Tax Reform Watch: So Why Are We Still Talking About Repeal and Replace?– April 14, 2017 by Tracy Monroe

Early in his administration, President Trump stated that repealing and replacing the Affordable Care Act needed to happen before tax reform. The reason for this order lies in how the reconciliation process works. If you recall Schoolhouse Rock, with its “I’m Just a Bill” music video that taught school kids in the late ‘70s how a bill becomes a law, you may already know the reason.

Traditional Passing of a Bill

First the House Ways and Means Committee led by Chairman Kevin Brady (Texas) will mark up a tax reform bill, likely starting with the “A Better Way” blueprint for tax reform released by the Republicans in June 2016. Once approved by the Ways and Means Committee, the full House will vote on the bill. As a result of House rules, floor amendments to a tax bill are uncommon. A majority vote in the House would suffice to pass the bill. However, based upon what happened with repeal and replace, that may be easier said than done.
Assuming the bill passes the House, the Senate Finance Committee would mark up its version of the tax reform legislation next. After the Senate Finance Committee reports its version of the legislation, that bill would move to the full Senate where numerous amendments could be added. Before tax reform legislation could be sent to the president to sign into law, identical versions of the bill would need to be passed by the House and Senate. A conference committee composed of members of both the House and Senate would be assembled to work out the differences. However, this presumes that there would be 60 votes in favor of tax reform to avoid a filibuster. It is highly unlikely this is the case, so tax reform may be passed through the budget reconciliation process.

Budget Reconciliation Process

Budget reconciliation is a process by which a bill can be moved forward in the Senate with a simple majority vote. There are a number of rules that would come into play that would likely impact what tax reform ultimately looks like. One of the rules is there can be only a limited number of reconciliation bills in a year. If reconciliation had been used to pass healthcare reform in March, the rules would prevent tax reform under the reconciliation process until the fall of 2017. When it became apparent that there was not enough support for the repeal and replace bill, the President immediately pivoted to tax reform knowing that only one bill can be passed under reconciliation.

Healthcare Boomerang?

However, over the last few days there has been a resurgence in the healthcare reform discussion. Why would President Trump allow the conversation to turn back to healthcare reform? The answer lies in another rule of the reconciliation process: legislation generally cannot create a deficit outside of the 10-year budget window. This stipulation was used to enact the Bush tax cuts, which is why those cuts were enacted initially for a 10-year period. So, a compelling reason for potentially trying again on healthcare is the positive impact it would have on the budget, which could in turn allow for more tax cuts down the road. In President Trump’s words from his April 12th interview on Fox Business Network, “If you don’t do [health care reform first], you can’t put any of the savings into the tax cuts and tax reform.”
As for when tax reform will begin in earnest, President Trump is not giving a definitive timeline, saying “If it (health care) does not happen fast enough, I will start the taxes. But the tax reform and the tax cuts are better if I can do health care first.”
Given the current state of Washington D.C., it is likely that the tax reform bill will not become law in the traditional manner described by Schoolhouse Rock, but rather by using the reconciliation process. Either way, there continues to be a lot of anticipation for tax reform, based on both poll numbers and positive reactions from the stock market each time tax reform makes the news.  
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