on a reconciliation bill is limited to 20 hours so it cannot be filibustered on the Senate floor. This reconciliation process allows such legislation to be passed in the Senate by a simple majority vote. Most recently, the Tax Cuts and Jobs Act of 2017 was passed through the budget reconciliation process.
If the Senate passes the House version of the bill without further amendments, the bill gets sent directly to the president for signature. However, if the Senate passes its own amended version of the bill, then the bill with the Senate amendments is sent back to the House of Representatives for review. Unless the House agrees to accept the Senate version, a conference committee is appointed to iron out the differences between the two bills.
Step 5: The Conference Committee Takes Action
A conference committee — a joint committee composed of senior House and Senate members that originally considered the legislation — reviews the two versions of the bill and returns its own version back to both the House and Senate for vote. If this new version is passed, the revised bill is sent to the president. If it is not passed, that bill is dead.
Step 6: The Executive Branch Takes Action
Once the president receives the bill, the president will get additional advice from the Secretary of the Treasury and other federal agencies before making a decision. If the president signs the bill, the IRS will take action to carry out the provisions of the tax bill.
If the president vetoes the bill, the bill is returned to the House with a statement of what was objectionable in the bill and then the House must (1) attempt to override the veto (which requires a two-thirds vote of both the House and the Senate) or (2) make the requested changes.
Tax Cuts and Jobs Act
The Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,[2] Pub. L.Tooltip Public Law (United States) 115–97 (text) (PDF), is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs Act (TCJA),[3][4] that amended the Internal Revenue Code of 1986. The legislation is commonly referred to in media as the Trump tax cuts. Major elements of the changes include reducing tax rates for corporations and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, doubling the estate tax exemption, and reducing the penalty for violating the individual mandate of the Affordable Care Act (ACA) to $0.[5][6] The New York Times has described the TCJA as "the most sweeping tax overhaul in decades".[7]
Legislative history
The bill was introduced in the United States House of Representatives on November 2, 2017 by Congressman Kevin Brady, Republican representative from Texas. On November 9, 2017, the House Ways and Means Committee passed the bill on a party-line vote, advancing the bill to the House floor.[88] The House passed the bill on November 16, 2017, on a mostly-party line vote of 227–205. No Democrat voted for the bill, while 13 Republicans voted against it.[89][90] On the same day, companion legislation passed the Senate Finance Committee, again on a party-line vote, 14–12.[91] On November 28, the legislation passed the Senate Budget Committee, again on a party-line vote.[92] In the early morning hours of December 2, 2017, the Senate passed its version of the bill by a 51–49 vote. Bob Corker (R–TN) was the only Republican senator to vote against this version of the bill and it received no Democratic Party support.[93]
Differences between the House and Senate bills were reconciled in a conference committee that signed the final version on December 15, 2017. The final version contained relatively minor changes from the Senate version.[94] The House passed the penultimate version of the bill on December 19, 2017.[95] In the December 19 vote, the same Republicans who voted against the original House bill still voted against it (with the exception of Tom McClintock, who voted in favor on December 19 after having voted against the original House bill).[96] However, several provisions of the bill violated the Senate's procedural rules, which meant that the House of Representatives needed to re-vote with the objectionable provisions removed.[97] The Senate passed the final bill, 51–48, on December 20, 2017; all Senate Republicans voted for the bill except Sen. John McCain, who was absent for health reasons.[98] On the same day, a re-vote was held in the House; the bill passed, 224–201.[99][100] President Trump then signed the bill into law on December 22, 2017.[101]