House Passes Budget: First Step in Tax Reform
- On Oct. 26, 2017, the House of Representatives passed the Senate version of the federal budget blueprint with only Republican support.
- The vote initiates the budget reconciliation process as the means to overhaul the federal tax system.
- Budget reconciliation allows Senate Republicans to pass legislation with a simple majority, rather than the 60 votes needed to overcome a filibuster.
- The budget blueprint indicates the direction Republicans seek in the appropriation process.
- The legislation’s path through Congress and its ultimate contents remain uncertain.
Budget bill squeaks to passage with only Republican support
The morning of Oct. 26, 2017, the House of Representatives passed the Senate version of the federal budget blueprint. The vote passed 216-212, with 20 Republicans and all Democrats voting against it.
The vote unlocked the budget reconciliation process as the means to overhaul the federal tax system. The Republicans are using reconciliation to roll back various provisions in the law, because it allows them to pass legislation with a simple majority, rather than the 60 votes needed to overcome a filibuster. (Republicans hold 52 of the 100 Senate seats.)
Reconciliation bills are limited to items that directly affect the federal government’s budget — in spending, revenue, or debt limit.
The House had originally passed its version of the budget blueprint on Oct. 5. The Senate narrowly passed its own version on Oct. 19. House members had to vote on what the Senate passed or go to conference to resolve the differences in the two bills. If legislators had chosen to go to conference, both the House and Senate would have had to vote again on the reconciled bill. With such a narrow Republican margin in the Senate, passage of revised language would have posed a substantial risk. Additionally, this process could take several more weeks, and an agreed-upon budget blueprint is necessary to start tax reform under budget reconciliation rules.
The budget blueprint is largely symbolic, but it indicates the direction Republicans seek in the appropriation process. The instructions for budget reconciliation are particularly important because they establish the parameters of what tax reform legislation can contain.
The main differences in the chambers’ budget reconciliation instructions:
- The Senate version allowed $1.5 trillion to be added to the federal deficit over 10 years to fund the tax cuts.
- The House version kept tax reform deficit-neutral, and delineated the agencies required to make spending cuts to supplement the funding of tax cuts.
To expedite formulating tax-reform legislation, the House ultimately agreed to potential deficit spending to fund tax reform. House leaders have set an ambitious timeline to pass this legislation. However, as with other robust legislative efforts, the timeline may remain fluid as the conversation begins.
By Senate rules, if tax reform ultimately adds to the deficit, the changes sunset after 10 years without further legislative action. Consequently, Republicans will need to decide whether to focus on a less-ambitious permanent overhaul, or on larger, but temporary cuts.
What’s the impact?
The nation feels no impact at this point, as we are still very early in the legislative process. House members have yet to formulate the details of their proposed tax reform legislation. Most agree on the outline of potential reform, but as is so often the case, the devil is in the details.
The Republicans will have to navigate conflicting demands of their various caucuses and constituents. Further complicating the process, the Senate must adhere to the complex rules of budget reconciliation.
This intricate process, combined with the razor-thin margins in the Senate, will challenge any bill’s journey through that chamber. Whether this legislation will make it through Congress and, if it does, what it will contain remain open questions.
Businesses: Keep an eye on tax reform as it evolves
Passage of the budget bill, inclusive of the reconciliation instructions, is a necessary initial step in the process of tax reform. Paychex will monitor legislative developments and help you understand the potential impact to your business.