Although the United States appears to be making tax reform a high priority, it is difficult to pinpoint when any upcoming tax changes may be enacted.
This is because any significant U.S. changes may be difficult to implement, and the U.S. legislative process is more complex than the Canadian system. However, if all goes smoothly with the legislative and political process, the United States could have new tax legislation in place as early as sometime this summer or fall. That said, no matter what the President's priorities are in his budget, tax reform could get postponed or derailed by other priorities, such as health care, immigration or trade matters.
U.S. legislative process
In initiating any change, the likely first step will be the President's Budget Request to Congress, which effectively kicks off the budget process. Although this request is usually submitted in early February, the submission date is often delayed where there is a new administration. In this request, the President outlines recommendations for overall federal fiscal policy, lays out priorities for federal programs, and recommends spending and tax policy changes. Although this request usually provides the first glimpse into what the President wants to implement in the upcoming year, it's important to keep in mind that it is not law, it is only a request. Further, tax legislation is not tied to the budget process and often progresses independently.
Once the President submits the request, Congress generally holds hearings on the requests and then develops its own budget plan, known as a "budget resolution". The resolution, which must be passed by the House and Senate, sets limits on how much each committee can spend or reduce revenues over the course of the year. However, like the budget request, the budget resolution does not make changes to tax legislation. Although this resolution is typically supposed to be passed by April 15, it can take longer - in some years, the budget resolution is not passed at all. Nevertheless, the U.S. can still enact tax legislation even if the resolution is not passed.
Actual tax legislation starts at the House Ways and Means Committee and then must pass through the Senate (once it has gone back and forth via the committee process). Normally, Senate approval requires more than a majority vote. Because 52 out 100 Senators are Republicans, some Democrats will also need to approve a bill before it receives Senate approval.
However, a special mechanism known as "reconciliation" is sometimes used to expedite changes to tax legislation. During the reconciliation process, a number of bills are normally packaged together into one bill that goes to the floor for a vote. In this situation, legislation before the Senate cannot be filibustered and only requires a majority vote to pass.
After the House and Senate resolve the differences between their competing bills, a final conference report is considered on the floor of each house, which then goes to the President to be signed or vetoed.
Potential tax changes
Some changes that the President and the Republican party agree on will likely be enacted sooner rather than later. These measures include:
For more possible changes, see TaxNewsFlash-Canada 2016-56, "U.S. Election Results Spark Tax Reform Talk".
Note that, if the Unites States does introduce tax cuts, there are mechanisms in place to help control the U.S. federal deficit so that any tax reform changes that may increase multi-year deficits are offset by other changes to taxes or mandatory spending.
With Republicans making up a majority of both the House and the Senate, and a Republican president sitting in the White House, major tax reform is more likely than in the past. Although it's not presently clear how much President Trump will influence the budget, some speculate that he will have more influence than in the past.
For more information, contact your KPMG adviser.
Information is current to January 27, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500.