The Tax Legislative Process: A Byrd's Eye View

By Aprill, Ellen P.; Hemel, Daniel J. | Law and Contemporary Problems, Spring 2018 | Go to article overview

The Tax Legislative Process: A Byrd's Eye View


Aprill, Ellen P., Hemel, Daniel J., Law and Contemporary Problems


I

INTRODUCTION

The year 2017 was, among other distinctions, the year of the Byrd rule. This once-obscure Senate procedural provision--on the books since 1985 but only recently the stuff of page one news (1)--featured prominently in several failed attempts to repeal the Affordable Care Act in the spring and summer. Then again at year's end, the Byrd rule played a central role in the successful effort to rewrite large swaths of the Internal Revenue Code. While the Byrd rule has influenced the legislative process in the past, never before has it drawn so much attention from the mainstream and trade press, and never before has it shaped so consequential a law in such a significant way.

One theme that runs throughout this article is that when it comes to the budget math mandated by the Byrd rule, numbers can obscure the truth. But in other respects, numbers accurately illustrate the Byrd rule's trajectory. Figure 1 tracks the number of articles referencing the Byrd rule in the archives of the New York Times and the tax trade publication Tax Notes Weekly over the last three decades. According to both metrics, interest in the Byrd rule soared to new heights in the first year of the Trump presidency.

The Byrd rule's impact can be seen all throughout the new tax law, starting from the top. It was the Byrd rule that blocked the "Tax Cuts and Jobs Act" from becoming the bill's short title. As a result, the most important tax legislation in more than thirty years will go down in history unmelodiously as "An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018." The Byrd rule also is the reason that key elements of the new tax law--including the reduction in individual income tax rates, the expansion of the child tax credit, the increase in the standard deduction, the new deduction for pass-through income, and the increase in the estate and gift tax exemption--are set to expire at the end of 2025. And the Byrd rule is the reason why a number of provisions that appeared in earlier versions of the bill--including a measure that would have allowed 501(c)(3) organizations to participate in political campaigns, several significant changes to the Low Income Housing Tax Credit, and the repeal of the tax-exempt status of professional sports leagues--all were eliminated from the final legislation.

Some of these consequences were predictable from the outset. Even before details of the tax bill emerged, many commentators drew attention (2) to the provision of the Byrd rule barring budget reconciliation bills that add to the deficit beyond the budget window, which in this case was ten years. (3) Informed observers thus expected--correctly, as it turned out--that the Byrd rule would compel Congress to phase out important elements of the bill, just as the Byrd rule resulted in the sunset of the 2001 and 2003 Bush tax cuts. (4) In other cases, even seasoned Senators were blindsided by the Byrd rule's ramifications. Indeed, the Byrd rule's little-understood requirement that every provision in a reconciliation bill must produce revenue effects that are more than "merely incidental" to the non-budgetary consequences caused a minor crisis in the moments leading up to final passage of the 2017 tax legislation, with the House of Representatives ultimately having to pass the conference report twice before leaving Washington for the winter holiday. (5)

In all likelihood, this is not the last time that the Byrd rule will play a conspicuous and consequential role in the tax legislative process. Increasing political polarization, combined with the reality that neither party appears poised to capture a filibuster-proof Senate majority in the foreseeable future, will lead to greater reliance on budget reconciliation to enact tax legislation. Congressional contentiousness--which is unlikely to abate any time soon--will cause Senators to invoke the Byrd rule against potential violations that went unchallenged in past reconciliation efforts. …

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