John Lynch Chief Investment Strategist, LPL Financial
House Republicans released the initial version of their tax reform bill on Thursday, November 2. After months of aspirational outlines and frameworks devoid of detail, this was the real thing: 400+ pages of proposed legislation covering all of the details, including difficult decisions about eliminating some existing tax benefits so that the bill would not add more than $1.5 trillion to the current deficit—the limit set previously in the budget bill. While the final bill will look different from the House’s first effort, this was an important step forward. Here’s our look at the path ahead.
Steps to Passing Tax Reform
The steps to passing tax reform will follow the typical path of how a bill becomes a law, but likely on an accelerated timeline. The main battles will continue to be over the “pay-fors,” current tax breaks that are reduced or eliminated to offset revenue lost due to new tax cuts. For each “pay-for” removed as part of negotiations, either a new one will need to be introduced elsewhere, one of the new tax cuts must be decreased or eliminated, or some accounting maneuver must be introduced that provides legislative cover.
The Senate will not wait until a House version is passed before starting the process on its own version. In the next two weeks, we will likely see the Senate release its initial version of its bill, much like the House did last week.
From Bill to Law
A bill only becomes a law when both houses of Congress pass identical bills. Because the bills from the House and the Senate will likely look quite different, one of the most challenging steps in the process will be reconciling the two versions. Once we get to a final single bill, progress should be smoother: Republicans should have worked out all of the compromises needed to secure the necessary votes, although nothing is guaranteed until the votes are in.