Budget Reconciliation in 2021: How to Avoid the Filibuster and Enact Policy

4 min

The Senate filibuster's 60-vote threshold is likely to preclude passage of a sweeping COVID-19 deal along the lines of the $1.9 trillion package proposed by the Biden administration. Congressional Democrats, in the coming weeks, are likely to advance a sizable but more targeted COVID-19-related relief package using the budget reconciliation process. That process provides the Senate the ability to fast-track certain types of legislation with only 51 votes (Democrats hold 50 seats in the Senate and Vice President Harris would be the tie breaker).

Reconciliation may be used once each fiscal year, but because Congress did not pass a budget resolution for the current fiscal year, they will have two fiscal years' budgets available to them this calendar year, making two reconciliation packages likely. We expect this first reconciliation package (FY 2021), which is expected to focus on COVID-19 relief, to be followed by a second reconciliation package (FY 2022) later in the year that would involve significant tax changes, infrastructure and climate spending, and a general economic stimulus.

Reconciliation was developed via the Congressional Budget Act of 1974 ("Budget Act"). That law created a Budget Committee in each chamber and charged them with annually passing a budget resolution that sets forth discretionary spending allocation thresholds for each Appropriations Subcommittee. The Budget Act also provided a fast-track mechanism for Congress to address tax revenues, mandatory spending programs (e.g., Medicare, Medicaid), and the debt limit. That mechanism is called reconciliation.

The adopted budget resolution may give the committees of jurisdiction (e.g., Ways and Means) reconciliation instructions to craft and report legislation that increases or decreases a specified amount of revenue, mandatory spending, or the debt limit. Each Budget Committee then combines the committee reported bills and sends the combined package to the floor. In the Senate, consideration is time limited, is not subject to a filibuster, and can pass with a majority vote. Congress has previously used reconciliation to pass major bills, such as the Trump administration's Tax Cuts and Jobs Act of 2017 and some of the Obama administration's Affordable Care Act.

The Budget Act prohibits the reconciliation package from containing "extraneous matters." If a Senator raises a point of order that a provision contains an extraneous matter (i.e., invokes the "Byrd Rule," named after former Senator Robert Byrd (D-WV)), the Senate parliamentarian rules whether the provision must be stricken from the bill. In general, matters are considered extraneous if they do not change outlays or revenues or the changes in outlays or revenue are "merely incidental" to goals of the provision. For example, a reconciliation package could likely provide tax credits for electric vehicles – but raising the minimum wage to fifteen dollars would likely be a violation of the Byrd Rule, because although the policy affects federal spending, it is dwarfed by the policy of raising the national minimum wage. The Byrd Rule is not applicable in the House, but any final reconciliation bill must pass both chambers in identical form, so, much to the frustration of representatives, the House is effectively bound by the rule as well.

Whether a provision is struck or survives can depend on how the provision is structured and the arguments presented to the Senate parliamentarian. Therefore, precedent is only a guide as to how the parliamentarian might rule. But review of past rulings and applying the standards of the Budget Act can provide some general direction for what provisions could survive a point of order (a process known to budget specialists as a "Byrd bath").

Items likely to survive a point of order and invocation of the Byrd Rule:

  • Most tax treatment – whether raising or lowering corporate and/or individual tax rates
  • Federal purchases
  • Medicare and Medicaid
  • Federal civilian and military retirement
  • SNAP (formerly known as food stamps)

Items likely to be struck from a reconciliation package:

  • Minimum wage increase
  • DC statehood
  • Insurance regulations
  • Social Security
  • Conservation programs
  • OSHA penalties
  • Direct FDIC to develop a risk-based insurance program
  • Abstinence education
  • Gun reform measures

Because of the narrow majorities in both chambers, we believe the Biden administration and congressional leadership will use reconciliation to the maximum degree to pursue their policy goals and priorities. Furthermore, because of the economic situation and ongoing national health emergency, we expect the scale of these bills to be massive. For clients with an interest in a policy being included in or excluded from any reconciliation package, the best strategy is to engage with the policy makers as early in the process as possible.