Budget Adopted by Congress - Legislative Process for Tax Reform Begins Jim Brandenburg, Sikich
Following the unveiling of the Tax Reform Framework at the end of September, there are four major legislative hurdles that must be passed for tax reform to be enacted (please click here to view our Tax Reform Framework article). The first step was met today as Congress approved a budget that now leaves Washington in a frenzy over the remaining three steps. The legislative process for tax reform is as follows: 1. BUDGET Congress must first adopt a budget. The budget sets the overall amount of tax cuts that tax reform legislation can include, and this budget is needed before the actual tax legislation is drafted and voted on in Congress. The Senate’s budget plan passed by a narrow 51-49 margin last week (10/19/2017), and the House opted to take up the Senate budget. The House voted on the Senate’s budget today (10/26/2017). This passed by a narrow margin of 216-212, and thus the budget has now passed Congress – it does not need to be signed by the President. This means that tax reform has already completed the first step of the legislative process. The actual drafting of tax legislation can now begin in Congress (step 2). Part of this budget contains “budget reconciliation” instructions which will allow a tax reform bill to pass in the Senate with a simple majority of 50 votes, and not a 60 vote margin. These budget reconciliation rules are very complicated, but the key takeaway is that the same budget must pass both the House and the Senate—this was accomplished today.
2. HOUSE The next step in the process is for the House to hold mark-up hearings to draft the actual tax legislation. Shortly after the House passed the budget today, House Ways and Means Committee Chairman Kevin Brady released his schedule for these tax reform hearings. He will hold mark-up hearings the week of November 6, 2017 to work on the actual tax reform legislation with the entire committee members and vote on the tax bill. Also, Brady announced that on Wednesday, November 1, 2017, he would release a draft of this legislation that the committee will address the following week. The details of the tax bill have not yet been released, but they will be soon. Key committee members and staffers are keeping a tight lid on the bill’s details until they are released to the public on November 1, 2017. As you may recall, one of the major themes in the Tax Reform Framework was to reduce the corporate tax rates to 20%, and to 25% for certain pass-through entities. These lower tax rates have received much attention, but we will soon learn more about the less-publicized offsets (also referred to as the “pay-fors”) included in tax reform. These pay-fors will encompass a wide range of deductions, credits, and other special tax incentives that will be repealed or curtailed as part of the tax reform process in bringing about lower tax rates. These pay-fors will be unveiled next week when the proposed draft of the entire tax reform legislation is released. The lobbying and public pressure will mount once these specific changes are announced. Assuming the tax reform bill passes out of the Ways and Means Committee, it will move to the full House for a vote (a simple majority is needed for passage). PROJECTED TIMELINE AND OUTLOOK: House leaders would like to have the tax reform bill approved in the House in November – prior to the Thanksgiving recess. The prospects for tax reform passing in the House are better than in the Senate, but it will still be a narrow margin.