Good morning,
With President Donald J. Trump and Congressional Republicans controlling Washington, they plan to enact several of their policy priorities as early as possible, specifically related to tax cuts, immigration reform, border security, boosts to military spending, energy policies, and cuts/changes to certain social programs. To do so, they will use a legislative procedure authorized under the Congressional Budget Act of 1974 called budget reconciliation, which allows Congress to change revenue and spending levels of the federal government.
Budget reconciliation is most often used when one party controls the House of Representatives, the Senate, and the White House but does not have the requisite 60 votes in the Senate to pass legislation through the normal process. Budget reconciliation allows the party in power to effectively lower the threshold for legislation to pass in the Senate from 60 votes to a simple majority, allowing it to enact sweeping legislative priorities and policies. Budget reconciliation has been used a total of 22 times to pass both Democratic and Republican priorities, such as deficit-reduction packages in the 1980s and 1990s, the Bush tax cuts in 2001 and 2003, to amend the Affordable Care Act and modify federal student loan programs during President Obama’s term, the Trump tax cuts in 2017, and in 2021 to enact Covid relief during the Biden presidency.
Reconciliation is separate from the annual appropriations process. Currently, the government is operating under a continuing resolution until March 14, 2025, giving Congress approximately six weeks to finalize the fiscal year 2025 appropriations bill to fund the government through September 30, 2025, while simultaneously beginning the complicated process of budget reconciliation.
The initial step of the reconciliation process is for both chambers of Congress to adopt a budget resolution. The budget resolution includes recommended levels of spending, revenue, surpluses/deficits, and debt and “reconciliation directives” to congressional committees to recommend legislation that achieves certain desired budget outcomes. The budget resolution is structured as a concurrent resolution, meaning that the House and Senate must pass identical language, either through a conference committee, exchange of amendments, or one chamber adopting the budget resolution of the other chamber without making any changes.
Once a budget resolution passes both chambers, individual congressional committees work to draft, mark up, and report legislation consistent with the reconciliation directives from the budget resolution. The reconciliation directive also instructs the committees to report the legislation for consideration to their respective chambers or to their respective Budget Committees.
If the latter, the Budget Committees will package the committee legislation together into an omnibus and report the bills to the full chamber for consideration. Once the House and Senate have resolved the differences in the respective bills, the reconciliation bill can be enacted and signed into law by the President.
As already referenced, a significant advantage of reconciliation is that it requires only a majority vote in both chambers of Congress, as opposed to the normally required 60-vote threshold in the Senate to avoid the filibuster. However, there are restrictions on what can be included in a reconciliation bill. Senate budget rules (often referred to as the “Byrd Rule” for its author, former Senator Robert Byrd (D-WV) require that reconciliation can only be used for policies that change spending levels or revenue or the debt limit.
The non-partisan Senate parliamentarian is given authority to rule on whether certain provisions meet with requirements to be included in reconciliation. The current parliamentarian, Elizabeth McDonough, has served in this role since 2012. While the parliamentarian can be overruled by a simple Senate majority vote, Senate Majority Leader John Thune (R-SD) has discouraged Republicans from pursuing this, equating it to killing the filibuster, which Republicans have vowed to preserve. Some policy-oriented Republican priorities, such as immigration reform that may not have a budget impact, may be particularly vulnerable to the parliamentarian’s ruling.
Reconciliation in the 119 Congress
Since the November election results, there has been debate among Republicans on the best approach to use budget reconciliation to enact their policy priorities on immigration, tax reform, military spending, and energy policy. House Speaker Mike Johnson (R-LA-4) and House Ways and Means Chairman Jason Smith (R-MO-8) have publicly argued that, because of such a slim Republican majority in the House, the best approach is to package all the Republican policy priorities into one comprehensive reconciliation package. This way, House members will only need to be pressured once, instead of twice, to pass the measure.
Majority Leader Thune, however, is advocating a two-bill approach that would deliver President Trump a quick legislative victory on some top priorities, followed by another legislative vehicle that would achieve another wave of victories. President Trump has, at times, endorsed House Republicans approach of one bill, but also seems open to whichever legislative strategy is most likely to be successful and seems willing to let Congressional GOP leaders navigate the legislative procedure.
Speaker Johnson set an aggressive timeline to enact reconciliation within the first four months of the year. He envisions using February to pass a budget resolution, March to do committee work on reconciliation, and to have reconciliation on the House floor in the first two weeks of April. The proposed timeline is likely optimistic and is expected to take longer, especially as Congress will need to pass a government spending deal in the middle of March and raise the debt ceiling.
House Republicans, especially committee chairs, have spent much of their time in the first several weeks of the 119th Congress looking for “pay-fors” within their jurisdiction to offset the budget implications of Republican priorities, especially tax cuts, by cutting/amending social programs and/or rescinding existing tax incentives for environmentally friendly projects.
Based on their policy proposals, Republicans will need to collectively produce approximately $2.5 trillion in cuts from existing programs, although President Trump and Congressional Republicans have committed not to target Social Security or Medicare for major reconciliation offsets. Some of the proposed budget reconciliation measures include:
Strengthening work requirements for federal assistance;
Reforming food assistance for low-income Americans under the Supplemental Nutrition Assistance Program;
Requiring electric vehicle owners to pay fees;
Rescinding unspent money from the 2021 infrastructure law;
Repealing some of the clean energy tax credits from the Inflation Reduction Act;
Enacting “site-neutral” payment policy to stop hospitals from getting paid more by Medicare than care received at a doctor’s office;
Reforming benefits for the federal workforce;
Generating additional revenue through oil and gas lease sales and fees;
Increasing fees immigrants must pay to temporarily remain in the U.S. while their requests for citizenship, residency, or asylum are being processed and decided.
Even with a lowered threshold to pass the Senate, , Republicans’ historically slim majority in the House of Representatives will require careful navigation by House Speaker Johnson. Due to their slim majority, House Republicans can only afford to have one member vote against their legislation. The challenge, of course, will be that each member will have their own priorities, which poses a difficult voting landscape if those priorities are not included. Effectively, any two Republicans in the House have veto power over every piece of legislation, including budget reconciliation.
As the House and Senate return to session the first week of February, we expect the movement on the budget resolution process to begin in the House and Senate Budget Committees.
As this process moves forward and continues to develop, our team will be following this important process very closely and we will update you with any relevant updates. If you have any questions or would like to engage Congress on your priorities, please let us know how we can help.
Who We’re Watching
House and Senate Majority Leaders: House Speaker Johnson and Senate Majority Thune will be leading their parties through the reconciliation process. While Senator Thune has slightly more margin for error in the Senate than Speaker Johnson does in the House, both leaders will face a challenge to keep their conference united as they look to advance Republican priorities. We will closely be watching the different strategies employed by the House and Senate leaders, especially the one-bill vs two-bill approach. If the House is unable to successfully unite behind one comprehensive bill, look for the Senate to quickly move a two-bill reconciliation package, which would put pressure on Johnson to acquiesce to Thune’s favored approach.
House Ways and Means and Senate Finance: Given the jurisdiction of the two committees to enact tax policy and to alter current revenue laws, the House Ways and Means and Senate Finance Committees have a particularly important role to play in the budget reconciliation process. Ways and Means Chairman Jason Smith has been actively involved in early House proposals and strategy with Speaker Johnson on the one-bill approach.
House and Senate Budget Committee: Since the first step of budget reconciliation begins with a budget resolution originating in the House and Senate Budget Committees, these will be key committees to watch, especially in the early stages of the reconciliation process. In January, House Budget Chairman Jodey Arrington (R-TX-19) released a 51-page menu of policies and cost estimates as possible pay-fors to be considered for reconciliation. Arrington’s role will be crucial to begin work on the budget resolution in February to keep with Speaker Johnson’s timeline.
Every Republican Member of the House of Representatives: As mentioned above, the slim majority in the House will make the reconciliation process complicated and require unity among nearly the entire House Republican Conference, which is not historically known for its unity. As specific details emerge about what policies are included and left out, we will be closely watching the reaction of each Republican member of the House to see how it might impact the vote count for reconciliation.
President Donald J. Trump: The president is apt to use both charm and threats to get members of Congress to vote the way he wants them to. If history is any indication, expect President Trump to become focused on a few top-level policy “must haves” from his perspective while his team – and congressional leaders – work to secure the details and process. So far, he has been hands-off as to the specific timing and procedure of achieving legislative wins, but that can change quickly. While members of Congress may not admit to its effectiveness, one should never underestimate the power of a pointed social media post that threatens the political future of an “out of line” Republican.
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