Formal Tax Legislation

DEFINITION of 'Formal Tax Legislation'

The process by which a proposed tax rule or tax change may become law in the United States. Formal tax legislation follows specific steps as defined by the U.S. Constitution. Formal tax legislation, like all federal laws, requires the consent of both houses of Congress (the Senate and the House of Representatives) and presidential approval.

BREAKING DOWN 'Formal Tax Legislation'

The formal tax legislation process must follow specific steps:

1. The tax bill originates in the House of Representatives with what is referred to the Ways and Means Committee. Once committee members reach an agreement regarding the legislation, a proposed tax law is written.


2. The tax bill goes to the full House for debate, amendment and approval.


3. The tax bill is passed to the Senate where it is reviewed. The Finance Committee may rewrite the proposal before it is presented to the full Senate.

4. Following Senate approval, the tax bill is sent to a joint committee of House and Senate members who work to create a compromise version.

5. The compromise version is sent to the House and Senate for approval.

6. Once Congress passes the bill, it is sent to the president who will either sign it into law or veto the bill.

7. In the event the president vetoes the tax bill, Congress can override the veto with a two-thirds vote of each house; if successful, the tax bill becomes law without the signature of the President.

Citizens can influence tax laws through the informal tax legislation process, which includes contacting members of Congress and elected officials, attending town or county meetings, participating in lobbying efforts, circulating and signing petitions and by voting for particular candidates.

RELATED TERMS
  1. Senate Bill

    A piece of proposed legislation that either originated or was ...
  2. Congress

    The legislative branch of the United States government. It is ...
  3. Tax Reform Act Of 1986

    A law passed by the United States Congress to simplify the income ...
  4. Direct Tax

    A tax that is paid directly by an individual or organization ...
  5. Tax Reform Act Of 1993

    Legislation aimed at reducing the federal deficit through a combination ...
  6. Housing Bonds

    Debt securities issued by state or local governments to raise ...
Related Articles
  1. Personal Finance

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  2. Personal Finance

    A Concise History Of Changes In U.S. Tax Law

    We look at how U.S. taxes have changed since their inception.
  3. Personal Finance

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  4. Personal Finance

    Understanding Taxes

    Taxes are mandatory fees that individuals and corporations must pay to their governments.
  5. Personal Finance

    What All the Candidates’ Tax Plans Are Missing

    The presidential candidates have starkly different tax-reform proposals – but none of them gets to the real problem of America's tax system.
  6. Personal Finance

    How an Internet Sales Tax Will Affect Your Small Business

    Learn about how the Marketplace Fairness Act may impact small business owners should it pass in the House and what the act requires from business owners.
  7. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  8. Financial Advisor

    Federal Tax Brackets

    Why do we have income tax brackets? What do they do for us? Read this to understand the basics and where to find your own bracket.
  9. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  10. Personal Finance

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
RELATED FAQS
  1. What is the difference between income tax and capital gains tax?

  2. Who first came up with the idea of a progressive tax?

    Learn how the progressive income tax system developed in the United States and became the federal government's primary revenue ... Read Answer >>
  3. Who sets fiscal policy, the president or congress?

    Discover how fiscal policy is set in the United States, including how all three branches of government can affect a given ... Read Answer >>
  4. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  5. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ... Read Answer >>
  6. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center