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Congressional Republicans are expected to move on legislation to extend the Tax Cuts and Jobs Act (TCJA) of 2017 during the 119th Congress. The TCJA was Congress's massive overhaul of the tax code that lowered taxable income for families and the corporate tax rate from 35 to 21 percent.
There’s an ongoing discussion among the incoming Trump administration and House and Senate Republican leadership about when to begin considering a tax bill. Recently, there seems to be a shift toward pursuing a budget reconciliation bill to address the southern border with Mexico and immigration enforcement. If congressional Republicans decide to prioritize a budget reconciliation bill on the border and immigration enforcement first, the TCJA could be pushed later in the year.
Budget reconciliation is one of those inside baseball things in Congress that’s difficult to explain but still important, now more than ever, because of the hyper-partisanship that has taken over Washington, DC. If you’re on the red team or the blue team, and you control both chambers of Congress and the White House, you have policies you want to become law; budget reconciliation potentially provides a path forward.
Under budget reconciliation rules, Congress can make changes to direct spending (also known as “mandatory spending”), revenues, and modify (but not suspend) the debt limit. Put another way, Congress can add, subtract, and raise the nation’s credit card limit.
Budget Reconciliation
Budget reconciliation is a fast-track process created by the Congressional Budget and Impoundment Act of 1974 (often referred to as the “Budget Act”). Budget reconciliation is important because it is privileged in the Senate, meaning that the ordinary procedural hurdles that require three-fifths of the Senate to vote in the affirmative do not apply. In today’s political atmosphere, budget reconciliation also functions as a useful tool for partisans who are not interested in building consensus.
The process begins with the passage of a budget resolution that includes instructions for specific committees to produce legislation under a target dollar amount. The reconciliation instructions may also include a date by which the committee(s) must complete their work. The recommendations produced by the committees will be compiled by the House or Senate Budget committees for consideration on the floor as a single legislative text.
Unlike virtually everything considered by either chamber, a budget resolution doesn’t have to be signed into law; it functions as an agreement between the two chambers on the base discretionary budget. For purposes of budget reconciliation, the actual dollar figures specified in the budget resolution for security and nonsecurity spending don’t really matter unless leadership seeks to appropriate government funding at those levels. Fiscal hawks in both chambers have had heartburn over budget resolutions for reconciliation because of these spending levels.
There are limits, however, to budget reconciliation in the Senate. Named after Sen. Robert Byrd (D-WV), the “Byrd rule” prohibits the inclusion of extraneous matters. Legislation produced under budget reconciliation is subject to a “Byrd bath” to eliminate extraneous provisions. This can happen during the initial stage in the Senate or while considering legislation on the floor.
Leadership and relevant committee chairs will take the text of provisions or the entire legislation to the parliamentarian to determine whether the language is “Byrd-able.” The Byrd rule isn’t self-enforcing; a point of order must be raised in the Senate to challenge it. Leadership may opt to leave potentially problematic provisions in to see if they can win a vote on a point of order to remove a provision under the rule. Social Security is statutorily exempt from budget reconciliation.
Congress can increase mandatory spending levels and adjust revenues, but it can’t make major policy changes that indirectly impact federal spending or revenues. This is why Democrats’ attempts to include a minimum wage increase and immigration changes weren’t included in the legislation. Congress can, however, apply “terms and conditions” to programs subject to the legislation affected by budget reconciliation. Ultimately, a major policy change can be disguised as a direct change to outlays or revenues if the provision is written the right way, but a provision may not survive a Byrd bath regardless of how it’s written.
The Senate parliamentarian provides a nonbinding opinion on whether provisions pass the Byrd rule. Assuming the presiding officer doesn’t deviate from the parliamentarian, it would take 60 votes to overturn the opinion. However, there’s another path to cutting the parliamentarian out of the process. The presiding officer of the Senate, who is a member of the majority party, can disagree with the parliamentarian and issue a ruling not in line with the parliamentarian’s opinion. Sustaining the chair's ruling requires only a simple majority vote.
Typically, discretionary spending can’t be touched in the budget reconciliation process. It’s worth noting discretionary spending that the Omnibus Budget Reconciliation Act of 1993 did include discretionary spending limits for FY 1996, FY 1997, and FY 1998. The provision referred to H.Con.Res. 64, which established discretionary spending limits in Sec. 12(b)(1) of the budget resolution. The provision wasn’t challenged under the Byrd rule.
The process also involves what is known as “vote-a-rama” in the Senate. Both the concurrent resolution providing for budget reconciliation and the corresponding bill produced under the process must be open to amendments. This differs from the normal process, where the majority leader can “fill the tree” to block amendments. Most amendments offered in a vote-a-rama are for messaging purposes. Still, there’s no cap placed on the number of amendments that can be offered to the budget resolution or corresponding legislation. This means that the Senate can take votes on amendments for hours, sometimes through the night into the early morning.
Any legislation produced under budget reconciliation must be deficit-neutral after ten years. Otherwise, the provisions violate the Byrd Rule. This is why the individual tax changes under TCJA expired after ten years.
The Difficult Politics of Budget Reconciliation
Legislating isn’t supposed to be easy, and pushing a bill through on partisan lines via the budget reconciliation process can undermine the credibility of the underlying bill. The real headache for Republicans is their narrow margins in the House. Republicans won 220 seats in the House in the 2024 election, barely hanging on to control of the chamber.
Complicating the already tight margins, Rep. Matt Gaetz (R-FL), who was nominated to serve as attorney general, resigned. Gaetz later withdrew his name from consideration for the cabinet position. Rep. Mike Waltz (R-FL), the nominee for national security advisor, has indicated that he will resign on January 20, 2025. The post for which he has been nominated doesn’t require Senate confirmation. Special general elections for the two seats have been set for April 1.
Rep. Elise Stefanik (R-NY) has been nominated to serve as the United States Ambassador to the United Nations. Tradition suggests that nominees serving in Congress don’t vote unless they absolutely need to do so. Stefanik doesn’t face many hurdles to confirmation in the Senate, so she may be freer to vote than others in her position in the past. Still, once Stefanik is confirmed, potentially in late January or February, her seat will become vacant.
The Republican majority will have dwindled from 220 seats to 217 seats. Assuming every member of the House is present and voting, House Republicans can’t afford to lose anyone on any legislation that doesn’t have bipartisan support.
Why does this matter? Well, the passage of a budget resolution is the first step of the reconciliation process.
Twenty Republicans voted against the budget resolution that started the process for what became the Tax Cuts and Jobs Act. House Republican leadership will insist that the budget figures in the budget resolution don’t matter and are only there to get the budget resolution across the finish line. Some deficit hawks in the House Republican Conference may still balk at the figures because deficits are even higher today than in 2017.
Another reason Republicans could lose votes is policy disagreements or deficit concerns with the underlying reconciliation bill. Whether Republicans decide first to address the border and immigration enforcement or the extension of the Tax Cuts and Jobs Act may be irrelevant if enough fiscal hawks in the House Republican Conference aren’t satisfied with potential offsets to reduce the budgetary impact of the legislation.
Passing legislation under budget reconciliation is a monumental task, no matter the margins in Congress, but the 119th Congress may be the worst atmosphere for trying to do it considering the hyper-partisan nature of our politics and how little wiggle room House Republicans and the incoming administration have to get anything done.
