The Basics of Budget Reconciliation

On the most recent episode of the podcast, Buzz and I got into a 20-plus minute discussion about budget reconciliation in light of the passage of the FY 2022 budget resolution, S.Con.Res. 14, on Wednesday in the Senate. The legislation may eventually be considered as part of a so-called “human infrastructure” package that could have a deficit impact, according to an August 9 memo to Senate Democrats, of up to $3.5 trillion.

Budget reconciliation has become an attractive option for both parties in recent years because of the hyperpolarization that has infected Congress. As you probably know, budget reconciliation is attractive because it bypasses the 60-vote cloture threshold in the Senate. A simple majority is all that’s required for passage of both the budget resolution kicking off the process and the legislation tied to the instructions in the budget resolution.

To highlight the increased reliance on budget reconciliation, for those keeping score at home, this is the fifth shot at budget reconciliation since the 114th Congress. Republicans tried to repeal much of the ACA in H.R. 3762 in the 114th Congress, but that effort was vetoed by President Barack Obama in January 2016. (The budget reconciliation process was started by S.Con.Res. 11.) Republicans tried again to repeal the ACA in the 115th Congress in H.R. 1628, but that effort infamously failed in the Senate. (The budget reconciliation process was started by S.Con.Res. 3.) Republicans successfully used reconciliation in the 115th Congress to pass H.R. 1, what we know as the Tax Cuts and Jobs Act. (The budget reconciliation process was started by H.Con.Res. 71.) The most recent use of budget reconciliation came in March with the passage of H.R. 1319, the American Rescue Plan Act, which was signed into law by President Joe Biden. (The budget reconciliation process was started by S.Con.Res. 5.)

For those who aren’t familiar with budget reconciliation, this is a fast-track process created by the Congressional Budget and Impoundment Act of 1974 (often referred to as the “Budget Act”) that begins with the passage of a budget resolution that includes instructions for specific committees to produce legislation at or under a target dollar figure over the ten-year budget window. The reconciliation instructions will also include a date by which the committee(s) must have their work completed. As mentioned, a simple majority is needed for passage of the legislation produced under the process. (The entire budget process, including reconciliation, can be found in 2 U.S.C. §§631-645a.)

Under the rules of budget reconciliation, Congress can make changes to direct spending (also known as “mandatory spending”), revenues, and the debt limit. There are limits, however, to budget reconciliation in the Senate. Named after former Sen. Robert Byrd (D-WV), the “Byrd rule,” found in 2 U.S.C. §644, prohibits the inclusion of extraneous matters, the parameters for which are established in subsection (b). Legislation produced under budget reconciliation is subject to a “Byrd bath” in the Senate to eliminate extraneous provisions. (This is why the minimum wage increase couldn’t be done in budget reconciliation. One of the parameters of the rule found in 2 U.S.C. §644(b)(1)(A) states that “a provision shall be considered extraneous if it produces changes in outlays or revenues which are merely incidental to the non-budgetary components of the provision.”) The legislation produced under budget reconciliation is also subject to the various points of order in the Senate. A point of order may be waived with 60 votes.

Budget reconciliation also can’t be used to increase the budget deficit after ten years. This is why only the corporate tax portions of the Tax Cuts and Jobs Act of 2017 were made “permanent” (meaning they don’t automatically expire) while the individual tax portions expire at the end of tax year 2025.

There’s also a “vote-a-rama.” This is part of the Senate process under budget reconciliation during which senators can offer amendments. Usually, during consideration of the budget, the amendments are deficit-neutral reserve funds relating to the reconciliation legislation. During the consideration of the legislation produced through budget reconciliation, senators target specific provisions. This process is also part of the consideration of any conference report.

The FY 2022 budget resolution includes instructions for 12 Senate committees and 13 House committees to produce recommendations that must be submitted to the House and Senate Budget committees by September 15. (Deficit targets are listed in the table below.) The committees will, then, take the recommendations submitted by their chamber counterparts and will likely combine those to produce a single piece of legislation that will be considered on the floor. Considering that the revenues will be a part of the recommendations, the House must constitutionally go first, although the Senate could get around this by using a House bill as a legislative vehicle.

The legislation is expected to include a wishlist of Democratic priorities, including environmental and clean energy programs, paid family and medical leave, an extension of the expansion of the Affordable Care Act (ACA), corporate tax and individual tax increases, universal pre-K, and much, much more.

Senate Committees	Deficit Target	House Committees	Deficit Target
Agriculture, Nutrition, and Forestry	$135,000,000,000	Agriculture	$89,100,000,000
Banking, Housing, and Urban Affairs	$332,000,000,000	Education and Labor	$779,500,000,000
Commerce, Science, and Technology	$83,076,000,000	Energy and Commerce	$486,500,000,000
Energy and Natural Resources	$198,000,000,000	Financial Services	$339,000,000,000
Environment and Public Works	$67,264,000,000	Homeland Security	$500,000,000
Finance	-$1,000,000,000	Judiciary	$107,500,000,000
Health, Education, Labor, and Pensions	$726,380,000,000	Natural Resources	$25,600,000,000
Homeland Security and Governmental Affairs	$37,000,000,000	Oversight and Reform	$7,500,000,000
Judiciary	$20,500,000,000	Science, Space, and Technology	$45,510,000,000
Indian Affairs	$107,500,000,000	Small Business	$17,500,000,000
Small Business and Entrepreneurship	$25,000,000,000	Transportation and Infrastructure	$60,000,000,000
Veterans Affairs	$18,000,000,000	Veterans’ Affairs	$18,000,000,000
		Ways and Means	-$1,000,000,000

Now, the passage of the budget resolution, which won’t be considered by the House until the week of August 23, and the legislation produced under the process isn’t necessarily a certainty. There have already been reports that Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) are balking at a $3.5 trillion package. Some House Democrats, including Rep. Carolyn Bourdeaux (D-GA), have threatened to block the budget resolution unless the separate bipartisan infrastructure bill is considered during the week of August 23. Obviously, this puts both Senate Majority Chuck Schumer (D-NY) and Speaker Nancy Pelosi (D-CA) in a politically tough position considering both hold extremely tight majorities.

As I told Buzz during the podcast, no one should count Pelosi out. I may not be a fan of Pelosi or what congressional Democrats are doing here, but she is very good at getting the votes she needs to move a piece of priority legislation. That said, House Democratic leadership did recently have to pull the Commerce, Justice, Science, and Related Agencies Appropriations Act for FY 2022, H.R. 4505, because centrist Democrats balked after Republicans claimed the legislation defunded the police. (The legislation did tie funding to certain requirements with which law enforcement had to comply.)

We’ll be keeping an eye on this process as it works through Congress. I’m sure it’ll be a topic on the podcast over the next few weeks.