What Is Budget Reconciliation Anyway?

If you asked me in 2005 to define budget reconciliation, I may have assumed you were talking to me about reconciling my personal budget.

The truth is: budget reconciliation is essentially “reconciling” the federal budget.

Sit back Gen Z (and perhaps a few Millennials): the rest of us remember the days when you would sit down with your check register, receipts from the month (yes, paper receipts), your bank statement, your budget and a calculator. You would compare your checkbook balance to your receipts from the month, record your expenditures, calculate your remaining balance and check it against your budget. Then, going into the next month, you would have a reconciled statement, which would tell you how much money you had left and whether you needed to trim your spending or whether your savings account just grew.

Over the last few days, there has been quite a bit of talk about budget reconciliation as the Democrats have taken control of the White House and both chambers of Congress. Because I participated – first hand – in the budget reconciliation of 2005, I felt the timing was right to offer a short primer, particularly for a generation who may have never sat down to reconcile – by paper and pencil – your own budget.

For the history buffs, reconciliation was created by the Congressional Budget Act of 1974 and allows Congress to consider – rather expeditiously – tax legislation, spending legislation and debt resolution legislation. There have been over twenty budget reconciliations enacted since 1980. (The nonpartisan Congressional Research Service (CRS) has prepared a long-form history of reconciliation for anyone seeking a little pre-inauguration reading.) 

If Congress decides to use reconciliation legislation to address spending, it can only be used to address mandatory spending. Mandatory spending is also known as “entitlement” spending, or funds used for programs that are required – or authorized – by law. Some better-known examples of entitlement programs include Medicare, Medicaid, Social Security benefits, parts of the Pell Grant program and SNAP (or food stamps). The other part of the federal budget consists of “discretionary” spending, which Congress controls through the annual appropriations process. Reconciliation is not used to address discretionary spending.

For the Senate procedure wonks: In the Senate, reconciliation bills are not subject to filibuster and the scope of amendments that can be offered to the bill are limited, which gives the controlling party (in this case, the Democrats) a chance to advance their policy agenda.

This brings us to the latest chatter in Washington – how to get the reconciliation process started in Congress.

Now, suppose the House and Senate – both under Democratic leadership – want to proceed with reconciliation. In that case, they have to come to an agreement on a budget resolution that includes “reconciliation instructions” or directives to Congressional committees that have mandatory spending programs in their jurisdiction. By a specific date, the Congressional committees that have received “instructions” must deliver their proposal back to House and Senate leadership.

To meet their deadline, Congressional committees have to convene their members to talk (or debate) about which mandatory spending programs they will modify to reach the “instructions” laid out by Congressional (in this case, Democratic) leadership. The committees are instructed to increase or decrease mandatory spending by a certain amount over a length of time, increase or decrease revenue by a certain amount over a length of time, or increase or decrease the public debt by a certain amount. It is up to each committee that has mandatory spending in their jurisdiction to decide what changes need to be made to those programs to meet their “instruction.” Once each committee votes on the changes they will make to achieve their instructed targets, they will send their recommendations back to their chamber’s relevant budget committee.

At that time, the budget committees compile all of the committee’s recommendations into one large piece of legislation, which will then be considered by the full House and full Senate. Oftentimes, the committees on the House and Senate side may differ in what legislation they amended to achieve their instructed targets. The House and Senate will then appoint a “conference committee” of select representatives and senators to negotiate the differences in the chambers’ approaches. The “conference committee” will work toward a resolution on a single piece of legislation that can then be voted on by each chamber.

After each chamber votes on the final bill – and if it passes, it will go to the President for his signature. 

And voila! Reconciliation is complete!

In my experience in 2005, budget reconciliation was used by Republican leadership to enact deficit reduction legislation. However, reconciliation has also been used to enact tax cuts to increase deficits by Republicans. That is, until 2007 when Democrats took control of both chambers and prohibited the use of reconciliation for this purpose. And then the rules changed again in 2011 and then again in 2017. For anyone interested in winning Congressional Budget Reconciliation trivia: the House Budget Committee has a great historical account.

Bottom line: President-elect Biden and the incoming Democratically-controlled House and Senate leadership have all talked about using reconciliation as a way to address pressing budgetary needs related to the pandemic and resulting economic downturn. Keep in mind, the only programs to be impacted by reconciliation will be those “entitlements,” which are few, but a significant part of the federal budget and touch every American in some way. Therefore, given we will all be impacted by this expedited legislative process – I recommend “reconciliation” become your household term for 2021.

Pencils down.

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