Reconciling Congress to tax reform.

• Author: Kysar, Rebecca M.
• Position: The American Congress: Legal Implications of Gridlock

Tax law constantly churns, somehow avoiding the molasses of the legislative process. A common critique levied against tax law is that there is too much legislative action, resulting in ever-changing rules. This Essay argues that, in reality, congressional gridlock, the theme of the symposium for which this piece is written, is ever-present in the tax context. Although Congress increasingly enacts a high volume of temporary, patchwork tax provisions, it fails to accomplish fundamental tax reform, which is a necessary part of any solution to the looming budgetary crisis. As a result, recent proposals to enact tax reform through an existing fast-track framework, the reconciliation process, or through an entirely new process aimed specifically at tax reform, have gained popularity.

Despite the growing flexibility of existing fast-track processes, however, their truncated timelines and production of polarizing, unstable policies are antithetical to fundamental tax reform. A simple majority's ability to shape such processes to its ends also threatens the precarious Senate truce over the filibuster. From an institutional perspective, this nontransparent, piecemeal approach to filibuster reform destabilizes Senate practices and contributes to partisan politics that make the achievement of tax reform and other policies even more remote. For these reasons, existing fast-track processes should primarily be relegated to meeting annual deficit targets once tax reform is achieved. Learning from the undesirable features of these processes, this Essay proposes a set of framework procedures that have the potential to assist Congress in achieving fundamental tax reform over the next two years. In the near-term, a commitment to such a process may also help bridge impasses over future budgetary and fiscal conflicts.

INTRODUCTION I. THE WAYWARD PATH OF RECONCILIATION A. Background of the Budgetary Process: The Congressional Budget Act and the Budget Resolution B. The Origins of Reconciliation C. Reconciliation as a Deficit-Reducing Tool D. Reconciliation as a Catalyst E. Reconciliation as a Deficit-Increasing Tool F. Reconciliation in Flux 1. The Continued Controversy over Tax Cuts 2. The Debate over Health Care 3. Fast-Track Tax Reform II. RECONCILING TAX REFORM A. The Need for Fundamental Tax Reform B. Truncated Timelines as an Obstacle to Reform C. Immoderate, Unstable Policy 1. The Polarizing Influence of the Reconciliation Process 2. Reconciliation as Destabilizing 3. The Contested Scope of Fast-Track III. THE FUTURE OF FAST-TRACK, TAX REFORM, AND THE FILIBUSTER A. A Framework for Tax Reform B. Implications for the Filibuster CONCLUSION INTRODUCTION

Congressional gridlock, the theme of this symposium, has long been a part of American politics. (1) Central features of constitutional design and the legislative process, such as bicameralism and the filibuster, encourage it. Yet escalating partisanship and the heightened use of the filibuster, some argue, has now crippled Congress, resulting in a new and troubling degree of political stalemate. (2)

Tax law, on the other hand, constantly churns, somehow avoiding the molasses of the legislative process. (3) A common critique levied against tax law is that there is too much legislative action, resulting in ever-changing rules. This Essay argues that, in reality, gridlock is ever-present in the tax context. Although Congress increasingly enacts a high volume of temporary, patchwork tax provisions, it fails to accomplish fundamental tax reform, which is a necessary part of any solution to the looming budgetary crisis. (4) Simply put, there is too much of the wrong kind of tax legislative action. Counter-intuitively, congressional gridlock can exist in an area of high legislative activity.

Recent proposals to enact tax reform through an existing fast-track framework, the reconciliation process, or through an entirely new process aimed specifically at tax reform, have gained popularity. (5) Reconciliation began as a modest tool that would align autumn legislation with revenue and spending targets that had been adjusted from the spring budget resolution. (6) It quickly evolved, however, into a forceful method of enacting major policy changes. The benefits of utilizing fast-track processes like reconciliation are obvious. Because fast-track processes generally limit debate upon tax reform legislation, they obviate the need to invoke cloture in the Senate, thus creating a simple majority regime in both houses. (7) By lifting the filibuster or offering quick time frames for consideration, fast-track processes have the potential to help achieve tax reform for the first time in over a quarter of a decade. They will likely, however, fall short of this promise.

Reconciliation is increasingly flexible as a procedural matter in the tax context. Its intrinsic features, however, are not conducive to enacting ambitious tax legislation. Contrary to popular thought, fast-track processes produce dynamics that are antithetical to fundamental tax reform. Majority voting, reduced committee power, and a truncated timeline--features of existing fast-track processes--engender fragile and narrow tax legislation rather than complex, long-lasting tax reform. Moreover, the contested boundaries of such processes create further instability since lawmakers perceive their products to be born from illegitimate means. The constant threat to undo recent reconciliation acts, such as healthcare reform and the Bush tax cuts, exemplifies these phenomena. (8)

In addition to fast-track being a poor vehicle for tax reform, over-reliance upon it has actually contributed to the dearth of tax reform in recent decades. This is because reconciliation creates polarized laws and, at times, sunset provisions. These unstable agreements demand constant attention from Congress, allowing members to fulfill their duty to do something about national tax policy even though they remain gridlocked regarding the fundamental trajectory of that policy. Although legislative flexibility is appropriate in some areas of tax law, a short-term, one-sided approach to resolving the nation's grave budgetary ills is unlikely to be curative.

Prior critiques of the reconciliation process in the tax context have focused upon the process's privileging of revenue concerns over traditional tax policy criteria. (9) This Essay departs from that literature by assuming that tax reform must address revenue concerns in light of the budget crisis; revenue-neutral tax reform simply has no place in today's policy landscape. Yet despite the ability of the reconciliation process to set revenue targets, it is not the key to achieving revenue-increasing tax reform. Instead, reconciliation would be better harnessed to tweak revenues, on an annual basis, to the desired level of the federal deficit or surplus once tax reform is achieved.

The congressional fight over the parameters of the reconciliation process has increased strife between parties, making bipartisan agreement less likely. Current efforts to create a new fast-track process for tax reform will likewise prove controversial. In recent years, the scope of reconciliation has become the subject of much controversy, expanding and contracting in accordance with party preferences, particularly in the tax context. This is because a simple majority can alter budget-related Senate rules through the budget resolution, which in turn is not subject to a filibuster. Thus, when Republicans are in charge, reconciliation can be used to enact tax cuts, but once Democrats regain power, reconciliation can only be used for tax increases. When it comes to virtually all tax law, the filibuster has become elective.

This procedural struggle over the scope of fast-track illuminates important aspects of today's legislative process. Although, in the past, reconciliation has served as a release valve for the pressure of strict supermajority rule in the Senate, its increasingly contested boundaries expose the fundamental fragility of the filibuster. A simple majority's ability to decide the scope of the reconciliation process in the tax area will have ramifications far beyond that context by threatening the filibuster and the legitimacy of Senate rules generally. Less reliance upon reconciliation in producing major tax legislation may thus help to preserve the filibuster, or at least channel filibuster reform through transparent, unified means, rather than the current covert, fragmentary approach of reconciliation.

On a more hopeful note, learning from the undesirable features of fast-track legislation, it is possible to design a set of framework procedures that do have the potential to assist Congress in achieving fundamental tax reform. In the near-term, a commitment to such a process has the added benefit of providing a way forward through budgetary and fiscal conflicts. Although the American Taxpayer Relief Act of 2012 partially resolved the fiscal cliff, (10) the threat of sequestration and the ongoing necessity of providing a federal budget and raising the debt ceiling makes future stalemates inevitable. Tax reform is an essential part of any long-term deficit reduction plan, and thus providing a process in which it can be achieved may pave the way for agreement over these issues.

In Part I of this Essay, I discuss the history and rather remarkable rise of the most well-known fast-track process, reconciliation, updating the extant literature to include recent developments of that process. (11) Despite reconciliation's potential application to almost any tax legislative context, in Part II, I contend that its features are hostile to fundamental tax reform, conclusions which can be extended to other fast-track processes. In Part III of this Essay, I caution against the overuse of fast-track processes, which may derail tax reform efforts, instead suggesting that fast-track be primarily used to achieve annual budgetary goals...