Top Senate Budget Committee members announced an agreement last week to write a budget that accommodates large tax cuts.
The declined to publicly state a number, but reports indicate it could be as high as $1.5 trillion. The budget’s approaches to taxes will be key for reform. Democrats can generally block any bill in the Senate that doesn’t receive 60 votes. Republicans can use reconciliation instructions in a budget resolution to avoid 60-vote procedural hurdles, but the process comes with many restrictions.
First, reconciliation instructions must set a revenue target upfront. Republican Budget Committee members did not indicate whether their tax-cut agreement simply reserved space in the budget for aspirational tax cuts, or whether they planned to specifically write reconciliation instructions that would provide for such a large revenue loss. Even with such reconciliation instructions, they would face challenges.
Reconciliation allows revenue losses only within the budget window. Reconciliation bills still generally cannot lose revenue outside the 10-year budget window. To accommodate this, Republicans would have to sunset their $1.5 trillion tax cut within 10 years, extend the budget window beyond 10 years, or find another way to break or bend the rules. Many of these decisions must be locked down by the budget proposal, so Republicans will have to make major decision on their approach well before they begin considering tax reform.
Director, Washington National Tax Office
+1 202 861 4144
Senior Manager, Washington National Tax Office
+1 202 521 1511
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.