Budget Resolutions, Reconciliation And Tax Increases: Is it Time For The Weight-Challenged Individual To Sing?

Farrell Fritz, P.C.
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Procedural Mumbo Jumbo? [i]

Remember your civics class in elementary school? * * * . What’s that? Not really. * * *. Doodling, you say? * * * . The principal’s office? OK, what about high school social studies? * * * . Repressed memories? I understand – too painful to recall. Well, did you ever watch Schoolhouse Rock as a kid, the “I’m Just a Bill” episode,[ii] in particular? * * * . Of course you did, that’s great. Remember how involved the process was for a bill to make it through Congress and hopefully become a law? * * * . I’ll take that as a “yes.” Well, increase that at least one hundredfold and you’ll have some idea of what it takes for Congress to enact budget legislation. Hey, where are you going?

Generally speaking, Congress is required to adopt an annual budget resolution to establish an overall budget plan for the Federal government, and to set guidelines for action on spending and revenue, as well as for the public debt.[iii] In brief, the resolution recommends the size of the budget for a fiscal year, sets forth the budget outlay for the year among various “major functional categories,”[iv] and estimates the amount from each source of funding (taxes and borrowing).

Because the government’s fiscal year begins on October 1 of one calendar year and ends on September 30 of the next calendar year, the process for adopting a budget for a particular fiscal year, and for passing appropriations bills[v] to fund the operation of the government for that fiscal year, usually starts in February of the preceding fiscal year, and should be completed – i.e., signed into law by the President – by September 30 of such preceding fiscal year.[vi]

When the 2021 fiscal year began on October 1, 2020, the then-divided 116th Congress had not yet adopted a budget resolution for such fiscal year, let alone voted on appropriations bills. In other words, the Federal government started its 2021 fiscal year without a budget.

Congress, therefore, had to pass a “continuing resolution” to fund the government on a temporary basis, and allow it to continue operating until the regular appropriations acts were passed.[vii] Indeed, a total of five continuing resolutions[viii] were passed between the start of the 2021 fiscal year and the enactment of the Consolidated Appropriations Act on December 27, 2020.[ix] The latter included $900 billion of stimulus spending related to the pandemic.

On Friday, February 5, 2021 – a little over two weeks into Mr. Biden’s administration – the 117th Congress, controlled by the Democrats following the general election in November 2020 and the runoff Senate election in Georgia in January 2021, adopted a budget resolution for the current fiscal year, ending September 30, 2021,[x] and thus took advantage of the 116th Congress’s failure to do so. How’s that, and why?

Reconciliation Hocus Pocus?

The adoption by Congress of a budget resolution for the 2021 fiscal year is a “parliamentary” prerequisite for initiating the so-called “reconciliation” process, which allows Congress to expedite the consideration of certain legislation relating to taxes, spending, and the debt limit for the 2021 fiscal year.[xi]

Perhaps more importantly, under Senate rules, a reconciliation bill is not subject to the filibuster,[xii] which requires the vote of at least sixty Senators[xiii] to end Senate debate on a bill before bringing it to a vote.[xiv] Thus, under reconciliation, an evenly-divided Senate, such as we have now, may pass a bill by majority vote of 51 to 50, relying upon the Vice President to break what otherwise would be a tie along party lines.

The budget resolution starts the reconciliation process by instructing[xv] various committees of the House and Senate to prepare legislation on some or all of the proposals set forth in the resolution, and to report such legislation by a specified date.

With respect to the 2021 fiscal year, the recently passed budget resolution calls for the enactment into law of President Biden’s $1.9 trillion pandemic relief “American Rescue Plan.” According to the House Committee on the Budget:[xvi]

The 2021 budget resolution has a single purpose: it gives Congress the option of using a budget reconciliation measure to get crucial relief to the American people as quickly as possible. Reconciliation provides fast-track procedures that will allow the American Rescue Plan to pass with a simple majority in the Senate.

In very broad strokes, the American Rescue Plan[xvii] calls for: national vaccination, testing and tracing programs, and other measures to contain the pandemic; the reopening of schools; the delivery of economic relief to those in greatest need; and financial support for the hardest-hit small businesses. The Plan also provides some tax relief by expanding certain tax credits for individuals.

The 2021 budget resolution provides that the various Congressional committees charged with drafting the legislation to implement President Biden’s Rescue Plan must report such legislation to the House and Senate Budget Committees[xviii] by February 16 (next Tuesday). It shouldn’t take long for the full House and Senate to consider their respective bills, iron out any differences between them in conference committee, then pass an agreed-upon version before sending it to the President for his signature.

It is safe to say that the legislation will be enacted no later than mid-March, which is when many benefits under the CARES Act[xix] and the Continued Assistance Act are otherwise scheduled to expire.[xx]

Where is This Going?[xxi]

Think about it: $1.9 trillion is a lot to spend. And don’t forget that the CARES Act (passed in March 2020) came with a price tag of $2.2 trillion, while the Consolidated Appropriations Act added another $900 billion to the pandemic relief effort – a total of $5 trillion.

Compare this pandemic relief figure to the amounts spent by the Federal government during the 2018 fiscal year (over $4.1 trillion) and during the 2019 fiscal year (over $4.4 trillion).

It’s possible that all of these expenditures are necessary if we are going to bounce back from the economic dislocation brought on by the pandemic. That said, how are we going to pay for this?

You may recall that, just a few weeks ago, the then Treasury Secretary-designate, Janet Yellen, said she would work with lawmakers to fast-track[xxii] a series of tax increases on wealthy Americans.[xxiii]

The House Budget Committee echoes this approach, though in more cryptic terms:[xxiv]

Once the vital relief in the President’s plan becomes law, Congress will begin its work on a forward-looking, comprehensive budget resolution for 2022. That budget will provide urgently needed economic support and address longstanding deficits in our communities and underlying inequities in our society, which have been so starkly revealed and exacerbated by COVID-19. It will foster an inclusive recovery and make responsible investments to help us rebuild a stronger and fairer economy than what we had before.

Now, you may be wondering, two budget resolutions within the same calendar year – is that possible? Yep. Remember, the first relates to the 2021 fiscal year; the second, as indicated above, would be “a forward-looking, comprehensive budget resolution for 2022” – the fiscal year that begins on October 1, 2021.

From this, it follows that Congress can consider two reconciliation bills within the same calendar year. You may remember that the 115th Congress did just that in 2017, during Mr. Trump’s first year in office: the first was for the 2017 fiscal year, ending September 30, 2017, for which no budget resolution had been passed[xxv] – that reconciliation bill unsuccessfully sought to repeal the Affordable Care Act;[xxvi] the second was for the 2018 fiscal year beginning October 1, 2017 – it resulted in the enactment of the Tax Cuts and Jobs Act.[xxvii]

Waiting for the Other Shoe?[xxviii]

According to the Associated Press, Mr. Biden is tentatively scheduled to appear before Congress on February 23, 2021 to give an “unofficial” State of the Union address.[xxix] By then, the legislative text for the American Rescue Plan will have been delivered to the House and Senate Budget Committees, and will be well on its way to enactment.

Various publications have indicated that the President intends to use the occasion of his first address to Congress to unveil a large infrastructure package,[xxx] including tax increases.

Although Mr. Biden is certain to invite the Republican members of Congress to join him in this endeavor, he will not need their collaboration after having primed the reconciliation pump with his pandemic relief plan.[xxxi]

It will behoove us to tune into the President’s address to Congress, only two weeks from now, to see which elements of his tax plan[xxxii] are going to be added to the Code. Perhaps we’ll get lucky. It may be that he decides to defer their enactment until the 2023 fiscal year,[xxxiii] which will begin on October 1, 2022 – just one month before the all-important mid-term Congressional elections.[xxxiv]

In that case, taxpayers and their advisers will have the opportunity – a second chance, you might say – to consider and implement strategies for reducing their future Federal tax burden.


[i] Is that sufficiently “PC” for you? You have to admit, it lacks the character of the original.

Speaking of which, there are many versions for the origin of this colloquialism, ranging from Brunhilde’s ride into the funeral pyre in Wagner’s “Ring Cycle,” to Kate Smith’s rendition of “God Bless America” at Philadelphia Flyers games.

My favorite: Al Capone became much enamored of opera, studying scores, listening to records, and even hiring tutors, until he felt himself sufficiently prepared to sample the real thing. Accompanied by two bodyguards, he took his seat at the opera house. After the first aria, the guards rose to leave, whereupon Al grabbed them by their coattails. “Siddown,” he growled, “it ain’t over ‘til the fat lady sings.”

[ii] https://www.schoolhouserock.tv/Bill.html

[iii] Under the Congressional Budget Act of 1974; P.L. 93-344.

[iv] Actually, the budget resolution typically provides a “fiscal blueprint” for the next ten fiscal years; each succeeding year’s resolution tweaks the estimates made in earlier resolutions.

[v] There are twelve different ordinary appropriations bills that are passed annually. Each chamber of Congress has an Appropriations committee that is, in turn, divided into twelve subcommittees, each having responsibility for one of these bills.

[vi] In brief: during the first two months of the current fiscal year, the Administration will give Congress its budget for the next fiscal year; the House and Senate will each analyze the President’s budget proposal; each Chamber will then draft a budget resolution that sets overall spending levels; if there are differences between the two resolutions, a conference committee of members from both Chambers will try to resolve them; appropriations bills are then drafted by committees of each Chamber – these bills are the vehicles by which Congress funds the Federal government; each Chamber then votes on its own appropriations bills; these bills are then sent to another conference committee that will “merge” the two versions; the House and the Senate will then vote on the same version of the bill; if passed, the bill is then sent to the President.

[vii] These resolutions represent legislation that is passed when a new fiscal year is about to begin, or has already begun, and the Congress has failed to reach agreement on the appropriations bills for the full fiscal year.

[viii] One in September 2020, and four in December.

[ix] P.L. 116-260. The legislation provides for $2.3 million in spending for the 2021 fiscal year.

[x] The vote in the House was 219 to 211, with one Democrat joining all of the Republicans to vote against the resolution. The vote in the Senate was 51 to 50, with the Vice President breaking the 50-50 tie between the two parties.

[xi] Under the Senate’s “Byrd rule,” reconciliation legislation cannot include provisions that do not affect the level of spending or revenues, or the debt limit. Thus, no “extraneous measures” (unrelated to the principal purpose of the reconciliation bill) can be attached to the bill.

[xii] The House rules do not provide for the filibuster.

[xiii] In the current, evenly-split Senate, ten Republicans would have to agree with all 50 of the Democrats (assuming the latter act in unison) in order to stop a filibuster.

[xiv] Invoking cloture.

[xv] “Reconciliation directives.”

[xvi] https://budget.house.gov/publications/report/budget-resolution-and-reconciliation-alternative-path-american-rescue-plan .

[xvii] https://www.whitehouse.gov/briefing-room/legislation/2021/01/20/president-biden-announces-american-rescue-plan/ .

[xviii] The House Committee is chaired by John Yarmuth (of Kentucky), while the Senate Committee is chaired by Bernie Sanders.

[xix] P.L. 116-136.

[xx] https://blog.dol.gov/2021/01/11/unemployment-benefits-answering-common-questions .

[xxi] As a Boy Scout many years ago, we performed the following skit at Alpine Scout Camp, in New Jersey: A boy and his donkey have been walking for many days. The poor donkey keeps asking for water, and the boy always responds, “Patience, Jackass, patience.” As this exchange is repeated over and over, some exasperated audience member stands up and demands to know whether the skit is going to come to some conclusion. That’s when the boy turns to the audience member and says, “Patience, Jackass, patience.” Laughter ensued. (You had to be there.)

Oh, in case you were wondering, we all had our shots before crossing the George Washington Bridge – I can still say that, right? – into the hinterlands of New Jersey.

All kidding aside, though, the battles fought in New Jersey between the British/Hessian forces and the Colonials from late 1776 into early 1777 (the “Ten Crucial Days”) demonstrated that General Washington was the right man for the job.

[xxii] Ms. Yellen was clearly referring to the reconciliation process.

[xxiii] https://www.bloomberg.com/news/articles/2021-01-21/yellen-says-administration-will-fight-currency-manipulation .

[xxiv] https://budget.house.gov/publications/report/budget-resolution-and-reconciliation-alternative-path-american-rescue-plan .

[xxv] I have often referred to President Obama’s Green Book – his last – for the 2017 fiscal year as the source for much of Mr. Biden’s tax plan.

[xxvi] There were 52 Republican Senators, and 48 Democrats. You may recall Senator McCain’s bucking the Republican leadership to vote against repeal. https://www.npr.org/2017/07/27/539907467/senate-careens-toward-high-drama-midnight-health-care-vote .

[xxvii] P.L. 115-97.

[xxviii] What the hell is the origin of this idiom?

[xxix] https://www.ap.org/live-and-location-services/events/state-of-the-union .

[xxx] See, for example, https://www.nytimes.com/2021/01/22/business/economy/biden-trump-tax-law.html ; https://www.icis.com/explore/resources/news/2021/01/15/10595873/us-infrastructure-plan-to-be-unveiled-in-february-in-2nd-step-of-massive-stimulus .

[xxxi] I hope I used that idiom correctly.

[xxxii] https://www.taxlawforchb.com/2020/08/bidens-tax-proposals-for-capital-gain-like-kind-exchanges-basis-step-up-the-estate-tax-tough-times-ahead/ ; https://www.taxlawforchb.com/2020/11/the-loss-of-the-favorable-capital-gain-rate-the-exclusion-of-gain-under-section-1202-and-the-incorporation-of-the-partnership/ ; https://www.taxlawforchb.com/2021/01/the-federal-estate-tax-in-2021-what-might-we-expect-what-can-we-do/ .

[xxxiii] By which time, hopefully, the economy will have fully recovered.

[xxxiv] Will the Republicans reclaim the Senate?

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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