TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 13, 2017

The House-Senate Tax Conference: A Byrd's Eye View

Ellen Aprill (Loyola-Los Angeles) and I have posted a primer on the Senate's Byrd Rule, focusing specifically on the requirement that provisions in a budget reconciliation bill must have more than a "merely incidental" effect on revenue. As we write:

The Byrd rule applies in the Senate to all measures that are passed through the budget reconciliation process, including to the House-Senate conference report. It is the source of the requirement — familiar to many in the tax world — that a bill passed through reconciliation cannot add to the deficit outside the budget window (which in this case is 10 years). It is also the source of a little-understood requirement that every provision in a reconciliation bill must produce revenue effects that are more than “merely incidental” to the non-budgetary consequences.

While the primary focus of news coverage and commentary on the Byrd rule in recent weeks has been on the deficit limitations, the Byrd rule’s “merely incidental” proviso is likely to play an increasingly important role as House and Senate negotiators hash out a conference report. The intricacies of the Byrd rule may determine the fate of provisions affecting the political activities of charitable organizations, the tax treatment of confidential sexual harassment settlements like the ones used by Harvey Weinstein, and many more. And if the conference report runs afoul of the Byrd rule, that could delay passage of the final bill until early 2018.

Our analysis yields five key takeaways:

— A provision may violate the Byrd rule’s “merely incidental” limit even if it “scores” — i.e., even if the revenue estimators at the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) say that the provision will have a nonzero effect on revenue. Conversely, a provision may comply with the Byrd rule even if the CBO and the JCT say that it will have negligible revenue effects.

— Ultimately, the Senate parliamentarian must make a judgment call as to whether a provision’s revenue effects are merely incidental to its non-budgetary consequences. No mathematical formula can resolve that question. Moreover, there is no normatively neutral way to assess the magnitude of a provision’s non-budget impact; the parliamentarian must decide for herself what matters and how much.

— The parliamentarian is a protector of Senate supermajoritarianism while simultaneously serving at the majority’s whim. Her task is to ensure that the budget reconciliation process cannot be used by the majority to circumvent the filibuster for non-revenue measures. At the same time, the majority always has the option to sideline the parliamentarian, either by ignoring her recommendations or by firing her . . . .

— The list of provisions removed from the current Senate tax bill on Byrd rule grounds thus far suggests that the current parliamentarian is applying the “merely incidental” limit quite robustly. Several provisions with revenue effects of more than (plus or minus) $100 million were dropped from the Senate tax bill apparently due to the “merely incidental” limit just hours before passage. By contrast, provisions with much smaller revenue effects and meaningful non-revenue consequences survived Byrd rule challenges in prior reconciliation efforts . . . .

— The Byrd rule gives Senate Democrats a potential source of leverage in the budget reconciliation process. Although Senate Republicans need only 50 votes (plus Vice President Mike Pence as a tiebreaker) in order to pass the conference report, they need 60 votes to waive the Byrd rule with respect to any given provision. But just as the parliamentarian’s position is precarious because she can be ignored or ousted by the majority, the minority’s leverage is limited because the majority has the power to eliminate the legislative filibuster, in which case it could pass legislation with 50 votes and the vice president as a tiebreaker even without resorting to reconciliation. So in one respect, the Byrd rule gives Senate Democrats a strong hand, but at the same time, Senate Republicans can take away the Democrats’ cards at any moment.

Daniel Hemel, Tax, Tax Policy in the Trump Administration | Permalink