Government Spending Update

It is expected that Congress will likely pass a three month continuing resolution that extends government funding into the new year. It appears that Congress is positioning to block a December full year omnibus, and set President Trump up to pass his policy priorities in the new year. Thank you to Sentinels for your dedication in this fight all year! This achievement wouldn’t have been possible without you.

How Budget Reconciliation Works

As conservatives head into the 119th Congress, they are evaluating how procedural tools can help them accomplish President Trump and conservative’s policy agenda. Process is policy. And budget reconciliation will be a crucial procedural tool to achieve key policy wins. Here is a breakdown of budget reconciliation:

What is budget reconciliation: Originally, it was designed as an expedited way to pass legislation to reconcile differences between where the budget is and where it was planned to be. Now, it serves as a way to get legislation through Congress. Typically 60 votes are required to pass legislation in the Senate (a 2/3 majority). But legislation passed via budget reconciliation only requires a simple majority, or 51 votes in the Senate. That is what makes it so powerful.

When it was created: The budget reconciliation process was originally created in the 1974 Congressional Budget Act. In 1974, Congress recognized that America was on a path to a debt spiral, and set up the budget committees and appropriations process in Congress as it exists now.

How has it been used in the past: Budget reconciliation has been used to advance both conservative and liberal priorities – although unfortunately it has been more often used successfully by Democrats. Here are a few recent examples of policies that were passed using budget reconciliation.

2010 – Obamacare: Under President Barack Obama, Congress used the reconciliation process to pass the Affordable Care Act, which established Obamacare into law.
2017 – Trump tax cuts: Under President Trump, Congress successfully used reconciliation to pass and enact the Tax Cuts and Jobs Act of 2017, the largest overhaul of the tax code in three decades. It also in-effect repealed a key provision of Obamacare by changing the “individual mandate” penalty, which required all Americans to purchase health insurance, to $0 (the penalty still technically exists).
2021 and 2022 – Increased spending: Under President Biden, Democrats used the reconciliation process to pass two notable pieces of legislation that dramatically increased federal spending: the American Rescue Plan Act (2021) and the Inflation Reduction Act (2022).
What begins the process: Congress passes a budget resolution, which is a non-binding resolution that provides guidelines of what government spending and revenues should be. Congress is allowed to pass one budget resolution per fiscal year. The budget committees put together the resolutions, which must then be passed by the full Congress. In a budget resolution, Congress can include reconciliation instructions to what are called “authorizing committees.” Those are the committees that have jurisdiction over a specific area of policy – for example, energy-related spending goes through the House Energy and Commerce Committee and Senate Energy and Natural Resources Committees.

What are reconciliation instructions: Reconciliation instructions can require some committees to cut a certain amount in spending, or it can give certain committees a deficit allowance – i.e. up to $1 billion in deficit “spending.” This deficit allowance can be important for tax committees to be able to pass tax cuts, which on paper create a “deficit” (if not offset by cuts in spending elsewhere).

These instructions are incredibly important. The Democrat's proposed “Build Back Better” plan didn’t do all they wanted because the budget resolution tied their hands – they didn’t plan ahead. The numbers in the budget resolution are just as important as the reconciliation legislation – if you don’t get them right, they can derail a reconciliation bill.

What can reconciliation be used for: The main rule that covers what can be passed using reconciliation is called the “Byrd Rule.” There are essentially three main criteria that reconciliation bills must meet.

It can’t create a deficit outside a 10-year budget window (the policy can’t create a deficit after 10 years)
It can’t make changes to social security
The bill has to change spending (outlays), revenue (taxes) or both. It can increase them or decrease them, but it must produce a “non-incidental budget change.” That means the change to spending or revenue can’t be a byproduct of the change, it has to be the main intent.
For example, in 2021, Democrats in Build Back Better tried to increase the minimum wage, but it was ruled to violate the Byrd Rule. It only indirectly changed federal spending and revenues, not directly. On the other hand, in 2017 Republicans effectively “repealed” the individual mandate by changing the fine to $0 (which made a change to a revenue stream for the federal government).

Who decides what is “Byrdable:” The parliamentarian, who serves at the pleasure of the Leader of the Senate. The parliamentarian is looked to as holding institutional wisdom, enforcing rules and not allowing abuse, and upholding precedents across terms of Congress. There is “case law” in the Senate to adjudicate what does and does not follow the Byrd Rule. Within recent years, there have been a number of complaints about the current parliamentarian and that their rules have become politicized. One big question for the 119th Congress will be whether the Senate decides to follow precedent or revert to original rules on how legislation is “scored.” Legislation receives a score of how much it will add or reduce the budget deficit. If they use the “baseline revenues” for scoring purposes, that could give conservatives a stronger hand to extend the tax cuts. This inside baseball will matter significantly, and could determine whether Americans see a $2,000-4,000 tax increase.

The Senate can also overrule a ruling made by the parliamentarian with a simple majority, but Senators have been reluctant to challenge its long-standing precedents and traditions.

How Congress Could Use Reconciliation

In the 119th Congress, it is likely that Republicans will explore passing a number of policy reforms using reconciliation, and use more than one reconciliation bill to pass these policies.

Unleashing American energy (parts of H.R.1)
Securing the border (parts of H.R. 2)
Extending and expanding tax cuts
Working to deregulate, dismantle the deep state, and eliminate federal agencies
When it comes to spending there are two types: mandatory spending and discretionary spending (see our guide for more background). Most of the regulatory and deep state is funded by discretionary spending. Because of the rules of reconciliation – you can’t make only “incidental” changes to the budget, this means conservatives likely won’t be able to touch these agencies directly using reconciliation. They will have to find creative solutions to get at the dollars that are funding the swamp, and defund them.

Ultimately, budgets are about the values of the people that spend them. That is why a fight over spending is about more than just dollars and cents – spending drives the policies that make or break individuals ability to achieve the American dream.

Thank you for your dedication all year. This week is a preview of how budget reconciliation works, but we will be sure to keep you up to date in the New Year as this fight develops.

Hope you have a Merry Christmas and a wonderful holiday season!

James Quarles
State Director
Heritage Action