The role of the Joint Committee in the legislative process has expanded as the complexity of the Federal tax system has increased. Members of Congress, particularly Members of the tax-writing committees, have increasingly relied on the nonpartisan, technical expertise of the Joint Committee Staff to assist them in making objective and informed decisions with respect to proposed revenue legislation.
There are four distinct characteristics of the Joint Committee that, together, allow for its unique contribution to tax legislation.
A. NONPARTISAN STAFF
The two tax-writing committees, other committees with concerns regarding taxation, individual Members of Congress, and committee and Member staffs rely on the Joint Committee Staff to provide objective and confidential technical analysis and assistance on tax legislation. The Joint Committee Staff does not operate either as a majority staff or as a minority staff. It does not represent one particular point of view on an issue. Consequently, it is able to examine critically tax policy in all its aspects. It can take a long-range view, without having to focus on the day-to-day exigencies of the legislative process. Along these lines, the Joint Committee Staff has undertaken studies to update and simplify particular aspects of the tax law, even where there was no short-term pressure for legislation. For example, at the request of the Chairman and Ranking Member of the Senate Finance Committee, the Joint Committee Staff released a report on one such study in January 2005 describing several dozen options to improve tax compliance and reform tax expenditures.1 As another example, in 2010, the Joint Committee Staff performed a study and issued a report for a hearing of the House Ways and Means Committee examining structures U.S-based multinational corporations have used to shift income to low-tax jurisdictions and highlighting possible deficiencies in the application of the transfer-pricing rules.2
The Joint Committee Staff provides vital continuity from the beginning to the end of the tax legislative process. This continuity minimizes the necessity of "reinventing the wheel" as proposals move through the various stages of the tax legislative process. This continuity also ensures that proposals are consistently evaluated throughout the tax legislative process from the perspectives of tax policy, technical accuracy, administrative feasibility, and revenue impact.
This continuity is particularly valuable when the House and Senate have passed their own versions of tax bills and seek to reconcile them. There are often significant differences between the House-passed and Senate-passed versions of major tax legislation. The Joint Committee Staff is, however, intimately familiar with both versions and therefore provides crucial assistance to the Members (including the conferees in the case of a formal conference) in reaching workable compromises.
C. SOLELY TAX
The desire of the Congress to exert comprehensive control over tax legislation has created the need for an extraordinarily high level of technical expertise, including such specialized topics as international taxation, pensions, insurance, trusts and estates, tax administration, tax-exempt bonds, excise taxes, and mergers and acquisitions. The types of objective analysis for which this expertise is needed include legal analysis of the operation of present law as well as proposed changes, predictions as to the behavioral responses of affected taxpayers, economic analysis of the effects of tax proposals on both the aggregate economy and specific sectors, and revenue estimates. The complexity of the tax laws places a high premium on objective technical advice. Because the Joint Committee is devoted solely to tax issues, its focus on fulfilling its statutory mandate is undiluted by the need to respond to other legislative pressures.
Because of the importance of tax legislation and its wide impact on large numbers of businesses and individuals, the Congress has historically insisted on special independence from the Executive Branch when writing tax laws. Separation of powers considerations reinforce the need for independent Congressional expertise. The members of the party that does not occupy the White House need a source of independent tax analysis and advice. Also, the tax-writing committees need a source of independent, nonpartisan technical tax advice even when the party controlling the Congress is the same as that controlling the Executive Branch.
One manifestation of independence is the extensive Congressional analysis of revenue proposals submitted by the Administration. At the technical level, tax legislative language and the accompanying committee reports typically are drafted in great detail, leaving correspondingly less room for interpretation by both the IRS and the courts. Access to an objective source of analysis and assistance in formulating legislation permits the Congress to retain independence from the tax expertise of the Executive Branch.
Moreover, the independence and neutrality of the Joint Committee Staff serve to facilitate exchanges of information with the IRS, Treasury, and other government agencies, with interest groups and their representatives, and with taxpayers. Through access to the Joint Committee Staff, taxpayers are assured a professional review of their suggestions or complaints about tax proposals.
As one illustration of the benefits of the Joint Committee Staff's independence, in December 1973, President Nixon requested that the Joint Committee Staff review certain transactions as reported on his 1969-1972 income tax returns (which he released to the public), in light of what he called possible "continuing public questioning" of their proper tax treatment. President Nixon stated that the Joint Committee study would "resolve these issues to the full satisfaction of the American people."
As another example, Senators Max Baucus and Charles Grassley of the Senate Finance Committee requested that the nonpartisan Joint Committee Staff conduct a detailed review of Enron Corporation and related entities. The staff began its review in February 2002, focusing on (1) Enron's use of tax shelter arrangements, off-shore entities, and special purpose entities and (2) the compensation arrangements of Enron employees. In February 2003, the Joint Committee Staff published an extensive report of its findings and proposals.3 The independent report served as the basis for congressional hearings and spurred numerous legislative proposals.
- 1. Joint Committee on Taxation, Options to Improve Tax Compliance and Reform Tax Expenditures (JCS-2-05), January 27, 2005. See also Joint Committee on Taxation, Additional Options to Improve Tax Compliance, August 3, 2006.
- 2. Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing (JCX-37-10), July 20, 2010.
- 3. Joint Committee on Taxation, Report of Investigation of Enron Corporation and Related Entities Regarding Federal Tax and Compensation Issues, and Policy Recommendations (JCS-3-03), February 28, 2003.