Cecily Zamora
Tax law is a system of laws that relate to the taxes imposed by the government. It covers the rules, policies, and regulations that oversee the tax process, which involves charges on estates, transactions, property, income, licenses, and more. Tax laws are created similarly to other federal laws. The process begins with the Department of Treasury drafting recommendations for tax laws from the president. These recommendations are then presented to the House Committee on Ways and Means, which creates the House version of the tax law. This is then presented to the entire House of Representatives for a vote. The bill then moves to the Senate Finance Committee, which holds hearings and sends the bill to the full Senate for debate and a vote. If the bill is passed by the Senate, it is sent to the president for approval. If the president signs the bill, the IRS takes action to carry out its provisions. If the president vetoes the bill, it is returned to the House, which can attempt to override the veto or make the requested changes.
| Characteristics | Values |
|---|---|
| Who creates tax laws? | Congress |
| Who drafts recommendations for tax laws? | Department of Treasury |
| Who presents the recommendations for tax laws? | House Committee on Ways and Means |
| Who creates the "House version" of the tax law? | House Committee on Ways and Means |
| Who presents the "House version" of the tax law for a vote? | House of Representatives |
| Who passes the tax bill to the Senate Finance Committee? | House of Representatives |
| Who reviews the tax bill passed by the House? | Senate Finance Committee |
| Who advises the president on the tax bill? | Secretary of the Treasury and other federal agencies |
| Who carries out the provisions of the tax bill? | IRS |
| Where are regulatory documents published? | Federal Register and Internal Revenue Bulletin |
| Where are historical issues of the Federal Register available? | GovInfo |
| Where are historical versions of the United States Code available? | GovInfo |
| Where can you find a list of proposed regulations open for public comment? | Regulations.gov |
| Where can you find plain language summaries of proposed and final/temporary regulations? | Regulations.gov |
| What are the primary sources of tax law? | Statutes, regulations, and case law |
| What are the secondary sources of tax law? | Tax reporters, treatises, journals, and news |
| What are taxes used for? | Funding public services and infrastructure, regulating businesses and industries, encouraging or discouraging certain behaviors in society |
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What You'll Learn
The role of Congress
The U.S. Constitution grants Congress the power to create tax laws. The Taxing Clause in Article I of the Constitution gives Congress the general authority to "lay and collect Taxes, Duties, Imports, and Excises".
The process of creating a tax law begins with the Department of Treasury, which drafts recommendations for tax laws from the president. The Department of Treasury then presents its recommendations to the House Committee on Ways and Means. This committee creates the "House version" of the tax law, which is then presented to the entire House of Representatives for a vote. If the House passes the bill, it is sent to the Senate Finance Committee for review. The committee can either agree with the House version and send it to the Senate for a vote, or make amendments and send the amended version to the Senate.
The Senate then passes its version of the tax law. If it is the same as the House version, it goes directly to the president for a signature. If it is an amended version, a Conference Committee is appointed to merge the two bills into a single bill that is likely to get the most votes from each house. The House and Senate then vote on the newly revised bill. If passed, the bill becomes a law.
Congress has played a significant role in shaping tax laws throughout U.S. history. For example, in 1861, Congress passed the short-lived Revenue Act, which imposed a flat 3% tax on all incomes over $800. In 1894, Congress enacted a 2% tax on incomes over $4,000 as part of the Wilson-Gorman Tariff Act. This was later struck down by the Supreme Court. In 1909, Congress passed the 16th Amendment, which established its right to impose a federal income tax.
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![The Truth about the Single Tax, Its Origin, Purpose and Effect / by George Falloon 1915 [Leather Bound]](https://m.media-amazon.com/images/I/617DLHXyzlL._AC_UY218_.jpg)
The Internal Revenue Service
In 1913, the Sixteenth Amendment to the U.S. Constitution was ratified, authorising Congress to impose a tax on income, which led to the creation of the Bureau of Internal Revenue. The agency was renamed the Internal Revenue Service in 1953 and has since undergone numerous reforms and reorganisations, most notably in the 1990s.
The IRS is an agency of the Department of the Treasury and is led by the Commissioner of Internal Revenue, who is appointed to a five-year term by the President of the United States. The duties of the IRS include providing tax assistance to taxpayers, pursuing and resolving instances of erroneous or fraudulent tax filings, and overseeing various benefits programs, including the Affordable Care Act.
The IRS also publishes regulatory documents in the Federal Register and the Internal Revenue Bulletin. These include revenue rulings, revenue procedures, notices, and announcements. The IRS is responsible for enforcing federal tax law, which is typically enacted in the IRC of 1986. The sections of the IRC can be found in Title 26 of the United States Code, which is available to the public electronically.
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The process of creating federal law
In the United States, the federal legislative powers—the ability to consider bills and enact laws—lie with Congress, which is made up of the US Senate and the House of Representatives. The process of creating federal law begins with a bill, which is a proposal for a new law or a change to an existing law. The idea for a bill can come from a sitting member of the US Senate or House of Representatives, be proposed during their election campaign, or be petitioned by citizens or groups who recommend a new or amended law to a member of Congress.
Once a bill is introduced, it is assigned to a committee that researches, discusses, and makes changes to it. The committee chair's staff writes a report on the bill, describing the intent of the legislation, its legislative history, its impact on existing laws, and the position of the committee's majority. The bill is then put before the chamber to be voted on. If it passes one body of Congress, it goes through a similar process in the other body, including research, discussion, changes, and voting.
Once both bodies vote to accept a bill, they must work out any differences between the two versions. The Speaker of the House and the Majority Leader of the Senate determine if and when a bill comes before the full body for debate and amendment and then final passage. There are different rules of procedure governing debate in the House and Senate. For example, while the House processes legislation through a majority vote, the Senate does so through deliberation and debate before voting.
If the president chooses to veto a bill, Congress can usually vote to override the veto, and the bill becomes a law. However, if the president does not sign off on a bill and it remains unsigned when Congress is no longer in session, the bill will be vetoed by default, called a "pocket veto," which cannot be overridden by Congress.
In the case of tax laws, the process begins with the Department of Treasury drafting recommendations for tax laws from the president. These recommendations are presented to the House Committee on Ways and Means, which creates the "House version" of the tax law and presents it to the entire House of Representatives for a vote. Congress typically enacts federal tax law in the Internal Revenue Code of 1986 (IRC), with sections that can be found in Title 26 of the United States Code (26 USC).
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The role of the Department of Treasury
The U.S. Department of the Treasury plays a crucial role in the formation and implementation of tax laws. Its primary mission is to maintain and strengthen the U.S. economy, promote economic growth and stability, and ensure the nation's financial security. In pursuit of these goals, the Department advises the President on economic and financial matters, including tax policy.
A key function of the Department of Treasury is to draft recommendations for tax laws, which are then presented to the House Committee on Ways and Means. This committee creates the "House version" of the tax law, which is then put to a vote in the House of Representatives. This process underscores the Department's role in shaping tax legislation.
Additionally, the Department of the Treasury is responsible for managing federal finances, which includes collecting taxes, paying bills, and managing currency, government accounts, and public debt. They also enforce finance and tax laws, ensuring compliance and addressing challenges to the applicability of tax laws.
The Department of the Treasury also plays a significant role in global economic affairs. It works with foreign governments and international financial institutions to encourage economic growth, raise living standards, and prevent financial crises. This includes implementing economic sanctions against foreign threats and improving the safeguards of the financial system to protect national security.
The Departmental Offices are responsible for policy formulation and management, while the operating bureaus carry out specific operations, making up the majority of the Treasury workforce. Together, they ensure the efficient functioning of the Department and the fulfillment of its responsibilities, including those related to tax laws and their effective implementation.
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The role of the President
The President plays a significant role in shaping tax laws in the United States. While the power to create tax laws lies with Congress, the President directs fiscal policies and lays out plans during the annual budget proposal. This proposal indicates the anticipated government spending and the amount of tax revenue to be collected. The President's budget proposal serves as a signal to Congress of their fiscal policy priorities for the year.
The process of creating tax laws typically begins with the Department of Treasury, which drafts recommendations for tax laws based on the President's directives. These recommendations are presented to the House Committee on Ways and Means, which creates the "House version" of the tax law. After passing a vote in the House of Representatives, the bill moves to the Senate Finance Committee. If the committee agrees with the House version, it is sent directly to the Senate for a vote. If amendments are made, the amended version is sent to the Senate, and if passed, a Conference Committee is appointed to merge the House and Senate versions into a single bill.
Once both chambers pass the tax law, it goes to the President for their signature. The President's approval is necessary for the bill to become law. However, the President can also influence tax policies through their power to veto tax bills or through their influence over Congress. Additionally, the President can propose tax reforms or initiatives as part of their legislative agenda, working with Congress to shape the final legislation.
It is important to note that the President is advised by the Secretary of the Treasury and economic advisors when directing fiscal policies. The President's role in tax law-making is part of the executive branch's function, while Congress, part of the legislative branch, passes laws and appropriates spending. The judicial branch, including the Supreme Court, can also impact tax laws by reviewing their constitutionality. Overall, while Congress has the primary power to create tax laws, the President plays a crucial role in shaping fiscal policies, including tax laws, through their budget proposals, approval of appropriations, and influence over the legislative process.
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Frequently asked questions
Tax law is a system of laws that relate to the taxes imposed by the government. It covers rules, policies, and regulations that oversee the tax process, which involves charges on estates, transactions, property, income, licenses, and more.
Tax laws are created by Congress, which typically enacts federal tax law in the Internal Revenue Code of 1986 (IRC). The process of creating a tax law begins with the Department of Treasury drafting recommendations for tax laws from the president. The Department of Treasury then presents its recommendations to the House Committee on Ways and Means, which creates the "House version" of the tax law, which is then presented to the entire House of Representatives for a vote.
Once the tax bill is passed by the House, it goes to the Senate Finance Committee, which operates similarly to the House Committee on Ways and Means. After holding its own hearings, the committee sends the marked-up House bill along with a report explaining the markups to the full Senate for floor action. The entire Senate debates the bill and may further amend it before bringing it to a vote. If the bill passes, it is sent to the president for signature. If the president signs the bill, the IRS will take action to carry out the provisions of the tax bill. If the president vetoes the bill, it is returned to the House, which can attempt to override the veto or make the requested changes.
