The overhaul of the U.S. tax code, which Republicans in Congress are hoping to pass by the end of 2017, is being shaped by an arcane Senate rule crafted by a lawmaker who’s been dead for seven years. The Byrd rule, named for Robert Byrd, a Democratic senator who represented West Virginia for 51 years, governs the budget process that Republicans are using for tax reform. If the tax reform bill doesn’t pass the Byrd rule test, it could go nowhere in the Senate.
1. What’s the Byrd rule?
The Byrd rule limits the types of legislation that can be moved through Congress under what’s known as budget reconciliation. Normally 60 votes are required in the 100-member Senate to bring debate to a close. The Senate’s reconciliation process, which allows for budget-related bills to be passed with a simple majority, was originally designed to pass difficult deficit-reducing bills that raised taxes and cut spending. This year, reconciliation could allow the 52 Republicans to craft a bill that Democrats are powerless to block with a filibuster, or unlimited debate. Encoded in section 313 of the Congressional Budget Act in 1990, the Byrd rule states that reconciliation bills -- like the Republican tax bill and the earlier attempt to repeal Obamacare -- cannot contain "extraneous" provisions.
2. What does ‘extraneous’ mean here?
Basically, things that don’t have to do with federal revenue and spending. In the earlier Obamacare bill, for example, this meant that insurance regulations were not allowed in the Senate version of the bill. The Byrd rule also defines as "extraneous" provisions that add to the deficit after 10 years. Any senator can offer an amendment on the floor to strike out provisions that would make the bill comply with the Byrd rule or raise a "point of order" against the bill that requires 60 votes to waive. The rule also applies to provisions that do not adhere to instructions in the year’s budget.
3. Why would this threaten the tax bill?
Because of the Byrd rule on long-term deficits. House and Senate versions of The Tax Cuts and Jobs Act produced large and increasing yearly deficits, including in the 10th year.
4. Is there any way around the Byrd rule?
Yes, by kicking the can down the road. Senate Finance Committee Chairman Orrin Hatch offered an amendment to the tax package Tuesday to make it comply with the Byrd rule by ending all the individual and small business "pass-through" changes (for partnerships, sole ownerships and the like) on Dec. 31, 2025. This would prevent the bill from adding to the deficit 10 years from now, but could cause uncertainty in the business community and lessen the economic benefits of the bill. It could also create future headaches. The 2003 Bush-era tax cuts, for example, were set to expire at the end of 10 years, though this created a fiscal cliff that Congress was forced to wrestle with in late 2012.
5. Is that the only option?
No, Republicans could instead add provisions that raise revenue or cut spending. Repealing Obamacare’s so-called individual mandate requiring people to buy insurance would save the federal government $318 billion over 10 years, according to an estimate by Congress’s Joint Committee on Taxation. The Tuesday Hatch amendment would repeal the mandate and use the savings to lower individual income tax rates.
The Reference Shelf
- A Congressional Research Service report on the budget reconciliation process and the Byrd rule.
- The New York Times obituary of Robert Byrd noted that he always kept a copy of the U.S. Constitution in his pocket.
- Bloomberg QuickTakes on the Senate filibuster and the budget deficit.