Tax Legislation Process
How tax laws are written and enacted provides some critical context for understanding where we currently stand with the tax proposals being discussed in 2017.
To begin the process, either the Executive Branch or Congress typically introduces potential tax legislation. The Executive Branch may make recommendations from the President which are drafted primarily by the Treasury Department. If Congress is the introducing party, the tax legislation being proposed must originate in the House of Representatives.
Tax legislation passes through the House Ways & Means Committee via hearings with The Secretary of the Treasury, the Director of OMB, private interest groups, and the like. Proposals are marked up during executive sessions, drafted utilizing legislative language alongside a detailed Committee report, and are then introduced into the House of Representatives.
Next, the Senate Finance Committee (SFC) gets involved. After the House passes its version, the SFC holds hearings and marks up the bill with its edits. Normally very different from the House’s version, the Senate version of the bill is sent to the floor for debate, along with a report detailing amendments.
If the Senate passes the House version of the bill, the bill goes directly on to the President. Normally, however, the Senate will pass its amended version, requiring further congressional action through a Conference Committee. Sixty votes are required for the bill to pass in the Senate.
The Conference Committee is appointed to adjust differences between the two bills. Members are appointed by the Speaker of the House and the President of the Senate. Each chamber votes as a unit, controlled by the majority party. Hearings are held again. The Conference Committee reports its version back to the House and Senate which each vote on the new, compromised version. If approved, the bill moves on to the President.
The President receives advice from The Secretary of the Treasury and other agencies and makes a decision. If vetoed, the bill is returned to the Congress with a statement of opposition, which will either attempt to override the veto or make the President’s changes.
If signed into law, the Treasury Department will issue regulations and the IRS will develop forms and instructions.
What We Currently Know
Few details were provided in the President’s tax reform proposal – a one page sheet of bullet points, released on April 26, 2017. The President’s proposed 2018 budget, released on May 23, 2017, did little to provide additional detail. However, the proposal is largely in line with campaign promises Trump made. The White House expects to release more details in September.
Today, the House GOP “Better Way” tax reform blueprint, released in June 2016, remains unchanged. This will likely be a reference point for the expected House bill.
Treasury Secretary Mnuchin briefed members of Congress. The White House began holding industry-specific sessions in June.
The House Ways & Means Committee is drafting tax legislation language based on the proposals.
In the meantime, a regulatory freeze is in effect meaning no regulations are to be sent to the Federal Register “until a department of agency head appointed or designated by the President after 12 noon on January 20, 2017 reviews and approves…”
Both the House and Senate have versions of Affordable Care Act (ACA) Repeal and Replace bills on the table. These versions largely resemble each other. Both would eliminate most of the ACA’s taxes (including the 3.8% tax on net investment income) with minor differences in effective repeal dates. Many Democrats oppose the bills while some Republican Senators oppose the Senate version of the bill.
In terms of budget reconciliation, procedural rules, the debt ceiling, and revenue raisers are needed to offset cuts.
Newsworthy issues such as Russian ties to the election and the status of President Trump’s tax returns could prove enough of a distraction to prevent the legislation from moving swiftly forward.
We will keep you updated as progress is made.
If you have any questions on the currently proposed tax legislation, in the interim, please contact Thomas Edgar, CPA.