Why the Proposed House Rule on Income Taxes Would Not Prevent Democrats from Passing Progressive Legislation

by Sam Wice — Tuesday, Nov. 20, 2018@Wice_sam

House Democrats have proposed that, as part of their changes to the House of Representatives’ rules, income-tax increases on the lowest-earning 80% of taxpayers would require a 3/5ths majority in the House of Representatives. This proposed rule has been attacked as antidemocratic and as an obstacle to passing future, Democratic legislation. However, this rule change would (i) be less restrictive than the rules the Democrats used when they last controlled the House of Representatives and (ii) not prevent Democrats from passing progressive legislation.

The proposed rules on income-tax increases would be less restrictive than the rules House Democrats used when they last controlled the House of Representatives. When Republicans took control of the House of Representatives after the 1994 midterm elections, they created a new rule that prevented income-tax increases unless a 3/5ths majority of members supported the legislation. Except for an amendment in 1997 to define what a “Federal income tax rate increase” means, the rule has remained unchanged. Specifically, current House Rule XXI, clause 5(b) reads:

A bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase may not be considered as passed or agreed to unless so determined by a vote of not less than three-fifths of the Members voting, a quorum being present. In this paragraph the term “Federal income tax rate increase” means any amendment to subsection (a), (b), (c), (d), or (e) of section 1, or to section 11(b) or 55(b), of the Internal Revenue Code of 1986, that imposes a new percentage as a rate of tax and thereby increases the amount of tax imposed by any such section.

The relevant subsections include individual-tax rates, the estate tax, corporate-tax rates, and the alternative-minimum tax.

When Democrats regained control of the House of Representatives after the 2006 midterms, they kept the super-majority rule on income-tax increases. Today, Democrats are considering a different approach by modifying the income-tax rule. As the proposed rule is only an overview, I will assume for this post that it would modify the existing rule so that the rule only includes restrictions on increasing income-tax rates on the lowest-earning 80% of taxpayers. In other words, as compared to the current rules, the proposed rule would allow income-tax increases on corporations and the highest-earning 20% of taxpayers. Thus, the proposed rule would be the least restrictive rule regarding income-tax increases in the last 24 years.

Furthermore, the proposed rule would not prevent Democrats from passing progressive legislation. First, the income-tax rule only applies to income-tax rates and does not prohibit increases in fees or other taxes (e.g., capital gains taxes, income-tax deductions, payroll taxes, or a new carbon tax). For instance, the Affordable Care Act did not violate Rule XXI as it did not modify the applicable tax rates. Second, the applicable rates that cannot be increased are higher than what they may initially seem. As Congress passed recent reductions to income-tax rates in reconciliation laws that expired after ten years, the laws could not modify the permanent income-tax rates in subsections 1(a)-(e) of the Internal Revenue Code of 1986. Thus, the current, legally operative income-tax rates are in subsection 1(j) (until 2025) and subsection 1(i) (starting in 2026). As such, the House of Representatives can increase the legally operative income-tax rates up to the rates set in subsections 1(a)-(e) without violating House Rule XXI.

Third, the proposed rule would not prevent Democrats from passing progressive legislation, even if the legislation implicated Rule XXI. In general, the House of Representatives’ rules are not enforceable if a majority votes to waive them. Before the House of Representatives directly considers most major pieces of legislation, the House Committee on Rules will consider a resolution to determine the procedures for considering a bill. The committee will consider which potential points of order to waive. After the resolution passes out of committee, the full House of Representatives will approve the rules resolution by a majority vote before beginning to consider the underlying bill.

Specifically, the House can waive by a majority vote points of order on rules that require a super-majority vote. In fact, the same Congress that created the income-tax rule also waived it by a majority vote. Likewise, before considering the Tax Cuts and Jobs Act the House of Representatives passed a resolution that waived all points of order, including Rule XXI on income-tax increases.

The proposed rule that income-tax increases on the lowest-earning 80% of taxpayers would require a 3/5ths majority in the House of Representatives would be a less restrictive rule than when Democrats last controlled the House and would not prevent Democrats from passing progressive legislation. Whether House Democrats decide to (i) keep the income-tax rule in its current form, (ii) modify the rule so that it only includes restrictions on increasing income-tax rates on the lowest-earning 80% of taxpayers, or (iii) eliminate the rule, Democrats could still pass Medicare for All and other progressive policy goals. Effectively, the only difference between the options would be any potential message House Democrats would want to send.

Cite As: Author Name, Title, 36 Yale J. on Reg.: Notice & Comment (date), URL.

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About Sam Wice

Sam Wice is a former analyst at the Congressional Budget Office and a former Council Member of the American Bar Association’s Section of Administrative Law and Regulatory Practice. He can be reached at sam.wice[at]outlook.com.

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