CRS Report, 'Revenue Legislation in the Congressional Budget Process'

                       CRS REPORT FOR CONGRESS

[2] Article I, Section 8 of the U.S. Constitution provides Congress with the power "to lay and collect taxes, duties, imposts and excises." The 16th Amendment gave Congress the power to levy an income tax. Section 7 of Article I requires that all revenue legislation originate in the House of Representatives. However, the Constitution also provides that the Senate may propose any amendment, as on other bills.

[3] Revenue legislation is under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. In the House, Rule XXI, clause 5(b) protects the Ways and Means Committee's jurisdiction by barring other committees from reporting revenue measures. However, other legislative committees may report legislation authorizing other types of collections.

[4] Revenue legislation is not automatically considered in the congressional budget process on an annual basis. Frequently, however, the President proposes and Congress considers changes in the rates of taxation or the distribution of the tax burden. An initial step in the congressional budget process is the publication of revenue estimates of the President's budget by the Congressional Budget Office (CBO). Section 201(g) of the Congressional Budget Act (CBA) (P.L. 93-344), as amended, requires CBO to use revenue estimates calculated by the Joint Committee on Taxation (JCT). These revenue estimates usually differ from the President's since they are based on different economic and technical assumptions (e.g., growth of the economy and change in the inflation rate). Estimates of any congressional revenue-policy proposals are calculated by CBO, based on JCT revenue estimates, as well, and are published in committee reports or the Congressional Record.

[5] The budget resolution includes CBO-published baseline estimates of federal government receipts based on the continuation of existing tax laws and any proposed policy changes. The budget resolution may include reconciliation instructions directing the House Ways and Means and Senate Finance Committees to report revenue legislation to meet the recommended level of federal government revenues. Revenue legislation also may originate under the normal legislative process, initiated by the revenue committees or individual members.

[6] Section 303 of the CBA, however, prohibits revenue legislation from being considered before a budget resolution has been adopted. In the House, this rule may be waived by a "special rule" reported by the Rules Committee and adopted by the House. Typically in the case of minor changes to the tax system, revenue legislation may be considered under suspension of the rules or unanimous consent. In the Senate, the rule may be waived by unanimous consent or a majority vote.

[7] When revenue legislation is considered, its content is restricted under the rules of the congressional budget process. First, Section 311 of the CBA prohibits consideration of revenue legislation that would cause revenues to fall below the agreed upon levels for the first fiscal year or the total for all fiscal years set forth in the budget resolution. A point of order may be raised in either house against legislation that would violate this restriction. In the House, the point of order may be waived by a "special rule" reported by the Rules Committee and adopted by the House. In the Senate, the point of order may be waived by a three-fifths vote of all Senators duly chosen and sworn (60 votes if there are no vacancies).

[8] Second, the pay-as-you-go (PAYGO) process established by the Budget Enforcement Act of 1990 (Title XIII of P.L. 101-508) effectively requires that any legislation decreasing revenues be offset by an equivalent increase in other revenues or decrease in direct spending or some combination of the two. PAYGO is enforced by the sequestration process, whereby any violation of PAYGO will trigger an offsetting sequestration of nonexempt direct spending programs after the legislative session. However, a point of order may be raised in the Senate under a provision adopted in H.Con.Res. 67 (Section 202(b) of the FYI 1996 budget resolution) to enforce the PAYGO requirements as well. It prohibits consideration of any revenue legislation that would increase the deficit in the first fiscal year, the period of the first five fiscal years, or the following five fiscal years, covered by the most recently adopted budget resolution. This point of order can be waived by a three-fifths vote.

[9] Even with a budget surplus, the PAYGO process is applicable to any legislation decreasing revenues. For more on this process under a budget surplus, see CRS Report 98-97 GOV, The Budget Enforcement Act: Fact Sheet on Its Operation under a Budget Surplus.

[10] At the beginning of the 104th Congress, two provisions regulating the consideration of any revenue legislation modifying federal income tax rates were added to the House Rules. Clause 5(c) of Rule XXI requires three-fifths of the members voting to pass a federal income tax-rate increase. Clause 5(d) of the same rule prohibits any measure with a retroactive federal income tax-rate increase from being considered on the House floor.