A Tax Limitation Constitutional Amendment: Issues and Options Concerning a Super-Majority Requirement
Released: 2003-07-15T00:00:00

98-368 -- A Tax Limitation Constitutional Amendment: Issues and Options Concerning a Super-Majority Requirement

Updated July 15, 2003

Introduction

In recent years, there have been a number of proposals to place limits on the federal government's authority to raise taxes. Some proposals would hold total revenues to a set percentage of some economic indicator, such as gross domesticproduct(GDP) or gross national product (GNP), while others would limit increases in taxes to a percentage of the growthof aparticular economic indicator (such as national income). The term "tax limitation" is also used to describelegislativeproposals that would limit Congress's ability to consider revenue measures, regardless of their effect on the levelor growthof tax revenues, by requiring a super-majority (typically two-thirds or three-fifths) for their passage. This type oflimitationwould allow increases in taxes only under one of two circumstances. First, tax revenues could increase underexisting taxlaws as a result of economic upturns. Alternatively, they could increase because of a new law, but only if it werepassed bya super-majority. (1)

Such proposals have often been associated with proposed balanced budget constitutional amendments. (2) This association isbased on the idea that a tax limitation provision is needed so that Congress would be less likely to raise taxes ratherthan cutspending in order to produce a required balanced budget. For example, the Senate Judiciary Committee has twicereportedproposed balanced budget amendments that included a provision limiting increases in receipts to a rate not greaterthan "therate of increase in national income" (S.J.Res. 5, 98th Congress, S.Rept. 98-628, and S.J.Res.13, 99th Congress, S.Rept. 99-162). Neither proposal received floor consideration. Proposals to limitthe level or rate ofgrowth of revenues were considered on the House floor in conjunction with consideration of proposed balancedbudgetamendments in the 101st, 102nd, and 103rd Congresses. The first floorconsideration of a freestanding proposal to limitcongressional consideration of tax legislation occurred in the 104th Congress.

Legislative History

Action in the 107th Congress. On June 6, 2002, H.J.Res. 96 was introduced by Representative Pete Sessions, along with 150 cosponsors, and referred to the House JudiciaryCommittee. As introduced, H.J.Res. 96 contains the following provisions:

Section 1. Any bill, resolution, or other legislative measure changing the internal revenue laws shall require for final adoption in each House the concurrence of two-thirds of the Membersof thatHouse voting and present, unless that bill, resolution, or other legislative measure is determined at the time ofadoption, in areasonable manner prescribed by law, not to increase the internal revenue by more than a de minimis amount. Forpurposesof determining any increase in the internal revenue under this section, there shall be excluded any increase resultingfromthe lowering of an effective rate of any tax. On any vote for which the concurrence of two-thirds is required underthisarticle, the yeas and nays of the Members of either House shall be entered on the Journal of thatHouse.

Section 2. The Congress may waive the requirements of this article when a declaration of war is in effect. The Congress may also waive this article when the United States is engaged inmilitaryconflict which causes an imminent and serious threat to national security and is so declared by a joint resolution,adopted bya majority of the whole number of each House, which becomes law. Any increase in the internal revenue enactedundersuch a waiver shall be effective for not longer than two years.

On June 12, 2002, the proposal was considered by the House under the terms of H.Res. 439 , a special ruleproviding for its consideration. H.Res. 439 provided for 2 hours of general debate, and one additional hourofdebate on an amendment if offered by the minority leader (or his designee), although no amendment was offered. On finalpassage, H.J.Res. 96 failed to achieve the necessary two-thirds, 227-178. (3)

Previously, Representative Sessions introduced H.J.Res. 41 on March 22, 2001. That measure was referred tothe House Judiciary Committee and subsequently reported on April 20, 2001 ( H.Rept. 107-43 ). On April 25, 2001,theproposal was considered by the House under the terms of H.Res. 118 , a special rule providing for itsconsideration. H.Res. 118 provided for 2 hours of general debate, and one additional hour of debate on anamendment if offered by the minority leader (or his designee), although no amendment was offered. On finalpassage, H.J.Res. 41 failed to achieve the necessary two-thirds, 232-189. (4)

Action in the 106th Congress. In the 106th Congress, the House ofRepresentatives considered proposals for a tax limitation constitutional amendment in both sessions. On March 11,1999,Representative Barton introduced H.J.Res. 37 , a proposal similar in most respects to those voted on in the105thCongress. H.J.Res. 37 was deliberated in the House on April 15, 1999, under the terms of H.Res. 139 , a special rule providing for its consideration. H.Res. 139 provided for 3 hours of general debate, andoneadditional hour of debate on an amendment if offered by the minority leader (or his designee), although noamendment wasoffered. On final passage, H.J.Res. 37 failed to achieve the necessary two-thirds, 229-199. (5)

On April 6, 2000, Representative Pete Sessions introduced H.J.Res. 94 . The measure was deliberated in theHouse on April 12, 2000, under the terms of H.Res. 471 , a special rule providing for its consideration. H.Res. 471 provided for 2 hours of general debate, and one additional hour of debate on an amendment ifoffered by the minority leader (or his designee), although no amendment was offered. H.J.Res. 94 failed toachieve the necessary two-thirds, 234-192. (6)

Action in the 105th Congress. In the 105th Congress, the House ofRepresentatives considered proposals for a tax limitation constitutional amendment in both sessions. On March 11,1997,Representative Joe Barton introduced H.J.Res. 62 . The measure was referred to the House JudiciaryCommittee, and a hearing was held by the Subcommittee on the Constitution on March 18. H.J.Res. 62 wasreported on April 10, 1997 ( H.Rept. 105-50 ), and considered by the House on April 15, 1997, under the terms of H.Res. 113 , a special rule providing for its consideration. This special rule allowed 3 hours of debate andprovided for the self-executing adoption of an amendment to clarify the application of H.J.Res. 62 by addinglanguage stating that "For the purposes of determining any increase in the internal revenue under this section, thereshall beexcluded any increase resulting from the lowering of an effective rate of any tax." As thus amended, the measurefailed toachieve the necessary two-thirds majority, 233-190. (7)

On February 28, 1998, Representative Joe Barton again introduced a proposed tax limitation amendment ( H.J.Res. 111 ). This measure was subsequently modified and deliberated under the terms of H.Res. 407 , a special rule for its consideration that was adopted on April 22, 1998. H.Res. 407 provided for 3 hours of general debate and one additional hour of debate on an amendment if offered by the minorityleader(or his designee), although no amendment was offered. As amended, H.J.Res. 111 failed to achieve thenecessary two-thirds, 238-186. (8)

Action in the104th Congress. The first floor consideration of a proposalto limit congressional consideration of tax legislation occurred in the 104th Congress. On February1, 1996, RepresentativeJoe Barton introduced H.J.Res. 159 . The measure was referred to the Judiciary Committee and a hearing washeld by the Subcommittee on the Constitution on March 6, 1996. On April 15, 1996, the joint resolution wasconsidered bythe House under the terms of H.Res. 395 . On final passage, the measure failed to achieve the necessarytwo-thirds, 243-177. (9)

Issues and Options

At the beginning of the 104th Congress, the House adopted a new provision in its rules, now in Rule XXI, clause 5(b), tolimit certain increases in federal income tax rates. This rule was subsequently modified at the beginning of the105thCongress. (10) Some tax limitations advocates,however, argue that House Rule XXI, clause 5(b) is not sufficient, and that apermanent, broad-based limitation needs to be imposed by the Constitution. They argue that whereas House rulesmust bereadopted every 2 years, a constitutional amendment is much more difficult to change. Further, they assert that ataxlimitation would benefit the U.S. economy, and that states with tax limitations have a comparative advantage interms ofeconomic growth over states without such limitations.

Advocates of a tax limitation amendment point to polls that suggest the public supports the idea of making it difficult forthe federal government to raise taxes. However, opponents argue that a super-majority requirement would beanti-democratic, and should not be imposed. In addition, they point out that although several states operate withvarioustypes of tax limitations, it is not clear that these would be directly applicable to the federal government. Further,theysuggest that significant questions remain about the language of proposed tax limitation constitutional amendments,and howit might be interpreted, either by Congress or the Courts, and point to difficulties in applying House Rule XXI,clause 5(b)in the 104th Congress.

The term "revenue" appears in this context in Article I, section 7 of the Constitution, the so-called Origination Clause. Asinterpreted by the Supreme Court, the phrase "all bills raising revenue" has typically meant measures raising revenuetosupport government generally, but not necessarily measures that raise funds to support specific governmentalprograms. (11) This constitutional understanding of the term "revenue" may therefore differ from "internal revenue" as intendedin recentlimitation proposals.

Relatedly, not all types of receipts to the federal government are currently treated alike in the budget process. Collectionsfrom the public based on the government's exercise of its sovereign powers are generally treated as revenues (e.g.,personalincome taxes). Collections by the government from business or market-oriented activities are generally treated asoffsets tooutlays (e.g., various royalties and licensing fees). These offsetting collections are sometimes applied against theoutlays ofa specific agency or program and sometimes against the outlays of the government generally.

In an effort to clarify the application of a super-majority requirement, the terms "internal revenue" and "internal revenuelaws" have sometimes been used. As with House Rule XXI, these terms are intended to limit the application ofproposedamendments to legislation concerning explicit changes in tax laws, rather than all legislation effecting revenues,however,these terms have not been subject to rigorous interpretation by the courts. Therefore, how the application of suchalimitation might be interpreted remains unclear. It is possible that a limitation on tax increases could apply only tomeasures that raise money for the general fund of the federal government, but not to some funds raised for specificprograms or for some types of fees paid to the federal government or government entities. For example, at one timePresident Clinton proposed that fees be imposed by the Federal Deposit Insurance Corporation (FDIC) and theFederalReserve for the examination of both FDIC-insured banks and bank holding companies. It is not clear whether suchfees,tied to a particular, closely related service, might be regarded as revenues for the purposes of this type of limitationamendment.

Conversely, the phrase "increasing revenue," as used in these proposals could be interpreted to apply these requirementsbroadly to a wide variety of measures. Such a provision might apply not only to measures that would increaserevenues byincreasing the rate of taxation, but also to measures that would increase revenues by lowering the rate of taxationwhileincreasing either the taxable base or the volume of taxable activity, or both. Broadly interpreted, such a provisioncouldhave an impact on a large portion of the legislation considered by Congress. Legislation that has the direct orindirect effectof stimulating economic (hence taxable) activity and thereby increasing revenues might be covered by a taxlimitationprovision. For most recent proposals the question of rate increases versus revenue increases is not resolved,althoughrevenue increased resulting from lowered rates were specifically excluded from the application of H.J.Res. 37 and H.J.Res. 94 (106th Congress).

To overcome some of the imprecision in such definitions, several proponents have tried to develop languagethat focusesmore on the terms of the measures than on their effect on revenues. During the 104th Congress, onesuch proposal wouldhave required "Any bill to levy a new tax or increase the rate or base of any tax may pass only by a two-thirdsmajority ofthe whole number of each House of Congress" ( H.J.Res. 159 , S.J.Res. 49 ). Similarly, the focus of H.J.Res. 62 (105th Congress) and H.J.Res. 37 (106th Congress) was partlyon the form of ameasure rather than on its effect. Each proposal specifies that it would apply to measures "changing internal revenuelaws,"although it qualifies that phrase by excluding measures whose effect would not be to increase internal revenue bymore thana de minimis amount. (12) The languagein H.J.Res. 94 (106th Congress), and H.J.Res. 41 (107thCongress) takes this one step further by specifying the super-majority requirement would not apply to any legislationprojected to produce increased revenue as a result of "lowering of an effective rate."

Again, the language is such that some interpretation would be required to fulfill the measure's mandate. For example,President Clinton proposed limiting deferrals of gains associated with exchanges of like-kind property used in atrade orbusiness or for investment to only those exchanges located within the United States. Would this narrowing of theprovisionto exclude exchanges of property located outside the United States be seen as a change in the taxable base andthereforesubject the proposal to a super-majority requirement? Also, would the extension of a tax due to expire be seen asa new taxand thus require two-thirds to pass?

However, proposals in this vein generally focus on the effect of revenue legislation. For example, one typical proposal"Prohibits a bill to increase receipts from becoming law unless approved by a three-fifths majority in each House"( S.J.Res. 12 , 105th Congress).

It is not clear whether a limitation on increasing revenues could also be applied to measures which increase tax rates to alevel intended to inhibit an activity (e.g., a possible increase in taxes on tobacco products) and thus lower taxescollected. The intended effect in such a case may be a reduction in revenues, due to the inhibitory effect of making somethingcostmore, rather than an increase in revenues due to the higher rate. The question remains as to how a limitationamendmentwould be applied to such a provision: so that the long-term intended effect of such a measure would exempt it fromtherestrictions of a tax limitation provision by offsetting any temporary upsurge in revenues due to the increased rate,or so thatthe short-term revenue increase would be sufficient to require the measure to be passed by a super-majority.

In the above example, questions concerning the rate at which revenues would decrease, and possibly when, could makerevenue estimates a critical, and controversial, factor in determining the applicability of a tax limitationconstitutionalamendment. Who would make such estimates (possibly the Joint Tax Committee, the Congressional Budget Office,theTreasury Department, or the Office of Management and Budget)? Relatedly, would estimates focus on revenuesgeneratedin the next fiscal year or some longer period? In addition, the reliability of estimates, already a significant factorin thebudgeting of federal expenditures, would likely be at issue.