Last Updated 2 years ago

What to expect regarding U.S. taxes under the Trump Administration-Part 1

I am writing this blog from Israel on Friday morning, three days after the election in America. While we know that Donald Trump was reelected and the Republicans will control the Senate, the jury is still out regarding which party will control the House of Representatives. At the moment, the Republicans have 211 seats and the Democrats 200, respectively. There are 435 seats in the House, and at least on paper, the first party to get 218 seats controls Congress. Assuming the Republicans can pick up 7 of the 24 remaining seats, they can name the Speaker of the House and appoint all of the chairmen of the subcommittees. 

All tax legislation must originate from the Ways and Means Committee in the House and the Finance Committee in the Senate. See below for those who wish to understand how the proverbial tax sausage is made. However, for those less interested in the details, I would like to share a few thoughts from watching the tax legislation process over the last 50 years.

1. If the Democrats win the House, what is known as the Trump tax cuts will expire on December 31^st, 2025, and taxes will go up.
2. If the Republicans control the House, there is a good chance that the Trump tax cuts will be extended. 
3. Remember that during the first two years of The Biden Administration, the Democrats controlled both houses of Congress. However, the margins were so slim that two Democratic Senators were able to quash President Biden’s tax legislation.
4. History has shown that committee chairmen can stall and delay tax legislation to advance their political agenda. (For history buffs, Google Harry Byrd and The Kennedy Tax Reductions*)
5. Major tax changes take time and generally happen in the fall of a president’s first term. So, while there may be lots of speculation on what to expect, we probably will only have an indication of what to expect during the late summer. 

For those who want to know more about enacting new U.S. income tax legislation, it involves several stages. Here’s a general outline of the steps:

1. Proposal and Drafting

• A member of Congress (often from the House Ways and Means Committee or Senate Finance Committee) proposes a bill or an amendment to the tax code.
• The bill is drafted, often with input from tax experts, stakeholders, and government agencies like the Treasury Department.

2. Committee Review and Markup

• The proposed tax bill is sent to a relevant committee (e.g., Ways and Means in the House or Finance in the Senate).
• The committee reviews, debates, and may amend the bill during a “markup” session. If approved, it is sent to the full chamber for consideration.

3. House of Representatives Vote

• If the bill originates in the House, it is debated and voted on by the House of Representatives.
• Members may amend the bill further during this stage.
• If the majority approves the bill, it proceeds to the Senate.

4. Senate Review and Vote

• The bill moves to the Senate, where it may be assigned to the Senate Finance Committee for additional review and changes.
• After the committee stage, the full Senate debates and votes on the bill. If it passes with amendments, it must return to the House to reconcile the differences.

5. Conference Committee

• A conference committee, with members from the House and Senate, reconciles any differences between the versions passed by the two chambers.
• The committee creates a final, unified version of the bill, which must be approved by both the House and Senate.

6. Final Approval by Congress

• The unified bill is sent back to the House and Senate for a final vote.
• The bill is sent to the President if both chambers approve the final version.

7. Presidential Signature or Veto

• The President reviews the bill and decides to either sign it into law or veto it.
• If the President signs the bill, it becomes law.
• If the President vetoes the bill, Congress can override the veto with a two-thirds majority vote in both the House and Senate, which would still make the bill law.

8. Implementation and Publication

• After becoming law, the Treasury Department and the IRS create regulations and guidelines to enforce the new tax legislation.
• The legislation is published in the Federal Register and codified into the U.S. Code, becoming the law of the land.

This process ensures the bill is thoroughly reviewed, amended as needed, and approved by various branches of government before becoming enforceable tax law.

Continue to Part 2.

*https://www.forbes.com/sites/investor/2017/12/11/why-the-kennedy-tax-cut-never-really-happened/