Cecily Zamora
The US President does not have the power to change tax law. The Constitution gives Congress control over taxation, spending, and certain war powers. While the President can issue executive orders, they cannot be used to create new statutes or take over powers from other branches of government. Executive orders can be used to tell federal agencies how to implement a statute, but they cannot be used to change tax law. However, the President can influence tax policy through their administration and by proposing new legislation to Congress. For example, the Trump administration's 2017 tax cuts and the Biden administration's efforts to fix the tax code without Congress.
| Characteristics | Values |
|---|---|
| Can the president change tax law? | No, but they can use an executive order to tell federal agencies how to implement a statute. |
| Who can change tax law? | Congress can pass a law that is then signed by the president. |
| Who can reverse a president's executive order? | Congress can enact a law that reverses what the president has done, provided Congress has the constitutional authority to legislate on the issue. |
| Who else can reverse a president's executive order? | A court can hold that an executive order is unlawful if it violates the Constitution or a federal statute. |
| Who else can reverse a president's executive order? | Any future president can issue a new executive order that rescinds or amends the earlier executive order. |
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What You'll Learn
The US President's power to change tax law
The US President does have some power to change tax law, but their ability to do so is limited and must be done in conjunction with Congress. The US Constitution gives Congress control over taxation, spending, and certain war powers. Most laws, including those regarding taxation, are passed by Congress and signed by the President. An example of this is the Tax Cuts and Jobs Act (TCJA), passed by Republicans in Congress in 2017 and signed into law by President Trump. This act made substantial changes to individual and corporate income taxes, including cutting the maximum corporate income tax rate to 21%.
While the President cannot create new statutes on their own, they can issue executive orders that direct federal agencies on how to implement a statute. For example, the President can use an executive order to tell the Department of Justice whether prosecuting certain drug cases is a priority or not. Additionally, the laws enacted by Congress and previous presidents give the President's Treasury Department some power to address tax reform. For instance, the Obama administration had the power to enforce a statute that prevented tax avoidance through corporate reorganizations.
The President can also propose changes to tax law, such as President Trump's call for permanent extension of the 2017 tax cuts and his promise of higher taxes on US imports through new tariffs. However, these proposals must be passed by Congress to become law. Overall, while the US President does have some influence and power to change tax law, their actions are constrained by the checks and balances system of the US Constitution, which ensures that no one branch of the government becomes more powerful than the others.
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The President's tax avoidance trap
The US Constitution has a set of checks and balances to ensure that no branch of the government becomes too powerful. While the Constitution gives Congress control over taxation, spending, and certain war powers, the President also has some influence over tax laws. Presidents can issue executive orders, which are directives that tell federal agencies how to implement a statute. For example, while Congress can declare a certain drug legal or illegal, the President can use an executive order to tell the Department of Justice whether prosecuting drug cases is a priority or not.
However, the President cannot use an executive order to create a new statute or take over powers from other branches of government. The President also cannot use an executive order to sidestep the checks and balances in the Constitution.
In 2015, Sen. Bernie Sanders wrote a letter asking the Obama administration to use its authority to address specific loopholes in the tax code. The Obama administration had the power to do this because of laws enacted by Congress and previous presidents. For example, one of the regulations enforces a statute that ends with: "The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations to prevent the avoidance of the provisions of this section through reorganizations or otherwise."
The Trump administration, however, left in place a trap that could ensnare any proposed regulations to address tax avoidance. This trap is in the form of President Clinton's Executive Action 12866, which imposes strict cost-benefit analysis requirements for new regulations. While it was understood that this executive action exempts most tax regulations, the cost-benefit analysis does not consider the benefit of the revenue raised by tax laws. This creates a challenge for any new regulation that proposes to close a tax loophole, as it will have a cost on people or businesses that are now required to pay taxes.
The Biden administration has several options to address tax reform, even without the help of Congress. However, the process of changing tax laws is not transparent, and it is unfair to ordinary Americans, who are unable to follow every regulatory change that might affect them.
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Congress's role in tax law
Congress plays a crucial role in the creation and modification of tax laws in the United States. Formal tax legislation, which includes the process of enacting or amending tax laws, follows specific steps outlined by the U.S. Constitution.
The tax bill, which is a proposed change to the tax law, must originate in the House of Representatives. The House is meant to represent individual citizens, rather than states, as the Senate does. Once introduced, the bill is referred to the Ways and Means Committee, which works to reach an agreement on the legislation. After the committee finalizes the proposed tax law, the bill goes back to the full House for debate, amendment, and approval.
Following the House's approval, the tax bill moves to the Senate for review. The Senate's Finance Committee may make changes or rewrite the proposal before presenting it to the full Senate. If the Senate approves the bill, a joint committee of House and Senate members is formed to create a compromise version that both chambers can support. This compromise version is then sent back to the House and Senate for final approval.
Once the bill passes through both chambers of Congress, it is sent to the President for consideration. The President has the option to sign the bill into law or veto it. If the President vetoes the bill, Congress can make changes to address the President's concerns or override the veto with a two-thirds vote in both the House and the Senate. In the case of a successful veto override, the tax bill becomes law without the President's signature.
While the President can recommend changes to current tax laws, only Congress has the power to make those changes. This highlights the significant role of Congress in shaping tax policies that impact citizens, businesses, and the economy.
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Executive orders and taxation
Executive orders are a powerful tool for presidents to address issues without requiring the approval of Congress. They can be used to give instructions to federal agencies on how to implement statutes passed by Congress. For example, an executive order can be used by the president to direct the Department of Justice to prioritise or deprioritise the prosecution of specific drug cases.
However, executive orders have limitations when it comes to taxation. The Constitution grants Congress explicit authority over taxation, spending, and certain war powers, creating a system of checks and balances to prevent one branch of the government from becoming more powerful than the others. As a result, while executive orders can influence the implementation of tax laws, they cannot be used to create new tax statutes or override existing ones.
Despite these limitations, the president still has some flexibility to address tax reform without Congressional approval. For instance, the Obama administration was urged by Senator Bernie Sanders in 2015 to utilise its authority to address specific loopholes in the tax code. Similarly, the Biden administration has options to tackle tax reform, even if Congress is unwilling or unable to cooperate.
It is worth noting that while executive orders cannot directly alter tax laws, they can impact tax avoidance regulations. For example, President Clinton's Executive Order 12866 mandates rigorous cost-benefit analyses for new regulations, which can indirectly affect tax avoidance strategies.
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Tax loopholes and the President
The President of the United States has the power to change tax laws, as evidenced by the Trump administration's enactment of the Tax Cuts and Jobs Act (TCJA) in 2017. This legislation made significant changes to individual and corporate tax rates, providing extensive tax cuts for corporations and high-income earners. However, it has been criticized for exacerbating inequality and failing to deliver on promises of raising wages and creating jobs.
While the President can implement tax reforms, the existence of tax loopholes showcases the complexities and inequities within the tax code. Tax loopholes are provisions in the tax code that allow certain individuals or entities to reduce their tax liability. Over time, these loopholes can be created or expanded by regulations enacted by the President and Congress. For example, President Clinton's Executive Action 12866, which was intended to impose strict cost-benefit analysis requirements for new regulations, inadvertently created a trap that hindered efforts to address tax avoidance during the Trump administration.
President Obama also recognized the issue of tax loopholes during his tenure, proposing to simplify the tax code and eliminate large, unfair loopholes that primarily benefited the wealthy. In his plan, Obama targeted loopholes that incentivized companies to move jobs and profits overseas, aiming to enhance US competitiveness and encourage domestic investment. Additionally, Obama's retirement tax reform plan aimed to close the trust fund loophole, ensuring that the wealthiest Americans paid their fair share of taxes on inherited assets.
The Biden administration has faced similar challenges, inheriting a complex situation where regulatory changes have disproportionately benefited select individuals or corporations. While the Biden administration can address tax reform without Congressional approval, it has yet to implement significant changes. The administration has the opportunity to recalibrate the process and focus on the needs of ordinary Americans, ensuring a fairer distribution of the tax burden.
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Frequently asked questions
The president can't change tax law on their own. The Constitution gives Congress control over taxation and spending. Any new statute must be passed by Congress and signed by the president. However, the president can issue an executive order to tell federal agencies how to implement a statute.
The Biden administration has several options to address tax reform without the help of Congress. The administration can also issue executive orders to address tax avoidance.
On December 22, 2017, Trump signed into law the biggest tax overhaul since the Tax Reform Act of 1986. The new law, known as the Tax Cuts and Jobs Act (TCJA), cut the maximum corporate income tax rate to 21%redesigned international tax rules, and provided a deduction for pass-through income. Trump also called for no taxes on tips, overtime pay, and Social Security benefits for retirees.
