Numerous bills are introduced in each legislative session that propose changes in tax law.
Significant tax bills are summarized in the Daily Tax News in RIA’s Checkpoint.
The following chart details the legislative process of Federal bills. The process is similar in most states, but the House activities are often different:
Bills about tax issues are assigned to the appropriate committees, such as the House Ways and Means Committee or the Senate Finance Committee. Bills with significant political support are discussed at public hearings.
The executive agencies, such as the Internal Revenue Service or state tax departments, usually provide their views on the proposed bill during the hearings. Other politicians and lobbyists also provide their views, such as the staff of the Joint Committee on Taxation or State Budget Board may provide commentary on bills being considered.
Numerous bills without strong support "die" in the committee and never make it to the next stage. Bills that die in one legislative session often reappear in modified form in a later session.
If the committee approves a bill, the committee staff prepares a report on the bill. These committee reports usually include an explanation of the current and proposed law, justification for why the law change is needed, recommendations for implementation, and an estimate of the bill’s impact on government revenue and expenses.
Revenue estimates usually come from a legislative budget research office, such as the Congressional Budget Office ( CBO).
The leaders of the legislature decide which committee bills the entire House and Senate will discuss.
The House or Senate may accept the committee’s bill or amend it.
The floor debates are recorded and may provide additional guidance on how the legislature intends the bill to be implemented.
If a bill does not receive a favorable vote by both the House and Senate, it cannot go forward to the next stage. Sometimes several separate bills are consolidated into one large bill.
If the House and Senate pass different versions of a bill, the leaders appoint a conference committee representing both the House and Senate.
The conference committee finds compromises between the House and Senate versions and writes a report.
This conference committee report provides guidance to the Internal Revenue Service or state tax department on how to implement the law.
The House and Senate vote on the bill recommended by the conference committee.
This chart shows how the Joint Conference Committee may create a compromise between the House version and a Senate version of a bill.
After approval by both the House and Senate, a bill is sent to the chief executive (President or state governor) for approval. The chief executive may veto a bill and refer it back to the House and Senate. The House and Senate might or might not vote to override the veto.
A bill is enacted into law and assigned a Public Law number after approval by the chief executive or the veto is overridden.
The latest major Federal tax act is the Tax Relief Act of 2001. After the final version of the act was passed by Congress and signed by President George W. Bush, it became Public Law 107-16 (abbreviated, P.L. 107-16). The first digits of a Public Law number refer to the session of Congress. The 107th Congress meets in 2001 through 2002. Public Law 107-16 was the 16th act approved by the 107th Congress. This act also retains its popular names, the Tax Relief Act of 2001 or the Economic Growth and Tax Relief Reconciliation Act of 2001.
All of the public laws related to Federal taxes are compiled in the Internal Revenue Code ( IRC). IRC Section 1 specifies the income tax rates for individuals. The Tax Relief Act of 2001 ( P.L. 107-16) reduced the 15% marginal tax rate to 10% and the 28% marginal tax rate to 25%. The screen shows the history for Code Section 1 and shows the reference to P.L. 107-16. One reason to look at the Code History screens is that you can see the effective dates. Observe that these changes in marginal tax rates are effective for tax years beginning after 12/31/2001. This Code History screen also includes some of the text of IRC Section 1 as it existed before amendment.