United States

Here We Go ... Legislative Process for Tax Reform Begins

Oct 23, 2017
From the Tax Governance Institute

Prospects for Tax Reform Getting Real

By John Gimigliano, Principal in Charge, Federal Legislative & Regulatory Services, Washington National Tax, KPMG LLP

Read more Tracking Tax Reform blog posts

What's on our minds this week:

The prospects for tax reform are about to get real—very real. With the Senate’s passage of an FY18 budget that includes reconciliation instructions and also includes $1.5 trillion in budgetary authority for tax reform, the wheels have been set in motion for Congress to enact at least a $1.5 trillion tax bill with only Republican votes.

Despite the recent experience with the collapse of healthcare reform, it is now hard to see a scenario where a Republican Congress and White House does not pass some form of tax legislation, including, perhaps, something transformational like tax reform.

Of course, we don’t yet know exactly what the forthcoming House tax reform proposal will ultimately look like. And there likely will be some road blocks and detours along the way that could push passage of tax reform beyond 2017. But if Congress cannot complete the bill this year, it’s safe to say that this fall’s significant progress could lead to renewed efforts in early 2018.

There is always a chance that this entire process could end up being another road to nowhere. But it’s also true that we’ve waited a long time for Congress to take tax reform this seriously—and now they are. Let’s hope it was worth the wait.

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The legislative process that could lead to tax reform has begun. Late last week, by a 51-48 vote, the Senate passed an FY18 budget. And assuming the House adopts the Senate budget, Congress can pass a tax bill that increased the deficit by as much as $1.5 trillion over 10 years with only Republican votes.

What are the chances of actually seeing tax reform? With Republican majorities in the House and Senate, and Republican President, and the ability to pass $1.5 trillion in tax cuts under the budget reconciliation process without the need for Democratic votes, the U.S. seemingly has a rare opportunity to enact significant tax legislation, even possibly tax legislation that is transformational.

Step by step

Below is a quick rundown on the process that tax reform could likely take.

House Ways and Means: Assuming the House approves the Senate’s budget, Ways and Means Committee Chairman Kevin Brady will produce the “Chairman’s mark,” a fully developed tax bill. He could release it as soon as this week, but the week of October 30 is more likely.

The Chairman’s mark will be considered by the full Ways and Means Committee, a “markup,” in which Committee members—Republican and Democrat alike—can offer amendments to add, remove, or modify elements of the original mark. This could take days or even weeks.

The short markup would be an indication of the likelihood there is already majority consensus on the substance of the legislation. If the markup proceeds slowly, it’s an indication that Committee is still struggling to achieve consensus.

Our best guess: A Ways and Means markup could begin the week of October 30, or more likely the following week of November 6.

Full House: The Ways and Means Committee-approved bill then moves to the full House. With 433 House members currently (with 2 vacancies), 217 must vote “aye” to secure passage. There are currently 239 Republicans in the House, suggesting that only 22 can vote “nay” on the bill (assuming no Democrat support).

Our best guess: The full House could vote on the bill as soon as the week of November 6 (assuming the Ways and Means markup occurs the week of October 30), but more likely the week of November 13. If the bill passes, it goes to the Senate for consideration.

Senate Finance: The process starts anew in the Senate. Senate Finance Committee Chairman Orrin Hatch will prepare his Chairman’s mark, which will likely include ideas that are different from the House plan. As in the House, Hatch’s mark will be considered first by the full Senate Finance Committee, which could make significant changes.

Although the Senate Finance Committee typically waits for the full House to pass a bill before they began their own markup, it could start working on it the same week the full House starts considering its version of the bill in order to save time.

Our best guess: The Senate Finance Committee markup could begin as early as the week of November 6, or more likely the week of November 13. With Thanksgiving recess looming the following week, Chairman Hatch would likely want the Committee to complete its work before Congress’s Thanksgiving break.

Full Senate: After the bill is combined with some required nontax related spending cuts by the Senate Budget Committee, the next step is consideration of the Senate Finance Committee bill by the full Senate. Unlimited amendments can be offered during a full Senate debate. And with a high-stakes bill such as tax reform under consideration, there are likely to be many amendments offered.

Under the rules of reconciliation, 51 votes are needed to pass the final bill. With the GOP currently holdings 52 seats, it can only lose only two votes. (In a 50-50 scenario, Vice President Mike Pence would likely vote to break the tie in favor of passage.)

Our best guess: The full Senate could consider the bill as early as the week of November 13 or when it returns from Thanksgiving Break, the week of November 27.

Joint Congressional Conference: As the House and Senate tax reform bills will likely differ, a House-Senate conference committee will be necessary to reconcile the differences. Once the committee agrees to a version of the bill, the “conference report” goes to the House and Senate for final passage. This will requires 217 votes in the House and 51 votes in the Senate.

Our best guess: A joint conference could be convened as early as the week of December 4, if the rest of the planned schedule holds, but delays are possible along the way. For example, resolving the House and Senate differences may well take time, perhaps several weeks. But it’s also possible that a conference report is produced by the week of December 18. And if the House passes it quickly, and the Senate follows suit, the President may be able to sign a tax bill into law in 2017.

Pumping the brakes

There are some caveats.

  • Our time line represents a very best case scenario. A single hiccup, misstep, or delay at any point would have a cascading delaying effect on each successive step. But even if Congress can’t complete the bill this year, the significant progress made this fall could lead to renewed efforts in early 2018.
  • We don’t know what the final tax reform bill will look like, so we really can’t predict the likelihood of it passing the House, the Senate, or, ultimately, both. As we learned during the healthcare reform process, it’s possible that no bill can pass both houses of Congress.
  • Recall that under budget reconciliation, the tax bill must meet certain budget targets, both within the 10-year window and also beyond. That will complicate the passage of legislation.

Congress has not passed significant tax reform legislation since 1986. Let’s hope it was worth the wait.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

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.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

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.