Kara Sears
The power to change tax laws ultimately lies with lawmakers, who can make adjustments to tax codes through a procedure known as budget reconciliation. This process allows lawmakers to make changes to tax, spending, and debt limit policies outlined in a budget resolution. In the United States, the House Ways and Means Committee is the primary tax-writing committee, with jurisdiction over all tax-related bills. The committee proposes and introduces legislative text for tax changes, which then undergo further negotiations and votes in the legislative process.
| Characteristics | Values |
|---|---|
| Country | United States |
| Political Party | Republicans, Democrats |
| Procedure | Budget reconciliation |
| Committee | House Ways and Means Committee, Senate Finance Committee |
| Legislation | Tax Cuts and Jobs Act (TCJA), American Rescue Plan Act (ARPA), Inflation Reduction Act (IRA) |
| Year | 2017, 2021, 2022, 2025 |
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What You'll Learn
The US House Ways and Means Committee
The Ways and Means Committee has always been one of the most important committees in terms of its impact on policy. Its wide jurisdiction and influence on fiscal legislation give it significant power. The committee has been chaired by three future US presidents: James Polk, Millard Fillmore, and William McKinley. The current chairman is Jason Smith.
The committee has six subcommittees in the 118th Congress. These include the Subcommittee on Worker and Family Support, the Subcommittee on Select Revenue Measures, and the Subcommittee on Trade. The Ways and Means Committee also had the responsibility to appoint members of other committees from 1911 to 1974. This power was transferred to a separate committee after a scandal involving Ways and Means chair Wilbur Mills.
Some of the major issues that have gone through the Ways and Means Committee include welfare reform, a Medicare prescription drug benefit, Social Security reform, tax cuts, and trade agreements such as NAFTA and CAFTA. The committee's broad range of policy concerns makes it a valuable post for members who want to influence policy decisions.
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The Senate Finance Committee
The committee is responsible for holding hearings on policy issues, specific bill proposals, and nominations for key positions such as the Commissioner of Internal Revenue. They can consider and develop bill proposals through a markup process and report recommended changes to the full Senate chamber. This allows the committee to have a direct impact on tax legislation and influence the direction of tax policy.
For example, the committee recently held an open executive session to consider the nomination of William Long of Missouri to be the Commissioner of Internal Revenue. The committee also discussed the nomination of James O'Neill of California to be Deputy Secretary of Health and Human Services and Gary Andres of Virginia to be an Assistant Secretary of Health and Human Services.
The committee is also often involved in broader discussions about fiscal policy and the federal budget. They may review the President's budget proposals and consider the fiscal implications of various policy decisions. By doing so, the committee helps shape not only tax laws but also the overall fiscal direction of the country.
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The Tax Cuts and Jobs Act (TCJA)
The TCJA introduced a single flat corporate tax rate of 21%, a significant reduction from the previous rate of 35%. This change was expected to lower taxes for many Americans, with the top 20% of earners projected to receive around 65% of the savings. The Act also scrapped net operating loss (NOL) carrybacks and capped carryforwards at 90% of taxable income, falling to 80%. It eliminated the section 199 deduction for businesses engaging in domestic manufacturing and other production work. The TCJA also introduced a territorial tax system, where only domestic earnings are subject to tax.
The Act made changes to deductions, depreciation, expensing, and tax credits. It raised the child tax credit and created a non-refundable credit for non-child dependents. The TCJA also temporarily raised the estate tax exemption and allowed 529 plans to fund K-12 private school tuition of up to $10,000 per year, per child.
The TCJA's impact on individuals varied based on income level, filing status, and deductions. While it cut taxes for most taxpayers, some faced increases. The Act also permanently removed the mandate requiring individuals to purchase health insurance. Many of the tax benefits for individuals under the TCJA expire in 2025, and if the Act is not renewed, tax increases are expected.
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The American Rescue Plan Act (ARPA)
In the United States, the power to change tax laws lies with Congress and the President. Congress is responsible for drafting, debating, and passing tax legislation, while the President has the authority to sign the legislation into law or veto it.
Now, let's discuss the American Rescue Plan Act (ARPA) in detail:
One of the primary goals of ARPA was to provide direct financial relief to Americans. This included stimulus checks, an extension of unemployment benefits, and an expansion of tax credits, such as the Child Tax Credit. The Act also provided funding for state and local governments to support their pandemic response efforts, including vaccine distribution and economic recovery initiatives.
Additionally, ARPA included funding for specific projects and programs. For example, Georgia received almost $408 million in preliminary awards to provide communities, households, and businesses in 70 counties with improved broadband access. The Act also allocated funds for education, with plans approved by the Department of Education to support safe in-person instruction and address the social, emotional, mental health, and academic needs of students impacted by the pandemic.
The ARPA funds were required to be committed by a certain deadline and expended by December 31, 2026. For example, Northampton, MA, received approximately $21.7 million in ARPA funds, which were to be allocated based on community input and the city's recovery needs. The state of Colorado also received ARPA funds, which were deposited into the "'American Rescue Plan Act of 2021' cash fund" and then transferred to various other recipient funds for specific programs.
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The Inflation Reduction Act (IRA)
In 2022, the US government passed the Inflation Reduction Act (IRA), which made significant changes to tax laws and provided funds to improve services and technology, making tax filing easier for citizens. The Act is a 10-year plan, and the IRS is working to implement the changes as quickly as possible.
The IRA has introduced separate forms for tax credits, such as Forms 8835 and 3468, for each facility or property for which a taxpayer claims a credit. It has also provided guidance on key tax provisions, including notices on determining applicable corporation status, clean fuel production credits, and credits for qualified commercial clean vehicles.
One of the most notable aspects of the IRA is its focus on climate and energy. It makes the largest investment in these sectors in American history, enabling the country to tackle the climate crisis, advance environmental justice, and secure its position as a leader in domestic clean energy manufacturing. The IRA appropriates funds for the Loan Programs Office (LPO) to support issuing new loans, with a total of approximately $100 billion in increased loan authority.
Additionally, the IRA adds a new loan program, the Energy Infrastructure Reinvestment (EIR) Program, to help retool, repower, repurpose, or replace energy infrastructure. It also provides additional loan authority for projects eligible under the Energy Policy Act of 2005 and removes the cap on the total amount of ATVM loans, providing further financial support for clean energy initiatives.
The IRA has also addressed the federal tax treatment of amounts paid towards the purchase of energy-efficient property and improvements under the Department of Energy's Home Energy Rebate Programs. Overall, the Act's provisions aim to simplify tax filing, encourage clean energy investments, and promote a sustainable future for the United States.
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Frequently asked questions
The US Congress can change tax laws. The House Ways and Means Committee is the chief tax-writing committee in the US. The Senate Finance Committee can also make changes to tax policy.
Lawmakers can propose changes to tax laws, which are then voted on by the House and the Senate. A process called budget reconciliation can be used to fast-track tax changes, bypassing a filibuster in the Senate.
The 2017 Tax Cuts and Jobs Act (TCJA) was a major tax code overhaul that cut taxes for individuals and businesses. The TCJA included changes such as raising the child tax credit, increasing the estate tax exemption, and limiting the mortgage interest deduction for married couples.
