The Tax Reform Dictionary

Aug 22, 2017 by AFP

This year, Congress has a once-in-a-generation opportunity to reform our broken tax code, and Americans should be excited! Regardless of party affiliation, everyone has a stake in the debate, since there would be significant changes to how our tax system works. Because this tax reform effort will impact each and every one of us, it’s important for activists to stay engaged in the process.

Tax reform is a very important topic, but it is also a very complicated one. Unique jargon is used and Congressional procedures are mentioned that many people have never heard of. To support our activists in navigating the complex process that is tax reform, below are definitions of key terms that will likely be mentioned as the reform effort kicks into high gear this fall.

  1. Deficit- The deficit is the annual amount that the federal government spends beyond what it takes in. For example, in 2016 the government spent $3.54 trillion but collected $2.99 trillion in tax revenue. So, 2016 had a deficit of $555 billion.
  2. Debt- The national debt is the total amount of money that the federal government owes—both to bondholders outside the government (what’s known as “public debt”) as well as to big government programs like Medicaid and Social Security (what’s known as “intergovernmental debt”). The current national debt sits at $19.8 trillion.
  3. Tax Code- The tax code is the massive collection of laws and regulations that determine what taxes are paid. Part of the proposed reform is “simplifying” the tax code as it is over 4 million words and contains thousands of different types of fees and taxes. With that many pages it is hard to know what is in the code, let alone understand it.
  4.  Tax Brackets- Another term likely to come up in the simplifying discussions is tax brackets. Tax brackets are the divisions by income that determines what percentage of income a taxpayer owes. There are currently 7 tax brackets, ranging from tax rates of 10% to 39.6%. Tax reform efforts should flatten and reduce the number of brackets to make it easier for Americans to calculate their tax payments.
  5. Budget Reconciliation- This is the budget procedure in Congress that provides the best chance for tax reform to happen this year. Reconciliation allows tax and spending changes to pass with a simple majority (51 votes) rather than needing 60 votes to avoid filibuster. Reconciliation also limits debate time on budget issues to 20 hours.
  6. Filibuster- A filibuster is a Senate process that can prevent a vote on a bill. A single senator can speak for hours (the record is 24 hours) on the Senate floor to block the bill from having a vote. The only way to end a filibuster is to have 60 votes to end the debate.
  7.  The Byrd Rule- The Byrd rule comes into play when the Senate is going through the budget reconciliation process. Under the Byrd rule, a bill must only address changes in spending or revenue, it cannot make changes to the Social Security trust funds, and any increases to the deficit must be offset by other savings in the bill. If increases to the deficit are not offset by savings, 60 votes are needed to improve the changes to the budget.
  8. Revenue Neutrality- Revenue neutrality is exactly what it sounds like: any losses in revenue will be made up for, keeping revenue levels the same. In the case of tax reform this year, any tax cuts proposed in Congress would need an equal source of revenue in order for the proposal to be revenue-neutral. Only a revenue neutral package can be passed through budget reconciliation.

Tax reform is sure to make an appearance on the nightly news and in the morning paper this fall, mentioning these terms and more. Having a better understanding of the process makes it easier to advocate for tax reform that benefits all Americans.