Republicans working on budget agreement with reconciliation instructions for tax reform

Republicans are struggling to move forward on a budget resolution that would allow them to create reconciliation instructions to ease the passage of tax reform.

The House Budget Committee has twice postponed a markup on a budget and has yet to release a draft version. A budget is considered critical to the tax reform process because Republicans enjoy only a 52-seat majority in the Senate, well short of the 60 needed to overcome a filibuster. Reconciliation allows legislation to pass the Senate with simple majority votes, but that process comes with restrictions.

Reconciliation instructions can only be created by a budget resolution, and Republicans are facing challenges in crafting a resolution that satisfies the competing factions in their party. Conservatives are fighting for deep cuts to mandatory spending that many moderates oppose.

There is less disagreement over the reconciliation instructions for tax reform, and Republicans do have options. Leadership has repeatedly expressed commitment to revenue-neutral tax reform, but reconciliation instructions can provide for revenue losses within the budget window if lawmakers choose. Tax reform would still need to be revenue neutral outside the budget window, but Republicans could seek to extend the budget window beyond 10 years and simply sunset their bill like the 2001 and 2003 tax cuts.

Republicans still have plenty of time to resolve their differences and get a budget done. A new budget generally supersedes any previous versions, so lawmakers won’t want to pass a new budget until they use the previous budget’s reconciliation instructions on their healthcare bill. Those reconciliation instructions do not expire until the end of September. Senate Majority Leader Mitch McConnell, R-Ky., is postponing the start of the August recess to try to finish the healthcare bill, though its fate is far from certain.

Top Republicans in the House and Senate are continuing to meet with key administration officials to try to agree on a unified plan for tax reform. The current goal is to release a bill in September after lawmakers return from the August recess.

Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.