United States

Tax Reform: Senate Procedural Requirements Explained (video)

Transcript (videotaped March 7, 2017)

Hello, I’m Jennifer Gray, a director in the Legislative and Regulatory Services Group of Washington National Tax.

We continue to await the unveiling of expected tax reform proposals by the White House as well as a legislative bill containing details of the proposals that were outlined by the House Republicans in their tax “Blueprint” last summer.

Many of the decisions that we may see playing out throughout the tax reform process will be strongly influenced—if not outright dictated—by complex Senate procedural requirements.

These requirements are likely to influence both the timing and the possible substantive policy of a tax reform bill.


But first, a little introduction to Senate legislative procedure. 

We can’t know yet whether or not a tax reform bill will have bipartisan support in the Senate. It’s just too early in the process. 

But, at this point, it appears to be a strong possibility that we will see the Senate Republican majority attempt to “go it alone” and approve a bill with only Republican support. 

This could raise challenges because Republicans currently hold 52 Senate seats and the Senate procedural rules generally require 60 votes for legislation to pass.  So the Republicans may need to find a way to pass a tax reform bill with less than the normally required 60 votes. 

The most likely way that the Republican majority could attempt to pass a partisan tax reform bill through the Senate without any Democratic support is to use a very complex budgetary procedure called reconciliation. 

If all the intricate rules governing the use of reconciliation are met, then the tax reform bill can be approved by the Senate with just 51 votes. 

But for that to happen, the reconciliation process that must be used will affect both the timing and the substance of that bill.


To understand why reconciliation is important to the timing of a tax reform bill, it is important to know that Senate budget rules provide that (1) The number of reconciliation bills that may be considered in a fiscal year is limited, and that (2) only one reconciliation bill that impacts federal revenues may be considered by Congress at a time. 

In the current fiscal year, Republicans have chosen to use the reconciliation process to first address the Affordable Care Act (ACA), as that bill was very unlikely to meet the 60 vote threshold in the Senate. 

The procedural rules will not allow the Senate Republicans to consider both a tax reform reconciliation bill and an ACA reconciliation bill at the same time.  Therefore, the tax reform bill will have to wait until that healthcare reconciliation bill is either completed or abandoned. Then work can begin on the upcoming fiscal year.  This process is taking longer than Congressional leaders had anticipated.


In addition to impacting the timing of the tax reform bill, a decision to use the reconciliation procedure to pass a partisan bill will likely have an impact on the substantive tax policy contained in the bill.

Among other reasons, this is because the rules governing the use of reconciliation make it very difficult to use the reconciliation procedure to enact a net tax cut. 

As a result, Congressional Republicans may be forced to alter the substantive provisions of a tax reform reconciliation bill in order to make that bill revenue neutral and thus acceptable under the requirements of the reconciliation process. 

While it is possible that some changes to the “scoring” or revenue calculation processes—such as maybe using dynamic scoring—may make it easier to meet these revenue targets, there is no doubt that a tax bill that is “revenue neutral” will contain different policies than a tax bill that is a net tax cut would contain.

Remember, though, that the reconciliation process and all its attending rules will only apply to a bill that cannot garner the 60 bipartisan Senate votes. 

If a bipartisan bill can be crafted, Congress will have more flexibility in a number of areas as the complex reconciliation rules will not need to be met.

Again, this issue of reconciliation does get into the weeds quite a bit, but I hope this summary provides context for how these reconciliation procedures could affect when we see tax reform action and what policies that tax reform bill might contain.


The information contained herein is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

March 13, 2017 | Jennifer Gray from the Federal Legislative & Regulatory Services group of KPMG LLP’s Washington National Tax practice describes the complex Senate reconciliation procedure, which could come into play if the Senate Republican majority attempts to pass a tax bill with only Republican support. Gray also explains the impact reconciliation could have on the timing and tax policy substance of a tax bill.


For more inisghts on the outlook for U.S. tax reform, visit  www.kpmg.com/us/tax-reform.