The Legislative Process: Tax Reform

10 min read

“I feel like we just played the World Series of Tax Reform, and the American people won” – President Ronald Reagan

Thirty years after President Reagan uttered those words upon signing the Tax Reform Act of 1986, many Americans are hoping they will be echoed by President Donald Trump.  But before a bill can get to the President’s desk, it has to navigate a long, obstacle-laden road through the Halls of Congress.

The starting point for all tax legislation is the U.S. House of Representatives.  The House is comprised of 435 members, apportioned by population across the 50 states.  These 435 members are each elected to a two-year term, which means they are constantly in election mode. At issue are Members who are constantly trying to fill their campaign coffers and who may legislate based on special interests. Nevertheless, when one party controls both the House and Senate, the probability of tax reform legislation increases significantly.

Any one of these Members can introduce a tax bill by placing it in “the hopper” – a wooden box next to the Clerk’s desk inside the House Chamber.  Once that occurs, it is referred to the Ways & Means Committee, where it undergoes significant consideration, which includes input from outside departments and agencies.

If the bill is a priority, the Chair of the committee will schedule a public hearing to gather further input from the community.  After receiving those public comments, the Chair will schedule a “markup” session to consider amendments to the original bill.

At this point, the committee has to favorably report the bill to the House floor for further action.  For the bill to move to the U.S. Senate, it must obtain a simple majority (218 out of 435 votes) of the full House of Representatives.

Once the bill arrives in the Senate, anything can happen.  Senators can approve the bill as is, amend the existing provisions, or gut the bill and replace it will entirely new provisions.

Keep in mind, Congressmen and Senators from the same state will not always be advocating for the same provisions.  The Senate is comprised of 100 members, which means there are just two members from each state, regardless of population.  As such, Senators answer to a larger demographic.  Also, senators are elected to six-year terms instead of two-year terms, which means they have more time between election cycles.

The Senate Finance Committee gets the first crack at the House bill.  Members of the Committee will debate, discuss, amend, and vote on the measure.  Before it can get to the full Senate floor, it has to be favorably reported out of the Senate Finance Committee for approval.

Once the Senate version of the bill arrives before the full Senate, it only requires a simple majority (51 out of 100 votes) to move the bill forward. In the event of a tie, the Vice President of the United States can cast the tie-breaking vote.

Once the bill has cleared the Senate, it next moves to a Conference Committee composed of House and Senate Members.  These Members work to resolve differences between the House and Senate versions of the bill.

Otto von Bismarck, the 1st Chancellor of Germany, noted that “Laws are like sausages–you should never watch either one being made.”  As you can imagine, his feelings apply to our own legislative branch today.

The political drama behind the 1986 Tax Reform Act was documented in a book by two Wall Street Journal reporters called the “Showdown at Gucci Gulch.”  The book highlights the interplay between lobbyists (clad in their Gucci shoes) and legislators (most of whom are up for election every two years).

Needless to say, the bill that comes out of conference may not look like the bill that passed the House or Senate floor.  Changes and amendments continue to take place until a compromise is reached.

As such, the final conference bill must go to the full House and full Senate for approval before being enrolled.  A simple majority in both chambers will move the bill to the President’s desk.

The President has 10 days to sign or veto the enrolled bill.  If the President veto’s the bill, it can still become law if it receives a two-thirds majority vote in both chambers of Congress.  Note that this means getting more than 350 legislators to agree on passage.

This summary of the legislative process provides better context for President Reagan’s quote at the beginning of the article.  To get a tax bill from one end of Pennsylvania Avenue to the other, it needs to endure Spring training, double-headers in the summer heat, and several playoff games before making it to the World Series.

In next month’s edition of the Becker Informer, we will look at tax reform proposals related to the repatriation of foreign earnings.


Tara Fisher is an independent tax consultant. Her professional background includes working for the U.S. Congress Joint Committee on Taxation, the national tax practice of Pricewaterhouse Coopers, and the University of Pittsburgh. Tara is a Certified Public Accountant and holds a Master of Science in Accounting from the University of Virginia.

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