Understanding the Federal Budget: Part III The Budget and Taxes

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In response to the U.S. Senate passing a budget for the next fiscal year, which includes reconciliation instructions to cut taxes, the U.S. House of Representatives will now proceed to the process of crafting tax legislation.

What the president submitted to Congress in May was not “the budget” but a series of recommendations and ideas that Congress is free to use or ignore, and most often Congress ignores large swaths of what the president seeks in that budget plan. Under the Budget Act of 1974 the president is required to provide his ideas for where he would like the budget to go. It is the start of a conversation about spending priorities for the federal government for the fiscal year ahead. Congress produces the actual budget.

The House and Senate Budget Committees’ Fiscal Year 2018 Budget Resolution includes reconciliation instructions for the tax-writing House Committee on Ways and Means, and Senate Finance Committee, requiring them to change the tax laws to reduce the tax rates on individuals and businesses. The Constitution requires all tax legislation to originate in the House of Representatives and Senate action on the tax bill will follow.

It was critical for the success of a tax package that reconciliation instructions were included in the Budget Resolution. Those reconciliation instructions trigger rules in the House and Senate governing the debate and passage of the resulting tax legislation. The crucial component of the rules limits the time of debate and removes the possibility of a filibuster in the Senate. That means the tax package can be adopted in the Senate with fifty-one votes. If the tax legislation was subject to the filibuster, sixty votes would be required for passage.

Some news outlets have said that reconciliation instructions reconcile differences between the House-passed version of the Budget Resolution and the Senate-passed version but that is incorrect. The reconciliation instructions require both chambers to reconcile current law, in this case the tax laws, with the new revenue numbers in the budget. In other words, the reconciliation instructions order the relevant committees to produce new legislation to increase or decrease taxes or otherwise reform the tax code in accordance with the Budget Resolution. If the House and Senate do not pass exactly the same language in a bill, they proceed to a conference committee to work out the differences between the two versions or in the current case the House will simply adopt the Senate’s budget in place of the one the House had previously passed so that Congress can get to work more quickly on the tax bill.

Some news outlets have also reported that the Senate’s version of the budget required the reduction or removal of certain tax deductions such as the deduction for state and local taxes paid, frequently called the “SALT” deduction. While it is true that an amendment dealing with the state and local tax deduction was adopted as part of the Senate’s budget, that amendment is not binding on the tax-writing committees. It is hortatory language only; all jurisdiction for deciding how to reach the revenue number lies exclusively with the House Ways and Means Committee and the Senate Finance Committee. The Senate budget language is an expression of the sense of the Senate and the committees of jurisdiction are free to adopt or ignore the Senate position.

Speaker Paul Ryan has said the House tax legislation will be unveiled on November 1, passed soon thereafter, and ready for the Senate by Thanksgiving. The goal of Congress is to have the tax bill on the president’s desk by Christmas. There is some doubt whether the bill can be completed on such a tight timeframe given the numerous hoops that still must be cleared and the fact that Congress is scheduled to be in session only twenty-six days before breaking for Christmas. Nonetheless, a tax cut for Christmas would be a fine gift for the American taxpayer and the American economy.

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About Jim Musser

James C. Musser is a senior fellow with the Thomas Jefferson Institute for Public Policy. Musser has spent over twenty years in the public policy arena serving as Senior Staff Counsel to Congressman Jim Bunning of Kentucky and most recently acting as Special Advisor to the Chairman of the House Budget Committee. Musser previously served as Vice President at the Mercatus Center at George Mason University in Arlington, Virginia
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