Budget Reconciliation

What is Budget Reconciliation?

Budget reconciliation is a special legislative process in the United States Congress designed to expedite the passage of certain budget-related bills. Established by the Congressional Budget Act of 1974, reconciliation allows for the adjustment of revenue, spending, and the federal debt limit to align with the fiscal goals set in the annual budget resolution. The process is unique because it limits debate in the Senate, prevents filibusters, and requires only a simple majority (51 votes) for passage, rather than the 60 votes typically needed to overcome a filibuster. This makes it a powerful tool for enacting significant fiscal policy changes, especially in areas like tax reform and healthcare spending.

How the Budget Reconciliation Process Works in Congress

The reconciliation process in Congress begins after both chambers agree on a budget resolution, which sets overall spending and revenue targets. The resolution may include “reconciliation instructions” directing specific committees to draft legislation that meets these targets. Once the committees complete their work, the resulting provisions are combined into a single budget reconciliation bill.

This bill is then considered under special rules: in the Senate, debate is limited to 20 hours, and amendments must be germane to the bill’s fiscal objectives. The process is governed by the “Byrd Rule,” which prohibits the inclusion of “extraneous” provisions,  which are those that do not directly affect federal spending or revenues, or whose budgetary impact is merely incidental to their policy effect. If a senator raises a point of order against a provision as violating the Byrd Rule, and the presiding officer (guided by the Senate parliamentarian) sustains it, the provision is stricken from the bill.

The House follows similar procedures, but without the Byrd Rule. Once both chambers pass the reconciliation bill, any differences are resolved, and the final version is sent to the President for signature.

Understanding the budget reconciliation timeline is essential for anticipating each stage of the reconciliation process Congress uses to move budget-related legislation through both chambers efficiently. Historically, this process averages around 155 days (approximately five months) from budget resolution to enactment.

Key Differences Between Budget Reconciliation and Regular Legislation

• Debate and Filibuster: Reconciliation bills are not subject to filibuster in the Senate, so they can pass with a simple majority. Regular legislation usually requires 60 votes to end debate.
• Scope: Only provisions that directly impact federal spending, revenues, or the debt limit can be included. Non-budgetary items are excluded by the Byrd Rule.
• Frequency: Congress can use reconciliation only for issues specified in the budget resolution, and typically only once per year for each of spending, revenue, and debt limit changes.
• Amendments: Amendments to reconciliation bills must be germane and are limited in scope.
• Expiration: Provisions that increase the deficit outside the budget window (usually 10 years) are not allowed, often resulting in temporary tax or spending changes.

Recent Examples of Budget Reconciliation in U.S. Tax Policy

Budget reconciliation has played a pivotal role in major tax and fiscal legislation. Notable examples include:

• Tax Cuts and Jobs Act of 2017 (TCJA): Passed via reconciliation, the TCJA made sweeping changes to the tax code, including lowering corporate tax rates and altering individual tax brackets. Many provisions were set to expire after 2025 to comply with the Byrd Rule’s deficit restrictions.
• American Rescue Plan Act of 2021: This COVID-19 relief package was enacted through reconciliation, providing direct payments, expanded tax credits, and funding for public health.
• Affordable Care Act (2010) Amendments: While the ACA itself was not passed through reconciliation, significant amendments to it were made using the process.

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FAQ

What is the purpose of budget reconciliation in Congress?

The primary purpose of budget reconciliation is to align federal tax and spending laws with the fiscal targets set in the annual budget resolution. It enables Congress to make necessary adjustments to revenue, spending, and the debt limit efficiently, bypassing the threat of a Senate filibuster and expediting the legislative process.

How does the reconciliation process affect tax legislation?

Reconciliation allows Congress to enact significant tax changes with a simple majority in the Senate. However, only provisions with a direct budgetary impact can be included, and measures that increase the deficit beyond the budget window must expire, often resulting in temporary tax laws.

How often can reconciliation be used in a fiscal year?

Generally, Congress may use reconciliation up to three times per fiscal year: once each for spending, revenue, and debt limit changes, provided the budget resolution includes the necessary instructions. However, in practice, it is often used only once per year due to political and procedural constraints.

Who oversees the budget reconciliation process?

The process is overseen by the House and Senate Budget Committees, with the Senate parliamentarian playing a crucial role in interpreting the Byrd Rule and advising on what provisions may be included. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) provide budgetary estimates and technical support,

How can businesses monitor legislation passed through reconciliation?

Businesses should closely follow updates from congressional committees, the CBO, and the IRS. Engaging with professional advisors and monitoring reputable tax insights such as Bennett Thrasher’s industry updates and transfer pricing strategy resources can help businesses anticipate and respond to changes. For multi-state tax exposure, see this VDA strategy guide.

Cited sources

Congressional Research Service: The Budget Reconciliation Process