BGR Primer: Budget Reconciliation

A Tool to Advance the Democratic Agenda

By Loren Monroe – Practice Head, State Advocacy and Government Marketing

SUMMARY

Reconciliation is a very powerful tool for Congress to use, particularly under one-party control.  It allows the majority to pursue budgetary and fiscal policies in Congress virtually unencumbered. Reconciliation is particularly useful in the Senate because it is designed to overcome filibusters and other delaying tactics. Reconciliation was created in 1980 to make it easier for Congress to reduce federal budget deficits. Congress has sent 25 so-called reconciliation bills to the President for signature and 21 of them became law.[1] The current Democratic majority has used it once in 2021, to pass the $1.9 trillion American Rescue Plan, and is set to use it for a second time later this fall. The second attempt at reconciliation will be to pass a multi-trillion dollar budget deal aimed at funding “soft” or “human” infrastructure.

WHAT IS RECONCILIATION?

Reconciliation is a budgetary procedure that allows Congress to bypass regular voting protocols to consider policies that would change the trajectory of the federal government’s debt and deficit path. Only those policies that affect tax revenue, mandatory spending (except for Social Security), and the federal debt limit can be part of reconciliation bills. Mandatory spending programs include entitlement programs such as Medicare, Medicaid and food stamps.

HOW DOES RECONCILIATION WORK?

To use reconciliation, Congress must first pass a budget resolution, which outlines the amount of money that can be spent on various categories of federal programs. The budget resolution is an agreement between the two chambers and therefore does not need to be signed by the President for it to be enforceable. Next, congressional committees that oversee the budget resolution categories must produce legislation that adhere to the budget resolution. Then each chamber must pass its own reconciliation bill that combines the various committee-produced measures into a single package. Those two bills are then reconciled into a single bill that passes both chambers and is signed into law by the president.

The advantage of this process is that a simple majority if needed in both the House and the Senate to pass the reconciliation bill. Super majorities are not needed in the Senate as most other types of legislation require. That makes it easier to pass reconciliation bills than other legislation.

There are limits on what can be included in a reconciliation bill and have the protection against super majorities. One is called the “Byrd Rule”, which is named for former Senate Appropriations Committee Chairman and Senate Majority Leader Robert Byrd (D -WV).

Among other things, the Byrd rule allows senators to block “extraneous material” from being included in the reconciliation bill or in an amendment offered to the bill. Generally, the Byrd Rule blocks provisions that increase or decrease the budget deficit or exceed the spending limits set by the budget resolution. It also blocks purely policy provisions for which an impact on the budget is merely incidental. Byrd Rule violations are determined by the Senate Parliamentarian, and a three-fifths majority (60 votes) is required to overturn a ruling.

In summary, to abide by the Byrd Rule, reconciliation provisions must:

  • have a non-incidental effect on the budget;
  • not change overall spending/revenue; and
  • not add to the deficit outside the budget window covered by the bill.

WHAT CAN RECONCILIATION BE USED FOR?

While reconciliation is primarily used for changes in tax law, there are myriad other public policy areas that could be included in such a bill.  These include:

Taxes

Democrats have made no secret about their desire to undo a significant portion of the Republican tax bill that was enacted into law at the end of 2017.  This could mean, raising the corporate rate up from the new statutory rate of 21 percent, modifying or eliminating the new pass-through deduction, or re-instating the state and local tax deduction that was repealed by the 2017 law.  Most provisions Democrats are interested in pursuing in the tax space will raise significant amounts of revenue that could be spent on other police areas or redirected back into the tax space. Some ideas that have been discussed include universal basic income, tax credit for childcare, and new rates for high-income earners.

Transportation/Infrastructure

Federal transportation projects are largely funded out of the highway trust fund, which is in turn, largely financed through a gas tax.  Reconciliation could be used to change the amount of tax collected, the rate at which gasoline and diesel is taxes, and/or impose new funding streams into the trust fund.  Then there is a question of how those funds will be spent.  In fact, the highway trust fund has been a component of two previous reconciliation bills.  However, redirecting that spending or earmarking funds for specific projects would be difficult under reconciliation rules because of potential Byrd challenges.

Health Care

Congress could make significant changes to the three largest federal health care programs: Medicare, Medicaid, and CHIP.  All three are considered entitlement programs financed through mandatory spending.  As such, they are clearly eligible for inclusion in reconciliation and, like the highway trust fund, have been included in previous bills.  For example, the Deficit Reduction Act of 2005 included a number of hospital quality improvement provisions that tied reimbursement to compliance, added and modified certain medical procedures the program would cover, changed the reimbursement structure for certain covered drugs, and adjusted the amount of federal funding certain states received for their Medicaid programs.  Another example is the use of the reconciliation process after the passage of the Affordable Care Act to make additional policy changes.

CONCLUSION

Reconciliation is a powerful and complicated process that can make it easier for Congress to pass significant policy changes. It eliminates several tactics lawmaker’s usual have to slow, modify or stop legislation. Reconciliation takes planning and commitment to see the process through. Democrats are considering the use of this fast-track process to get around the filibuster, effectively locking out minority members in the chamber. Reconciliation does not necessarily have to be partisan if both sides agree to an expedited process, however in recent years, the process has increasingly been used to ensure passage of major legislation when Congressional margins are as tight, as they are in the current Congress.

[1] https://crsreports.congress.gov/product/pdf/R/R40480