It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.
S is for Sunset.
Tax rules change a lot. But some of what is sometimes billed as change isn’t so much new as it is a reversion to the old. Take the Tax Cuts & Jobs Act (TCJA), for example. Passed in 2017, most of the provisions that apply to individual taxpayers, including individual tax cuts, the increased standard deduction, and the expanded child tax credit, are set to expire at the end of 2025. When that happens, the law goes back to the way that it was before the provisions were implemented. When that happens, it’s called a “sunset,” which, I know, sounds way prettier than it actually is.
But how do we get to the point where Congress opts for a sunset instead of permanent change? You can thank the Congressional Budget Act of 1974. As part of the CBA, Congress created something called reconciliation. The idea of reconciliation is to allow certain spending, revenues, and debt-limit legislation to go through the bill process at a faster pace – there are fewer procedural hoops and reconciliation doesn’t allow for long debates in the Senate. Also, the minority party can typically filibuster a bill in the Senate unless there are 60 votes to move ahead, but that’s prohibited under reconciliation.
Both the House and Senate can tackle their own versions of reconciliation bills. They start in each chamber as budget resolutions with reconciliation instructions. But if the two chambers come up with different versions, they have to work out the differences. If and when they reach a compromise version, both then take an up-or-down vote on the final version: the final versions in the House and the Senate must be exactly the same.
Of course, as Congress likes to do, it tried to broaden the use of reconciliation for other things. That led to the establishment of the Byrd Rule in the Senate. Under the Byrd rule, named after former Senator Robert Byrd (D-WV), any legislation that would significantly increase the federal deficit beyond the ten-year budget window, or is otherwise “extraneous” can be blocked. “Extraneous” provisions include those that change Social Security or are outside the jurisdiction of the committee. If the Byrd rule applies, instead of a simple majority, 60 votes are needed to push a reconciliation bill through the Senate.
So what does that mean? When Congress can’t agree beyond a simple majority, they necessarily must frame it to only last for a few years. The result is a sunset.
Of course, the TCJA isn’t the first time we’ve seen a sunset. Other laws, like the Economic Growth and Tax Relief Reconciliation Act of 2001, the Jobs and Growth Tax Relief Reconciliation Act of 2003, and the Health Care and Education Reconciliation Act of 2010, also included sunset provisions.
You can find the rest of the series here:
- A is for ATIN
- B is for BEAT Regs
- C is for Cryptocurrency Reporting
- D is for De Minimis
- E is for Extended Due Dates
- F is for FTE
- G is for GILTI
- H is for Head of Household
- I is for Inflation
- J is for Jeopardy Assessment
- K is for Kiddie Tax
- L is for Legal Entity
- M is for Mark-to-Market Taxation
- N is for Nexus
- O is for Ordinary and Necessary
- P is for Personal Exemption
- Q is for Qualified Appraisal
- R is for Required Minimum Distributions
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