Senate Elections Make Budget Reconciliation a Potential Tool in 117th Congress

Holland & Knight LLP

Highlights

  • President-Elect Joe Biden and Vice President-Elect Kamala Harris will be inaugurated on Jan. 20, 2021, bringing an ambitious list of legislative priorities to the 117th Congress, including COVID-19 relief and economic stimulus, green infrastructure and immigration reform.
  • Given slim Democratic majorities in both the U.S. House of Representatives and Senate, nearly all legislation will need to be bipartisan to become law due to the filibuster threshold of 60 votes in the Senate and the need for support by moderate Democrats in both chambers. However, a bill processed under budget reconciliation requires only a simple majority in the Senate for passage. Democrats will likely use this tool to achieve key legislative victories.
  • This Holland & Knight alert provides an overview of the budget reconciliation process, as well as the potential timing and which priorities could be considered under reconciliation by the 117th Congress and the Biden Administration in 2021.

President-Elect Joe Biden and Vice President-Elect Kamala Harris will be inaugurated on Jan. 20, 2021, bringing an ambitious list of legislative priorities to the 117th Congress, including COVID-19 relief and economic stimulus, green infrastructure and immigration reform. In the U.S. House of Representatives, Democrats will hold 222 seats, while Republicans will hold 211 seats (with two vacancies). In the Senate, Democrats will hold 50 seats, as will Republicans, and Vice President-Elect Harris will break any ties in the chamber.

Given these slim majorities, nearly all legislation will need to be bipartisan to become law due to the filibuster threshold of 60 votes in the Senate and the necessity of support by moderate Democrats in both chambers. However, a bill processed under budget reconciliation only requires only a simple majority in the Senate (51 votes) for passage. Democrats will likely use this tool to achieve legislative wins on the party's controversial or key spending and revenue measures, such as strengthening the Affordable Care Act or tax reform.

What Is Budget Reconciliation?

A budget resolution broadly outlines the levels of spending and revenues for the following fiscal year. Though it is non-binding and does not require the President's signature, the resolution contains allocations of spending authority for the House and Senate committees, which constrains their consideration of legislation. Typically, it instructs key committees to produce and return to the budget committees policy alterations that meet the resolution's specified spending targets. The measure also allocates discretionary spending for the appropriations committees. The committees' products are then "reconciled" by the budget committees to produce what is commonly referred to as a "budget reconciliation" bill.

The reason this procedural process is advantageous for the majority party is that lawmakers can accomplish major policy changes within the budget reconciliation bill with only a simple majority — 51 votes — rather than the normal 60-vote threshold required to overcome a filibuster of the minority party. For example, the budget reconciliation process was used in 2017 by the Republican majority to pass the Tax Cuts and Jobs Act of 2017, and in 2010, the Democratic majority used budget reconciliation to enact the Patient Protection and Affordable Care Act (ACA).

Are There Limits on Budget Reconciliation?

It is important to note that provisions enacted through budget reconciliation must have a budgetary impact and must not increase the deficit outside the 10-year window. A rule known as the "Byrd rule," named after former West Virginia Sen. Robert C. Byrd, also blocks extraneous provisions from being added that do not materially affect revenue. Thus, it poses some limitations on the types of reforms Democrats could pursue under this process. Moreover, it is important to note that for budget reconciliation to be used successfully, all Democrats and the two Independents who caucus with the Democrats need to reach consensus – another challenge given the moderate and progressive dynamics in the party. There are also limits on the types of amendments that can be offered to a reconciliation bill, such as Social Security reforms.

Timing of Budget Reconciliation

The budget reconciliation process can also occur twice in one year. Since Congress did not pass a budget resolution for Fiscal Year (FY) 2021, Democrats can pass a FY 2021 budget resolution in the first 100 days of the new administration, and then turn to the FY 2022 budget resolution. Based on precedent, the FY 2022 budget resolution would not likely be passed by Congress until late spring and not be fully reconciled until fall 2021. Timing and strategy will become more clear as the Biden Administration takes office.

What Policies Are Likely to Be Considered?

Because Democrats will have two opportunities for reconciliation this Congress, the first question is whether one of those bills will be needed for a COVID-19 package. If a standalone COVID package cannot be agreed to, Democratic leadership may have to address it under reconciliation. Beyond COVID, the traditional reconciliation topics (tax policy and healthcare) will be most prominent along with infrastructure.

Democrats will consider rolling back certain provisions in the Tax Cuts and Jobs Act (TCJA), but the focus will likely be on reducing the tax burden on individuals, rather than repeal. Some provisions in TCJA could be scaled back or fully repealed to generate revenue, but the most sweeping policy changes are likely to be on the individual side of the tax code as opposed to corporate.

Because it would be a significant revenue generator, a carbon tax is a useful policy in reconciliation and may well be considered. Generating revenue provides fiscal space for advancing other policies and lowering the overall cost of the bill. That said, with a razor-thin margin in both chambers, the inclusion of a carbon tax will still be difficult.

Regarding healthcare, Democratic leaders, including House Speaker Nancy Pelosi, have discussed the use of budget reconciliation to tackle COVID-19 relief and strengthen the ACA. In addition, discussions on controlling prescription drug prices, still a major bipartisan priority, may be affected through budget reconciliation. Discussions on setting caps on patient spending with the Medicare Part D patient drug benefit and potential changes to lower the Medicare eligibility age may also be considered.

Infrastructure spending has been a part of Democratic planning on reconciliation since before the election. The economic benefits of infrastructure spending are well known, but it also provides an opportunity for significant environmental benefits. "Green" infrastructure proposals have been introduced in Congress for the last few years and, as noted above, would pair with the incoming administration's stated desire to focus on addressing climate change.

Conclusion

Although overhauling non-budget-related reforms, such as police reform, gun control and minimum wage, cannot be accomplished without bipartisan negotiation and support, a 50-50 split in the Senate provides Democrats and President-Elect Joe Biden a significant opportunity to pass meaningful legislation in 2021 under the budget resolution and reconciliation process.

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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