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US Senate Tax Bill Not Watertight, Researchers Say

by Mike Godfrey, Tax-News.com, Washington

28 November 2017


The Senate's amended comprehensive tax reform bill, the Tax Cuts and Jobs Act (TCJA), which will soon be put to a vote, would reduce revenues outside the 10-year period allowed under the reconciliation process, meaning that the bill may fail to comply with the Byrd rule, a new report says.

Reconciliation is an expedited process that requires only a simple majority to pass legislation in Congress, rather than the normal 60 percent majority required. It also bypasses the possibility of being filibustered.

Republicans have chosen to include tax reform within a budget reconciliation bill because such legislation requires only a 51-49 vote to pass the Senate – a chamber in which they have a majority of just two.

To use the reconciliation process, the bill must satisfy the Byrd Rule, introduced in 1985 to prevent legislation from being introduced through the reconciliation process that might significantly increase the Federal deficit.

Although the bill satisfies the requirement that it should not add to the deficit by more than USD1.5 trillion over a 10-year period, expiry of many of its provisions would not ensure that revenues do not fall after the bill expires at the end of the tenth year, according to analysis by the University of Pennsylvania's Penn Wharton Budget Model (PWBM).

It said: "To maintain consistency with budget reconciliation requirements, the amended Senate TCJA involves numerous major sunsets (expiry of provisions)... The amendments [are intended] to satisfy the fiscal year 2018 budget resolution that the bill not lose more than USD1.5 trillion dollars over the first 10 years. PWBM projects the Senate bill, as amended, will lose USD1.3 trillion on a static basis, including changes in outlays in the 10-year window, consistent with Joint Committee on Taxation's (JCT) definition. (The reduction in outlays includes, in particular, changes made to the Affordable Care Act.) This total revenue loss, therefore, satisfies the budget resolution for use in the reconciliation process, which requires only a simple majority of votes in the Senate. However, meeting the budget resolution's maximum net revenue loss target satisfies only one part of the Byrd Rule."

It noted that the second rule is that there should be no net revenue losses in any year outside the 10-year budget window. On this matter, it stated: "PWBM projects that the bill will actually slightly raise some revenue (about USD25bn) over the entire period between 2027 (the last year of the budget window) and 2040. However, ... in each of the years between 2027 and 2033, PWBM projects that the bill will continue to reduce revenues net of outlays, not including the additional costs of debt service. In contrast, the Byrd Rule prohibits a decrease in net revenue in any year after the 10-year budget window, not just revenue neutrality across time after the first 10 years. As a result, by our calculations, the Senate's TCJA (Amended) does not satisfy one of the key requirements of the Byrd Rule."

TAGS: tax | budget | legislation | United States | tax reform | Tax

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