Legislative update: U.S. House passes budget resolution; implications for major tax legislation
House passage of $3.5 trillion budget resolution
U.S. House passes budget resolution
The U.S. House of Representatives today passed, on a straight party-line vote (220 to 212), a self-executing rule that has the effect of adopting the $3.5 trillion budget resolution previously passed by the Senate.
Regarding Senate passage of the resolution, read TaxNewsFlash. The resolution does not need to be signed by the president.
The budget for federal FY 2022 (S. Con. Res. 14, a concurrent resolution) “unlocks” the use of budget reconciliation procedures to advance legislation addressing various Democratic policy initiatives—including major tax law changes—by a simple majority vote in the Senate.
Congressional budget resolution
The budget resolution calls for up to $3.5 trillion in new spending in areas such as education, child care, dependent care, green energy/climate change, affordable housing, and health care.
A House Budget Committee report [PDF 4.4 MB] (released August 18, 2021) indicates that the House will “take the lead on moving the reconciliation bill forward” due to the constitutional requirement that tax bill must be originated in the House.
The resolution allows for a deficit increase of up to $1.75 trillion. Nonetheless, as indicated by the House Budget Committee report (August 18, 2021), the plan would be paid for by “ensuring that the wealthy and big corporations are paying their fair share.” The summary further indicates that “Americans making less than $400,000 a year will not see their taxes increase by a penny.”
The resolution does not dictate the policies to be enacted but rather provides instructions to various committees, including the tax-writing committees, to develop the specific policy proposals that would be included in a reconciliation bill. The resolution instructs both the Senate Finance Committee and the House Ways and Means Committee to report by September 15, 2021, changes in laws within each committee’s jurisdiction that would reduce the deficit by not less than $1 billion over a 10-year period.
Read text [PDF 3.1 MB] of the budget resolution.
Bipartisan infrastructure bill
The same procedural rule approved by the House today also provides that the House “shall consider” on or before September 27, 2021, H.R. 3684, the “Infrastructure and Jobs Act” as amended and approved by the Senate on August 10, 2021. This 2,702-page bipartisan bill includes a number of tax provisions. Read TaxNewsFlash for a discussion of the tax provisions.
Implications for major tax law changes
Approval of the concurrent resolution by both the House and the Senate will allow Democrats to use the budget reconciliation process to advance major tax changes (and other policy initiatives) without any Republican support—assuming virtually every House Democrat and every Senate Democrat supports the reconciliation legislation that ultimately is developed.
Specifically, budget reconciliation rules would enable Democratic leadership to avoid the Senate filibuster rules and pass legislation, including major tax changes, through the Senate with only 51 votes (rather than the 60 votes typically required). Thus, if all 50 Republican Senators were to oppose the reconciliation legislation, the legislation could still pass the Senate, provided that all 50 Senate Democrats voted in favor of it, with Vice President Harris (as president of the Senate) voting to break the tie.
The reconciliation rules include a number of complex procedural limitations and conditions that can affect the substance and design of the underlying legislation, including limitations regarding increases to the federal long-term deficit in any year beyond the 10-year “budget window” and a requirement that provisions must modify spending or revenue with those changes not being “merely incidental” to the non-budgetary purposes. Read more about reconciliation in a February 2021 report on the Biden Administration and the 117th Congress: TaxNewsFlash
With the approval of the budget resolution by both the House and Senate, the relevant committees, including the House Ways and Means Committee and the Senate Finance Committee, may begin consideration of legislation for inclusion in a reconciliation bill at any time.
While the House is not scheduled to convene for legislative session in Washington, D.C., until September 20, 2021, it is possible that various committees could meet before that date—either in Washington or “virtually”—and consider legislation related to a reconciliation bill. Thus, there is at least a possibility that tax legislation could be introduced prior to Congress returning to Washington in September 2021.
The action today opens up the possibility that the Ways and Means Committee could introduce and consider tax legislation in early to mid September 2021. This accelerated timing could be important if the legislative text includes “date of introduction” or other immediate effective dates for any of the proposed tax increases.
The Senate is scheduled to return to Washington for legislative session on September 13, 2021.
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