One word has dominated congressional politics as of late: reconciliation.
Last week, the House and Senate budget committees passed their competing budget resolution frameworks. These frameworks serve one crucial purpose: to unlock the reconciliation process, which is perhaps the only chance to sign President Donald Trump’s full legislative agenda into law.
For one of these budget resolutions to unlock the reconciliation process, it first must pass the full House and Senate chambers.
However, the chambers have taken two separate approaches that reflect the two main reconciliation strategies at play. While the Senate framework set up a two-bill approach, the House proposed a one-bill framework.
The Senate’s plan would allow for a first bill to include up to $350 billion for border and immigration resources and up to $150 billion for new defense spending. This bill would also require at least $4 billion in spending cuts to accompany these funds for the border and defense.
The Senate’s goal would then be to address the looming expiration of Trump’s tax cuts in a second bill later this year.
However, Trump has publicly supported the House framework, which would include up to $200 billion for border and immigration spending and up to $100 billion for defense spending, along with an adjustable cap of $4 trillion in tax cuts and a $4 trillion debt limit increase. Along with this, however, the House would require that Congress cut $1.5 trillion of spending.
If the eventual bill includes additional spending cuts, the House framework could also allow more tax cuts. For each dollar of spending cuts above $1.5 trillion, the House framework would allow another dollar of tax cuts above the $4 trillion cap. This means that to fully extend Trump’s tax cuts from the first term and add his new tax cut goals, Congress would likely have to pass $2 trillion of spending cuts — an unprecedented amount.
This has caused a grand debate between fiscal hawks and those pushing for the permanence of the Trump tax cuts without necessarily covering the resulting deficits. In particular, the fiscal hawks are concerned about increasing deficits that would likely lead to even higher inflation and interest rates. Still, others fear that this fiscal debate could hold the process hostage, delaying funding for border security and immigration enforcement actions.
Some groups within the conservative majority are hunting for their own piece of the pie. Most prominently, the so-called SALT caucus in the House is hoping to increase the state and local tax deduction dramatically — the deduction that subsidizes high-income earners in high-tax states — before agreeing to a full extension of Trump’s tax cuts.
At some point, the two chambers will need to reconcile their frameworks. However, why has this process come to capture such a large portion of Congress’s attention?
What is today the star of the budget show was originally meant to be only a small component of the overall budget process, which was created in 1974.
Normally, legislation must pass a supermajority 60-vote threshold to pass the Senate, meaning that mere control over the Senate isn’t sufficient to send legislation to the president’s desk.
Budget reconciliation was created to reconcile the differences between the planned budget and the actual fiscal trajectory of the federal budget. Because it was intended as a means to enact slight legislative changes, it was granted expedited consideration in the Senate, meaning it can avoid the Senate filibuster and the 60-vote threshold required to clear it.
While the major parties typically lack 60 seats in the Senate, reconciliation only requires a party to hold the White House and a simple majority in both congressional chambers or even a tie in the Senate for which the vice president can break.
Thus, in typical fashion for Congress, the unintended consequences have come to define the whole venture. Instead of being used as a means to achieve small legislative changes, reconciliation has become a major legislative vehicle. The Inflation Reduction Act, the Trump tax cuts, or the Tax Cuts and Jobs Act, and a large portion of Obamacare were all enacted through reconciliation bills.
However, reconciliation isn’t a blank check for all major legislative changes.
The underlying law governing the reconciliation process limits what can be included in a reconciliation bill. If those parameters are not met, the bill will lose the privilege and be subject to the Senate filibuster, therefore requiring a 60-vote threshold to pass.
Most of these limitations are contained within something called the Byrd Rule, which prohibits the inclusion of provisions that:
- Alter the Social Security Trust Fund
- Are outside the jurisdiction of the committee that wrote the provision
- Create deficits outside the 10-year budget window
- Do not follow the reconciliation instructions inside the budget resolution
- Do not produce a nonincidental change to federal spending or revenue levels
The first three are relatively self-explanatory: don’t touch Social Security, stay within committee jurisdictions, and don’t enact laws that would increase deficits outside the budget window. However, items four and five are where the rubber meets the road.
The instructions are contained in the budget resolution itself. This is the source of the current fight between the budgets passed by the House and Senate budget committees. While the instructions are simple, they set powerful limits on what Congress can do in the bill.
In general, the instructions require committees to generate legislation that either increases the 10-year deficit by a ceiling or reduces it by a floor. For example, the Senate resolution instructs a few committees to reduce the deficit by at least a billion dollars over the next 10 years.
While this may seem like a very small figure, it’s only a floor — meaning it’s a minimum, not an exact requirement. Thus, the billion-dollar threshold is a way of granting maximum flexibility to the overall bill.
In contrast, the House resolution would require a floor of $1.5 trillion of deficit reduction from committees whose main jurisdiction is overspending programs. In other words, the House framework would require somewhere around $1.5 trillion in spending cuts for the bill as a whole to be able to pass the Senate with only 50 votes.
However, these instructions aren’t the only barrier to passage. The Byrd Rule imposes a still more substantial burden: For something to be included in a reconciliation bill, it must produce a direct change in spending or revenue levels and be principally focused on those budgetary changes.
The one caveat here is that a reconciliation bill may include items that are nonbudgetary but necessary to carry out the budgetary item in question. For example, a reconciliation bill could require the IRS to collect some information or perform some administrative task in order to carry out a new tax credit that directly alters revenue levels.
This has been frequently exploited by various parties. In one instance, Democrats attempted to raise the minimum wage in reconciliation — an effort struck from the bill by the Senate parliamentarian. Though changing the minimum wage would alter federal spending and revenues, it would do so indirectly as a second-order effect.
When Republicans sought to use reconciliation to repeal the Obamacare insurance mandate, its budgetary impact was also deemed incidental — meaning they could not include it in reconciliation. However, Republicans were nonetheless able to effectively get rid of the mandate by simply dropping the penalty fee to $0.
So, repealing a mandate — not doable in reconciliation; directly altering penalty collection by changing the penalty amount — is perfectly fine for reconciliation.
This highlights perhaps the most important aspect of reconciliation: The results depend on how creative you want to be. The rules are precise, but they can be easily navigated by a determined party.
For example, many of the funds that go to nongovernmental organizations that traffic across the southwestern border are from federal programs that can’t be touched in a reconciliation bill. However, a reconciliation bill could easily be used to tax those NGOs to effectively claw back the grants they receive from the federal programs in question.
Similarly, while much of the funding for the federal workforce and regulatory agencies is off-limits to a reconciliation bill, nothing would prevent such a bill from taxing salary and wage earnings paid by certain federal agencies or departments — for instance, the Department of Education. This could be used to force a reduction in federal workers or to facilitate the closing of particular federal offices or agencies.
These are just a few of the ways that creative policymaking can easily get around the Byrd Rule. And while some things are truly off-limits in a reconciliation bill, conservatives should be bold and creative when it comes to engineering.
Yet there’s one more aspect that’s important to keep in mind: Whether an item is truly in conflict or concert with the Byrd Rule, or whether it is subject to the filibuster at all, is determined by a majority vote of the Senate.
WHAT IS A ‘VOTE-A-RAMA,’ THE WASHINGTON MARATHON LOATHED BY SENATORS?
The Constitution gives this firm right to the Senate majority. The filibuster and the rules around reconciliation are, ultimately, a custom of the Senate, not a rigid straitjacket on it.
Ultimately, then, reconciliation will illuminate what the conservative Senate majority truly cares about. Through this process, we’ll have a chance to see what the Senate is really willing to do to make good on its promises to Americans.
Richard Stern is the director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation.