Kara Sears
The process of drafting tax laws is a complex one, with multiple stakeholders involved. In the United States, the tax code, also known as the Internal Revenue Code, is a document created by the federal government that outlines the rules individuals and businesses must follow when paying taxes. The Constitution grants Congress the power to levy taxes, and they typically enact federal tax laws in the Internal Revenue Code (IRC). The IRC is long and intricate due to its inclusion of various tax laws designed to promote specific causes or benefit certain groups. Congress can use the tax code to encourage social welfare or economic growth, or to reward special interest groups. The process of turning a bill into a law involves input from both the House of Representatives and the Senate, with the final decision resting with the President. The Internal Revenue Service plays a crucial role in organizing and enforcing tax laws, ensuring compliance from taxpayers. The complexity of tax laws necessitates independent Congressional expertise and objective technical advice, highlighting the importance of tax legislation's wide-reaching impact.
| Characteristics | Values |
|---|---|
| Who drafts tax laws? | Congress, Department of Treasury, House Committee on Ways and Means, House of Representatives, Senate Finance Committee, President |
| Who enforces tax laws? | Internal Revenue Service |
| Who interprets tax laws? | Courts |
| Who provides objective technical advice? | Joint Committee on Taxation |
| Who provides independent tax analysis and advice? | Members of the party that does not occupy the White House |
| Who provides independent, nonpartisan technical tax advice? | Tax-writing committees |
| Who organizes and polices tax laws? | Internal Revenue Service |
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What You'll Learn
The role of Congress
The U.S. Constitution gives Congress the power to levy taxes for revenue collection. Congress typically enacts federal tax laws in the Internal Revenue Code (IRC), which is a document created by the federal government. The IRC contains almost all federal tax laws and covers thousands of pages of information that lay out the specific rules individuals and businesses must follow when paying taxes.
Congress has historically insisted on special independence from the Executive Branch when writing tax laws. The members of the party that does not occupy the White House need a source of independent tax analysis and advice. The tax-writing committees also need a source of independent, nonpartisan technical tax advice even when the party controlling Congress is the same as that controlling the Executive Branch.
The Joint Committee on Taxation is one example of a committee devoted solely to tax issues. It provides independent Congressional expertise and undertakes studies to update and simplify particular aspects of the tax law.
The process of drafting 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, which creates the "House version" of the tax law. This is then presented to the entire House of Representatives for a vote. If passed, the bill goes to the Senate Finance Committee, which can agree with the House version and send it to the Senate for a vote, or modify it. If the Senate passes the same version as the House, the bill goes to the president to be signed. If the Senate passes an amended version, a Conference Committee is appointed to merge the two bills. This committee is made up of members from both the House and the Senate. The Conference Committee modifies both bills into a single one that is likely to get the most votes from each house. With a vote, both the House and the Senate pass the newly revised bill. Finally, the president signs the bill into tax law.
Congress can also exert its power over tax legislation by enacting laws that are not part of the IRC but nonetheless impact federal tax law.
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The role of the president
The president plays a crucial role in the creation of tax laws. While the president does not draft the tax laws directly, their administration submits revenue proposals and recommendations for tax laws to the Department of Treasury, which then drafts its recommendations for tax laws and presents them to the House Committee on Ways and Means. This committee creates the "House version" of the tax law, which is then voted on by the House of Representatives.
If the Senate Finance Committee agrees with the House version, it is sent to the Senate for a vote. If the Senate passes the same version as the House, the bill goes to the president for their signature. The president can choose to veto the bill, but Congress can override this veto with a vote, 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 is vetoed by default, which is called a "pocket veto."
On the other hand, if the Senate Finance Committee does not agree with the House version, it can make amendments, leading to the formation of a Conference Committee to merge the two versions into a single bill. This committee consists of members from both the House and the Senate. The merged bill is then passed by both the House and the Senate before being sent to the president for their signature, turning it into tax law.
The process highlights the separation of powers and the independence of Congress in writing tax laws. The president's role is primarily to approve or veto the tax laws created by Congress, with the power to influence the initial proposals and recommendations submitted by their administration.
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The House Committee on Ways and Means
The committee has jurisdiction over all taxation, tariffs, and other revenue-raising measures. It also covers a number of other programs, including Social Security, unemployment benefits, Medicare, the enforcement of child support laws, and foster care. It is the oldest tax-writing body in the House of Representatives and has long been regarded as the most prestigious committee.
The committee creates the House version of tax laws, which it presents to the entire House of Representatives for a vote. If the Senate Finance Committee agrees with the House version, it is sent to the Senate for a vote. If the Senate passes an amended version, a Conference Committee is appointed to merge the two bills. This committee comprises members from both the House and the Senate. The final bill is then passed to the president to be signed into tax law.
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The Joint Committee on Taxation
The Joint Committee was established by the Revenue Act of 1926, which required the committee to publish proposed measures and methods for the simplification of internal revenue taxes. The Joint Committee published its initial report on November 15, 1927, making various recommendations to simplify the federal tax system, including a recommendation for the restructuring of the federal income tax title. The Revenue Act of 1928 extended the Joint Committee's authority to the review of all refunds or credits of any income, war-profits, excess-profits, or estate or gift tax in excess of $75,000. Since 1928, the threshold for reviewing large tax refunds has been increased to $2 million, and the taxes to which this review applies have been expanded.
The Joint Committee's mandate is to provide independent, nonpartisan technical tax advice to Congress. The Joint Committee's independence is important because of the wide-reaching impact of tax legislation on individuals and businesses. The Joint Committee's expertise includes specialized topics such as international taxation, pensions, insurance, trusts and estates, tax administration, tax-exempt bonds, excise taxes, and mergers and acquisitions. The Joint Committee also undertakes studies to update and simplify particular aspects of tax law.
The Joint Committee's responsibilities under the Internal Revenue Code have remained largely unchanged since 1928, although the tax legislative process has evolved. The Joint Committee continues to play a crucial role in providing objective technical advice and analysis on tax-related issues to Congress.
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The Internal Revenue Service
The IRS publishes regulatory documents in the Federal Register (FR) and the Internal Revenue Bulletin. These include revenue rulings, revenue procedures, notices, and announcements. The IRS also publishes the Internal Revenue Code (IRC), which contains nearly all federal tax laws. The IRC was first compiled in 1939 and underwent major revisions in 1954 and 1986. It is part of the U.S. Code, which covers 53 titles or broad subjects. The IRC is available to the public, and an electronic version can be accessed.
The IRS also publishes Treasury regulations, which provide the official interpretation of the IRC by the U.S. Department of the Treasury. These regulations give directions to taxpayers on how to comply with the IRC's requirements. An electronic version of the current Treasury Regulations is also available to the public.
The Joint Committee on Taxation is another important body related to the IRS and tax law. It provides independent, non-partisan technical tax advice to Congress. The Committee undertakes studies to update and simplify tax laws and ensures that tax legislative language is drafted in great detail, reducing room for interpretation by the IRS and courts.
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Frequently asked questions
Tax laws are drafted by Congress, the lawmaking branch of the federal government. The Internal Revenue Code (IRC), which contains nearly all federal tax laws, is written by Congress and is currently over 3.7 million words long.
Congress has the power to tax and enact federal tax law. It passes tax laws in the IRC, which is a compilation of every tax law written by Congress since the Constitution was ratified in 1788. Congress can also override a presidential veto on a bill, allowing it to become a law.
The Department of Treasury drafts recommendations for tax laws from the President. The President can sign a tax bill into law or veto it.
A tax bill can be proposed by a sitting member of the U.S. Senate or House of Representatives, during their election campaign, or by citizens who petition their representatives. Once introduced, it is assigned to a committee, which researches, discusses, and makes changes. The bill is then put to a vote, and if it passes, it goes to the other body of Congress for a similar process. Once both bodies of Congress accept a bill, they work out any differences between their versions, and the final bill is sent to the President to be signed into law.
