Cecily Zamora
Tax law in the United States is created by Congress and the president. The Constitution gives Congress the power to tax, and Congress typically enacts federal tax law in the Internal Revenue Code of 1986 (IRC). The House of Representatives passes its version of the tax law, which is then voted on by the Senate. If the Senate passes the same version, it goes to the president to be signed into law. If not, a Conference Committee is appointed to merge the two bills, which is then voted on by both the House and the Senate. The Internal Revenue Service organizes and polices tax law but does not create it.
| Characteristics | Values |
|---|---|
| Who creates tax law? | Congress |
| House of Representatives | |
| Senate | |
| President | |
| Treasury Department | |
| IRS | |
| Individuals in business or professional fields | |
| Where can tax laws be found? | Internal Revenue Code of 1986 (IRC) |
| Title 26 of the United States Code (26 USC) | |
| Code of Federal Regulations (26 CFR) | |
| Federal Register (FR) | |
| Internal Revenue Bulletin |
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What You'll Learn
The role of the president
The president plays a crucial role in the creation of tax law. While the U.S. Constitution grants Congress the power to tax, it is the president who ultimately signs the bill into tax law.
The process of creating tax law typically begins with the Department of Treasury, which drafts recommendations for tax laws based on input from the Treasury Department, the IRS, individuals in business or professional fields, and the president's own proposals. These recommendations are presented to the House Committee on Ways and Means, which creates the "House version" of the tax law. This version is then voted on by the House of Representatives.
If the Senate Finance Committee agrees with the House version, it is sent directly to the Senate for a vote. If not, the committee makes amendments and sends its version to the Senate. If the Senate passes the same version as the House, the bill goes directly to the president for their signature. However, if the Senate passes an amended version, a Conference Committee is appointed to merge the two bills into a single version that can be passed by both houses.
The president's signature on the tax bill is the final step in enacting it into law. This signature signifies the president's approval of the tax law and completes the legislative process.
For example, during his presidential campaign, Joe Biden proposed significant changes to various tax provisions, including income taxes, capital gains taxes, and payroll taxes. These proposals are likely to be influenced further by the Treasury before being submitted to Congress for review.
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The House of Representatives
- The Department of Treasury drafts recommendations for tax laws, often based on input from the President, the IRS, or individuals from business or professional fields.
- The Department of Treasury presents its recommendations to the House Committee on Ways and Means.
- The House Committee on Ways and Means creates the "House version" of the tax law and presents it to the entire House of Representatives for a vote.
- The House of Representatives votes on the "House version" of the tax law. If it passes, it moves on to the Senate Finance Committee.
- The Senate Finance Committee has two options: they can agree with the "House version" and send it to the Senate for a vote, or they can make amendments and send the amended version to the Senate.
- If the Senate passes the same version as the House, the bill moves on to the President for signature. If the Senate passes an amended version, a Conference Committee is appointed to merge the two bills.
- The Conference Committee, consisting of members from both the House and the Senate, works to modify the two bills into a single version that is likely to get the most votes from each chamber.
- Finally, both the House and the Senate vote on the newly revised bill. If it passes both chambers, it goes to the President for their signature to become law.
This process highlights the significant role played by the House of Representatives in initiating and shaping tax legislation. While the Senate and the President also have important roles in the law-making process, it is the House that introduces the initial version of the tax law and has the power to pass it on to the next stage. This process showcases the collaborative nature of law-making in the United States, with the House of Representatives being a key player in the creation of tax laws.
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The Senate Finance Committee
The committee has two options at this stage: they can either agree with the House version and forward it to the Senate for a vote, or they can make amendments to the bill and then send it to the Senate. If the Senate passes the bill without any changes, it goes directly to the President for their signature to become law. However, if the Senate passes an amended version, a Conference Committee is appointed to reconcile the differences between the House and Senate versions.
The Conference Committee is a group of members from both the House and the Senate, working together to create a single bill that is likely to receive the most votes from both chambers. After the Conference Committee modifies the bill, it goes back to both the House and the Senate for a final vote. If passed by both chambers, the bill becomes a law.
While the Senate Finance Committee plays a crucial role in shaping tax laws, it is important to note that they are not the only players in the process. The House of Representatives initiates the process, and the Senate as a whole has the power to pass or amend the legislation. Ultimately, the President's signature is required to enact the tax law, demonstrating the collaborative nature of law-making in the United States.
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The Internal Revenue Service
In 1913, the Sixteenth Amendment to the U.S. Constitution was ratified, authorising Congress to impose a tax on income and leading to the creation of the Bureau of Internal Revenue. In 1952, after a series of politically damaging incidents of tax evasion and bribery among its employees, the bureau was reorganised under a plan put forward by President Truman, with the approval of Congress. The reorganisation decentralised many functions to new district offices, which replaced the collector's offices. Civil service directors were appointed to replace the politically appointed collectors. Following this reorganisation, the bureau was renamed the Internal Revenue Service in 1953.
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. 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, as well as other forms of official tax guidance, such as revenue rulings and notices.
While the IRS does not make tax law, it plays a crucial role in organising and enforcing it. It ensures that average taxpayers can pay their taxes and identifies those who do not. The IRS also faces periodic controversy and opposition over its methods, constitutionality, and the principle of taxation in general. In recent years, it has struggled with budget cuts, staffing shortages, outdated technology, and low morale, which have impacted the enforcement of tax laws.
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The Treasury Department
The process of creating tax laws usually begins with the Treasury Department. They initiate the process by drafting recommendations and proposals for new tax laws, often in collaboration with the president. These proposals are then presented to the House Committee on Ways and Means, which is a committee within the House of Representatives. The committee's role is to create the "House version" of the tax law, which will be presented to the entire House for a vote.
The House of Representatives then votes on the proposed tax law. If the House version is approved, it moves directly to the Senate for their consideration. However, if the Senate Finance Committee amends the House version, a Conference Committee comprising members from both the House and the Senate is appointed to merge the two versions into a single bill. This process ensures that the final bill is likely to receive sufficient support from both chambers.
Once the tax law bill has passed both chambers of Congress, it is sent to the president for signature. The president's approval is necessary for the bill to become law. After the president signs the bill, the Internal Revenue Service (IRS) steps in to organize and enforce the new tax law. The IRS does not create tax laws but plays a crucial role in their implementation and ensuring compliance from taxpayers.
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Frequently asked questions
Tax laws are created by Congress and the president. The House of Representatives passes its version of the tax law to the Senate Finance Committee. The committee either agrees with the House version and sends it to the Senate for a vote, or makes amendments and sends the amended version to the Senate. The Senate then passes its version of the tax law. If it matches the House version, it goes to the president to sign. If it's amended, a Conference Committee is appointed to merge the two bills.
The IRS does not make tax laws, but it does organise and police them to ensure compliance. The IRS also provides other forms of official tax guidance, including revenue rulings, revenue procedures, notices, and announcements.
The Treasury Department drafts recommendations for tax laws from the president and presents them to the House Committee on Ways and Means. The committee then creates the "House version" of the tax law, which is presented to the House of Representatives for a vote.
