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Budget reconciliation, explained

Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

While Republicans lost seats in the Senate and House, and lost the popular vote for president, the 2016 election nonetheless left them with control over all three for the first time in a decade. Finally, after toiling in opposition for years, they are set to control every lawmaking body in the federal government.

Democrats still have a secret weapon, though: the filibuster. And after Republicans normalized its use over the Obama administration, you can expect Democrats to use it to block just about any major policy change that Donald Trump and Paul Ryan suggest. With only 52 Senate seats (51 if Democrats pull off a shocking upset in Louisiana next month), Republicans are nowhere near a filibuster-proof supermajority. And even though Democrats face some tough races in 2018, there’s basically no way Republicans can peel off the eight Democrats they need to support Obamacare repeal or Medicare privatization.

Luckily for Republicans, there’s a way that Senate Majority Leader Mitch McConnell can get around the filibuster and send major legislation to Trump’s desk. It’s called budget reconciliation, and since its first use in 1980 it’s been deployed to pass everything from the Bush tax cuts to COBRA health insurance protections to Bill Clinton’s balanced budget deal. If Republicans are to enact major legislation in the next few years, over Democrats’ fervent Senate opposition, reconciliation is how it’s going to happen.

Why budget reconciliation exists

Bill Clinton TANF
Clinton signing welfare reform, a great example of a law enacted through budget reconciliation.

White House

Reconciliation was created through the Congressional Budget Act of 1974, a Watergate-era law that sought to rationalize the process by which Congress set the federal budget. The law created the House and Senate Budget Committees, and established the Congressional Budget Office as an impartial source of cost estimates and budget projections.

The process it lays out for budgeting begins with the new Committees devising a budget resolution laying out specific spending by category. Once both houses of Congress pass that resolution, the Appropriations Committees passes spending bills on specific topics in accord with the spending guidelines of the budget resolution.

But there’s a problem: While the Appropriations Committees are in charge of discretionary spending (stuff like defense, law enforcement, transportation, environmental protection, scientific research, etc.), a huge portion of the budget is devoted to “mandatory” programs like Social Security, Medicare, Medicaid, food stamps, and so forth. Those programs are overseen by committees outside appropriations. And appropriators also don’t control the tax code, which is the province of the Senate Finance and House Ways and Means Committees.

Given how important mandatory programs and taxes are to the budget, sometimes meeting Congress’s stated budget goals requires tinkering with them. To make that process easier, the 1974 Budget Act created a process for “reconciling” the tax code and laws authorizing mandatory programs to the latest budget resolution.

Reconciliation makes passing major legislation much, much easier than is normally the case. The biggest benefit is that the Senate can't filibuster reconciliation bills, as debate is limited to 20 hours no matter what; the law also bans non-germane amendments in the Senate debate. The procedure is less useful in the House, which tends to pass rules for considering legislation on the floor that impose similar limits on debate time and amendments.

As a result of its filibuster protection, a lot of immensely consequential legislation has been passed using the reconciliation process, including:

  • The Consolidated Omnibus Budget Reconciliation Act of 1985, better known as COBRA, which lets ex-employees stay on their previous employer's health plan.
  • The Omnibus Budget Reconciliation Act of 1990, which raised federal income tax rates, famously violating George H.W. Bush's "read my lips: no new taxes" pledge.
  • The Omnibus Budget Reconciliation Act of 1993, also known as the "Clinton budget," which included substantial increases for high-earners in income, Social Security, and Medicare taxes, and dramatically expanded the Earned Income Tax Credit.
  • The Personal Responsibility and Work Opportunity Act of 1996, aka "welfare reform," which dismantled cash welfare and replaced it with a block grant to states.
  • The Balanced Budget Act of 1997, which included substantial spending cuts and created the SCHIP program for children's health care. In conjunction with the 1990 and 1993 laws, it played a big role in the balanced budgets of the late '90s.
  • The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, collectively known as the "Bush tax cuts."
  • The Health Care and Education Reconciliation Act of 2010, which nationalized the student loan industry and amended the just-passed Affordable Care Act by boosting subsidies.

What budget reconciliation can and can’t do

Robert Byrd, pictured in 2005
Byrd’s rule is the biggest limitation.
Scott J. Ferrell/Congressional Quarterly/Getty Images

But you can’t use budget reconciliation for just anything. For one thing, for reconciliation to be used, Congress has to actually pass a budget resolution — something it hasn’t been great at doing in recent years. The resolution has to include “reconciliation instructions,” which instruct specific committees to draw up legislation on a given topic. If only one committee gets instructions, then it passes its legislation and it then goes to the floor. If multiple committees get them, then the budget committee combines them first and then sends them to the floor.

There’s also a strict limit on how often Congress can use budget reconciliation. Basically, it’s limited to one spending/revenue bill per year, or per budget resolution. “Under Senate interpretations of the Congressional Budget Act, the Senate can consider the three basic subjects of reconciliation — spending, revenues, and debt limit — in a single bill or multiple bills, but it can consider each of these three in only one bill per year,” the Center on Budget and Policy Priorities’ David Reich and Richard Kogan write. “This rule is most significant if the first reconciliation bill that the Senate takes up affects both spending and revenues. Even if that bill is overwhelmingly devoted to only one of those subjects, no subsequent reconciliation bill can affect either revenues or spending because the first bill already addressed them.”

From 2007 to 2011, Democrats and Congress further banned reconciliation from being used to increase deficits; Republicans junked that rule upon retaking power in the House. Since 2011, Republicans have adopted rules that block reconciliation’s use to expand mandatory spending at all, even if such spending is offset or more than offset by other cuts or taxes. That would effectively rule out using reconciliation to set up programs like SCHIP or boost Obamacare subsidies or expand the EITC, as it’s been used to do in the past.

But the biggest restriction on budget reconciliation is the “Byrd rule.” Named after then-Senate Minority Leader Robert Byrd, who introduced the rule in 1985, the rule offers a way for senators to raise a point of order against "extraneous" provisions in bills being considered under reconciliation. Generally speaking, "extraneous" provisions include ones that:

  • Change Social Security,
  • don’t change the overall level of spending or revenue, or where such a change is merely "incidental,"
  • increase deficits outside the 10-year budget window, and/or
  • are outside the jurisdiction of the committee recommending them.

There are a couple of other limitations as well, but those are the major ones.

The Byrd rule has sharply limited what reconciliation can be used for. It hasn’t affected Social Security, for one thing, but it also can’t be used to pass provisions in major legislation that aren’t directed related to spending or revenue. For instance, Obamacare’s ban on discrimination based on preexisting conditions only affects spending “incidentally,” and so could not have been passed through reconciliation.

Perhaps the most famous cases of the Byrd rule affecting a major piece of legislation were the 2001 and 2003 Bush tax cuts. These were massive, unpaid-for reductions in revenue, which ran afoul of the Byrd rule’s requirement that legislation not increase the deficit after 10 years. To get around that, the legislation was written to expire within that 10-year window. That’s why we had massive fights in 2010 and 2012 about extending the Bush tax cuts; if it weren’t for the Byrd rule, the cuts would’ve just been permanent and President Obama would’ve had little say in the matter.

What Republicans can use reconciliation to pass in 2017

Paul Ryan Holds 'Enrollment Ceremony' For Bill To Repeal Affordable Care Act
Ryan signs off on reconciliation legislation to repeal the Affordable Care Act, on January 7, 2016. Tom Price, the Budget Committee chair, is on the left.
Chip Somodevilla/Getty Images

So what does this all mean for Republicans’ legislative priorities in 2017? What can they get done using reconciliation?

Assuming they get a budget resolution through, it’s a safe bet they’ll use the one reconciliation bill that resolution allows them to try to repeal Obamacare. Whether that’s accompanied by a replacement plan remains to be seen, but Republicans have already demonstrated that they can repeal the main components of the Affordable Care Act through the reconciliation process.

In 2015 and 2016, using reconciliation, they passed the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, or HR 3762, a bill designed by House Budget Committee Chair Tom Price (R-GA). The bill would have repealed Obamacare's insurance subsidies, ended its Medicaid expansion, eliminated most of its taxes, and abolished the individual mandate. All of those are budgetary moves affecting spending and revenue, and thus entirely within the bounds of the reconciliation rules. Because the bill didn't undo the Affordable Care Act's cuts to Medicare, the Congressional Budget Office scored it as reducing the deficit, meaning it didn't run afoul of the "can't increase the deficit after 10 years" rule.

The bill didn't repeal most of the non-budgetary elements of Obamacare: banning discrimination against people with preexisting conditions, allowing people 26 and under to stay on their parents' insurance, banning annual/lifetime coverage limits, etc. Those would’ve fallen outside of the bounds of what reconciliation can do.

Obama vetoed HR 3762, but Trump could quite easily just sign it, should Congress choose to pass it again. That would set up 22 million people to lose health insurance, barring the passage of a replacement plan, but the bill could also be changed to phase in more slowly and give Republicans more time to coalesce around a replacement plan.

Republicans want to do a lot more than dismantle Obamacare, though. Paul Ryan has an ambitious plan for massive cuts to the safety net, including block-granting and slashing funding for Medicaid and food stamps. Ryan has also proposed a massive $3 trillion tax cut, 99.6 percent of which would go to the top 1 percent by its second decade; Trump's tax plan costs even more, at $6.2 trillion before interest. While Trump has pledged to protect Social Security and Medicare, Rep. Price, the House budget chair, has raised the possibility of attempting Medicare privatization next year.

That’s why some informed Hill sources I know have started talking about the possibility of Congress passing two budget resolutions next year: one to pass Obamacare repeal, and the second for other priorities. That second bill could include the Medicaid/food stamp block-grants; the 1996 welfare reform experience shows that changes like that can pass through reconciliation. It could include other cuts and reforms, like the Medicare restructuring Ryan has been pushing for years, or an Obamacare replacement package. It could include tax cuts, either ones that expire after 10 years or ones that are paid for by big cuts in the safety net.

Any one of these would be a big uphill lift. With only 51-52 Republican senators, leadership would need unanimity within the caucus to get a second reconciliation bill through, and with Senate Finance Committee Chair Orrin Hatch suggesting he wants bipartisan support for tax changes, unanimity behind a partisan, reconciliation-passed cut could be tough to achieve.

But it’s a safe bet that if Republicans pass major, transformative legislation next year, it’ll happen with the help of reconciliation.