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An abbreviated history of budget reconciliation

Budget reconciliation – the oft-used pathway for expediting tax and spending legislation through Congress – may be poised for another star turn on the national stage. Democratic leaders are signaling they might set it in motion to secure passage of President Biden’s $1.9 trillion COVID-19 response measure. Some background on the process, and its history, may be helpful to understanding the importance of this imminent decision.

Budget reconciliation has been central to federal policymaking for more than four decades. Created in the 1974 Congressional Budget and Impoundment Control Act, the process allows the House and Senate to pass a budget, and then a bill implementing it, with majority votes, tight rules on allowable amendments, and limited time for debate. The process was first used in the last year of the Carter presidency to assemble unrelated budget cuts from several congressional committees into one omnibus bill. President Carter signed the Omnibus Reconciliation Act into law in December 1980.

David Stockman, then a congressman from Michigan, played a role in this inaugural run, and then brought what he learned to the Reagan White House as Director of the Office of Management and Budget (OMB). He helped craft the 1981 Omnibus Budget Reconciliation Act, which was the vehicle for enacting many of the spending cuts Reagan had promised while campaigning. Working with a Democratic House and a Republican Senate (through 1986), President Reagan signed six more reconciliation bills during his two terms in office. They contained scores of significant adjustments in tax law and the rules governing the nation’s large entitlement spending programs. For instance, a 1982 reconciliation bill created the first Medicare risk contracting program — now called Medicare Advantage — with capitated monthly payments to qualified HMOs.

During these early years, and continuing into the 1990s, budget reconciliation was used mainly to change the political dynamic around the enactment of controversial measures. Instead of being forced to vote on several bills containing unpopular tax hikes or spending cuts, reconciliation allowed Congress to vote on one or two bills that could be sold as reducing expected budget deficits by the aggregated savings of their various and sundry provisions. In 1990, the Congressional Budget Office (CBO) estimated the major bipartisan budget reconciliation act assembled by President George H.W. Bush and Democratic leaders would reduce the projected deficits over the ensuing five years by a combined $500 billion.

In 1985, reconciliation was modified in the Senate by then-Senator Robert Byrd. He had become concerned that the process was being used to bypass the Senate’s tradition of unlimited debate (i.e., filibusters). He pushed, successfully, to amend the Senate’s rules to limit reconciliation bills to matters directly affecting taxes or government spending. The Byrd rule, as it is now known, and its enforcement, has been an important Senate-focused reconciliation ritual ever since.

The perception of budget reconciliation’s value began to change in 1993. Republicans never fully controlled Congress during the Reagan and first Bush presidencies, and so the budget reconciliation bills passed during those years were, by necessity, bipartisan affairs. When Bill Clinton became president in 1993, Democrats controlled both the House and Senate, but they did not have the 60 votes to end filibusters. Reconciliation allowed the majority to pass a major budget bill through the Senate without any Republican support. The 1993 Omnibus Budget Reconciliation Act became the first instance in which the process was used in this manner.

Republicans noticed, and used the process themselves to gain leverage and pass tax cuts in 2001, 2003, and 2017 (the 2001 and 2003 bills drew some Democratic support but were widely seen as Republican initiatives). In 2010, President Obama used reconciliation to facilitate passage of the Affordable Care Act with a companion bill that passed only with Democratic support.

As the parties in Congress have become more polarized, the perception has hardened that reconciliation’s value is in making it possible for the majority party to make an end-run around the intractable opposition of the minority. It is not surprising, therefore, that Democrats, now in control of both the legislative and executive branches, are signaling interest in using it to obviate any need for making concessions to attract Republicans to their agenda.

There are two potential stumbling blocks that may yet give Democrats pause.

First, the Democratic majorities in this Congress are exceptionally narrow. In the House, Democrats hold 221 seats, which means they can only lose five votes and still pass their bills without GOP support. The partisan split in the Senate is 50-50, with Vice President Kamala Harris breaking ties. One recalcitrant Democratic senator has the power to bring the entire reconciliation process to a halt.

Second, the Byrd rule still applies. Democrats have an ambitious agenda beyond the pandemic. They would like to raise the minimum wage, tackle climate change, address societal inequities, and much else. Some of this agenda is budgetary in nature, but not all of it is. If the Byrd rule is applied now as it was in the past, Democrats will be disappointed by what they cannot do on a partisan basis.

This is why there is some discussion of reinterpreting the Byrd rule to narrow its effect, by taking the authority for its enforcement out of the hands of the Senate’s apolitical lawyers and giving it instead to the presiding officer, who may allow provisions that would otherwise run afoul of it to survive. Establishing this precedent would be one more step toward converting the Senate into a fully majoritarian body, with even less incentive for the parties to strike compromises.

President Biden has expressed a preference for proceeding on a bipartisan basis, which would lessen the pressure to bend the reconciliation process to serve current ambitions. With 60 or more Senators in favor of a bill, the reconciliation process, and the Byrd rule, would be less relevant.

A bipartisan COVID bill might also pave the way for compromise on other matters later in the year, including to expand insurance coverage and control health care costs.

The U.S. remains in the grip of a public health and economic crisis. It is important for the nation’s policymaking process to demonstrate it can respond as necessary to protect lives and lessen the financial hardship. A strong bipartisan bill to start a new presidency would send a signal that the nation’s governing institutions are returning to an ethic of putting the country’s urgent and pressing needs ahead of narrower interests.

James C. Capretta is a resident fellow at the American Enterprise Institute. This article was cross-posted on our sister site State of Reform.

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