Case Study 2: Reconciliation Through Two Lenses — The Tax Cuts and Jobs Act (2017) and the Inflation Reduction Act (2022)

Open American Government Project

Case Study 2: Reconciliation Through Two Lenses — The Tax Cuts and Jobs Act (2017) and the Inflation Reduction Act (2022)

Why Pair Them

The Tax Cuts and Jobs Act of 2017 and the Inflation Reduction Act of 2022 are typically presented as opposites. One was a Republican tax cut signed by President Trump; the other was a Democratic climate-and-tax bill signed by President Biden. The 2017 law lowered taxes; the 2022 law raised some of them. Their substantive priorities were different, their political coalitions were different, and their public reception was different.

But the two laws share something more important than their differences. Both were major fiscal legislation that passed on simple-majority lines through the budget reconciliation process. Both encountered substantial Byrd Rule constraints that shaped their final form. Both relied on contested CBO and Joint Committee on Taxation scoring methodologies. And both reshaped tax and spending policy on a partisan basis without conventional cross-party legislation. Read together, they illustrate a deeper institutional point: reconciliation has become the channel through which the most consequential fiscal legislation now passes, regardless of which party is doing the legislating. The institutional pattern matters more than the specific policy direction.

This case study presents both bills, side by side, on their own terms.

The Tax Cuts and Jobs Act (TCJA)

In November 2016, Donald Trump won the presidency and Republicans retained control of both chambers of Congress. The Trump administration and Republican congressional leadership identified comprehensive tax reform as the highest legislative priority for 2017. The legislative effort began in earnest in the summer, accelerated through the fall, and culminated in the bill's passage in December 2017.

The TCJA's core provisions:

Corporate rate. The statutory federal corporate income tax rate was cut from 35% to 21% — a permanent change. The pre-TCJA rate had been the highest among OECD countries; the post-TCJA rate placed the U.S. roughly in the middle of the OECD range.
Individual rates. Most individual marginal rates were reduced, with the top rate falling from 39.6% to 37%. The standard deduction was approximately doubled (to $12,000 single / $24,000 joint, since indexed). Personal exemptions were eliminated. The Child Tax Credit was expanded to $2,000 per child. The Alternative Minimum Tax was significantly weakened. Most individual provisions were set to sunset at the end of 2025, a structural choice driven by the Byrd Rule's prohibition on reconciliation legislation that increases the deficit beyond the budget window.
Pass-through deduction. A new 20% deduction (Section 199A) was created for qualifying pass-through business income — partnerships, S-corporations, sole proprietorships. This provision, also set to sunset in 2025, addressed Republican concerns that small businesses would be disadvantaged relative to corporations under the new rate structure.
SALT cap. State and local tax deductions were capped at $10,000 per return — a politically charged provision that disproportionately affected high-income taxpayers in high-tax (mostly Democratic-leaning) states. The cap was a major revenue-raiser within the bill.
International tax. A territorial tax system replaced the prior worldwide system, with a one-time deemed repatriation tax on foreign earnings, GILTI (Global Intangible Low-Taxed Income) provisions, and BEAT (Base Erosion and Anti-Abuse Tax) provisions designed to limit profit-shifting.
Estate tax. The estate-tax exemption was approximately doubled, from approximately $5.5 million to approximately $11 million per individual (since indexed). This provision is also scheduled to sunset at the end of 2025.

The CBO/JCT score of TCJA at enactment estimated approximately $1.5–1.9 trillion in revenue loss over the 2018–2027 budget window, depending on the dynamic assumptions used. JCT's macroeconomic analysis projected modest GDP effects — roughly 0.7% additional growth over the decade — that would offset perhaps a quarter of the static revenue loss. The Republican leadership and the Trump administration argued that growth effects would be substantially larger and that the tax cut would partially or fully pay for itself. The CBO and JCT estimates were contested at the time as too pessimistic by supporters and as still too optimistic by some critics.

The empirical record post-2017, while complicated by the COVID-19 pandemic, has on balance supported the more cautious dynamic estimates rather than the strong "pays for itself" claims. Investment growth post-TCJA was real but modest. Wage growth was real but did not show the dramatic step change that more enthusiastic supporters had predicted. The corporate tax base broadened in some predicted ways and narrowed in others. Empirical assessments by the Congressional Research Service, the Tax Policy Center, and academic economists have generally found that the static revenue loss was a reasonable estimate of the actual revenue loss, with dynamic offsets in the 5–25% range depending on the methodology.

The bill passed the House 227–203 on December 19, 2017, and the Senate 51–48 on December 20. No Democrats voted for it in either chamber. President Trump signed it on December 22.

The Inflation Reduction Act (IRA)

In November 2020, Joe Biden was elected president, and Democrats secured a 50–50 Senate (with Vice President Harris breaking ties) and a slim House majority. The Biden administration's domestic agenda — initially branded as "Build Back Better" — combined climate investments, social-program expansions, and a partial reversal of TCJA tax cuts. The administration's initial proposal was approximately $3.5 trillion over ten years.

The legislation moved through 2021 in the Build Back Better framework. After House passage in November 2021, the bill encountered a sustained negotiation with Senator Joe Manchin of West Virginia, who controlled the decisive 50th Democratic vote in the Senate. Manchin's concerns combined fiscal-discipline considerations (he opposed several proposed spending increases as inflationary), policy preferences (he opposed some of the proposed tax provisions and some of the climate provisions), and procedural objections (he argued that some provisions were not properly scored or were being made permanent in ways that disguised long-run costs).

In late 2021, Manchin announced opposition to Build Back Better in its existing form. The bill collapsed. For most of the first half of 2022, the climate-and-tax components appeared dead.

In late July 2022, Senator Manchin and Senate Majority Leader Chuck Schumer announced agreement on a substantially smaller package — approximately $740 billion in spending and tax provisions, branded as the "Inflation Reduction Act." The bill's core provisions:

Climate and energy. Approximately $370 billion in clean-energy tax credits and direct spending — for electric vehicles, residential energy efficiency, utility-scale renewable generation, transmission, hydrogen, carbon capture, and clean manufacturing. The credits were structured as long-term provisions extending through 2032.
Health care. Allowed Medicare to negotiate prices for certain prescription drugs (a long-sought policy goal of progressive Democrats and a long-resisted policy by the pharmaceutical industry); capped insulin costs at $35 per month for Medicare beneficiaries; capped out-of-pocket Medicare drug costs at $2,000 per year; extended Affordable Care Act premium subsidies through 2025.
Corporate alternative minimum tax (CAMT). Imposed a 15% minimum tax on book income for corporations with average financial-statement income exceeding $1 billion — directly addressing the gap between statutory and effective corporate tax rates.
Stock buyback excise tax. Imposed a 1% excise tax on corporate stock repurchases.
IRS enforcement funding. Approximately $80 billion in multi-year funding for IRS enforcement and modernization, of which approximately $20 billion was later rescinded by the 2023 Fiscal Responsibility Act and additional amounts have been the subject of subsequent appropriations battles.

The CBO score at enactment estimated the IRA would reduce the deficit by approximately $238 billion over ten years — that is, the increased revenue and spending offsets exceeded the new spending. This score has been contested. Subsequent demand for clean-energy tax credits has been substantially higher than CBO projected; some private estimates now place the credits' ten-year cost at $800 billion or more, depending on uptake assumptions. The CAMT has been litigated and re-rule-promulgated extensively. The stock-buyback tax has produced lower revenue than projected. Whether the IRA on net reduces or increases the deficit over its full implementation period is now contested in a way it was not at passage.

The bill passed the Senate 51–50 on August 7, 2022, with Vice President Harris breaking the tie. No Republicans voted for it in either chamber. The House passed the bill 220–207 on August 12. President Biden signed it on August 16.

What the Pairing Reveals

Both bills were enacted through reconciliation. Both faced extensive Byrd Rule challenges (the so-called "Byrd bath," the parliamentarian's review of provisions for compliance). Both included sunsets driven by Byrd. Both relied on contested CBO and JCT scoring. Both passed without a single vote from the opposition party. Both were major fiscal legislation enacted on simple-majority lines.

The institutional pattern is clear. Major fiscal legislation now passes through reconciliation, on partisan lines, when one party holds the trifecta. The TCJA and IRA are not anomalies; they are the modal pattern. The 2001 Bush tax cuts, the 2003 Bush tax cuts, the 2010 ACA reconciliation sidecar, and the 2021 American Rescue Plan all followed the same template. The 2025 reconciliation effort, currently working its way through Congress as of this writing, will likely follow it again.

The substantive disagreements between the two parties are real and matter. Republicans believe that lower marginal tax rates, particularly on corporations and on capital, produce stronger growth and higher long-run revenue. Democrats believe that higher rates on high earners and on corporations produce more equitable outcomes and adequate revenue without significant growth costs. The empirical evidence on these questions is partial, contested, and methodologically dependent. Reasonable people, looking at the same data, reach different conclusions.

But the institutional point is procedural rather than substantive. The reconciliation process has become the channel for major fiscal legislation across both parties. Bipartisan major fiscal legislation has become rare. The path to major policy change runs through a single party's caucus, with the parliamentarian's Byrd Rule rulings as the principal external constraint. The institutional implications — the reduced durability of legislation that can be reversed by the next reconciliation bill, the narrowed deliberative process, the elimination of conference committees as the venue for cross-party negotiation — are large, regardless of which party benefits in any particular cycle.

A reader who supports the TCJA's policies and a reader who supports the IRA's policies share an interest in understanding this institutional dynamic. The next reconciliation bill, whichever party drives it, will use the same procedural template. The bill after that will too. The political question of which party wins any particular round is separate from the institutional question of what kind of legislative process the country now has.