Understanding tax policy

The Nov. 6 midterm elections are right around corner. Taxpayers across the country will take a look at the past two years of the Trump Administration and vote to elect or re-elect a congressman who represents them in Washington.

Tax legislation has a big effect on our economy but many of us have no idea how the formal process works. Here are a few things you should be familiar with to help you understand the fundamentals of federal tax policy and the legislative process.

 

How it all starts

The law constitutes that “Congress shall have the power to lay and collect taxes” and that “All bills for raising revenue shall originate in the House of Representatives but the Senate may propose or concur with Amendments as on other bills.” 

Before a tax bill becomes a law it goes through what’s called a legislative process.

The president makes most recommendations for tax changes but many people are involved in that process. The United States Department of the Treasury is primarily responsible for drafting the president’s tax recommendations, and then the draft is forwarded to the White House. The president may ask them to make changes to the provisions in the draft or for additional information. Once the Treasury makes any necessary changes, which the president must approve, the recommendations are then sent over to Congress. Generally, the president will only propose one major tax bill within a year.

 

Meet the House of Representatives’ Committee on Ways and Means

The House Committee on Ways and Means is the oldest U.S. Congressional Committee, one of the most powerful congressional committees and is the chief tax-writing committee in the House of Representatives. A committee member has served in the House for years before even being considered to serve on the Ways and Means Committee.

 A tax bill (proposed tax law) makes its way through Congress starting with the House Ways and Means Committee, which is responsible for considering all tax legislation. The committee holds hearings and meets in an executive session where they “mark-up”-debate, amend, revise and rewrite the bill.  Mark-ups are informative, open to the public and media. Once the Ways and Means Committee members reach an agreement regarding the proposed bill, it is drafted into legislative language, and the bill (legislative proposal), along with the report, is written. 

Once the proposed legislation and report are complete, the proposed tax legislation heads to the full House of Representatives for debate, amendment and approval. If the bill is approved, the House version moves forward to the Senate.

 

Meet the United States Senate’s Committee on Finance

The Senate Committee on Finance is the tax-writing committee of the U.S. Senate and is one of the most powerful U.S. Congressional Committees. Handling all Senate tax legislative matters, the Finance Committee will receive the House version of the tax bill and begin holding hearings. A mark-up session begins, where they will also debate, amend, revise and often rewrite the House version of the tax bill.  The proposed legislation and report are then sent to the full Senate for consideration. If the Senate doesn’t pass the bill, the legislation will be dropped. If there are no amendments made to the House bill by the Senate Finance Committee, and the full Senate passes the House bill as is (with no amendments), it will be forwarded directly to the president and skip additional processes.  If the full Senate passes the Finance Committee version of the tax bill, the Ways and Means Committee will adopt a motion to disagree with the Senate and the tax bill is sent to a Conference Committee. 

 

Who is the Conference Committee and where did they come from?

The Conference Committee is appointed by the Speaker of the House and the President of the Senate and is made of members from both Congressional chambers, the House and the Senate, who work to reconcile bill differences. After the committee reaches an agreement, they prepare a report detailing proposed changes and forward to both chambers for approval. 

But, if the Conference committee cannot come to an agreement on the bill, the bill dies.  

 

What happens next?

If the bill makes it past the Conference Committee and Congress passes the bill, it’s then sent to the President who, in turn, signs the bill into law or vetoes the bill.  If the president signs the bill into law the responsible agencies must act to carry out the bill.  The U.S. Department of the Treasury will be responsible for issuing regulations and the Internal Revenue Service (IRS) will be responsible for developing procedures and making them understandable in everyday language versus legislative language. Both are part of implementing the new tax legislation. If the president decides to veto the bill, the bill and opposition statement on why and which parts he opposes is sent back to the House. Congress can make the desired changes or override the veto with a two-thirds vote of each house; and the tax bill becomes law without the signature of the president.

Presidents can, and often do, recommend changes to current tax laws, but only Congress can make the changes.

Citizens can act to influence the outcome of the formal tax legislation process by making their views known to legislators. This process includes taking action by attending town or county meetings, contacting Congress members and elected officials and of course by voting for a candidate that stands for what you believe. 

 

Brittany Sabalza, enrolled agent, is director of continuing education for Pro Tax Solutions Indianapolis and a tax columnist.

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