What is it
Budget reconciliation is a legislative process established by the Congressional Budget Act of 1974, allowing Congress to adjust federal spending, revenue, and debt limits in a streamlined manner. Budget reconciliation allows legislation impacting debt, spending, or revenue to pass the Senate with a simple majority, bypassing the 60-vote filibuster threshold.
This tool is typically used when one party controls the presidency and Congress but lacks a filibuster-proof majority. The Congressional Budget Act of 1974 permits reconciliation to be used up to three times a year.
Process
The process begins when the House and Senate agree on a budget resolution, which is usually drafted by the Budget Committees in each chamber. This budget resolution includes “reconciliation directives” for specific (authorizing) committees, instructing them to craft legislation that achieves targeted fiscal outcomes, such as reducing or increasing spending or revenue by a set amount within a designated timeframe. Each designated committee then creates legislation to meet these fiscal targets and has flexibility on how to achieve these goals.
Example: House and Senate Republicans pass a budget resolution that sets a fiscal goal of cutting $100 million over the next decade. The ‘reconciliation directives’ direct the Senate Finance Committee to craft legislation that cuts $50 million and the Senate Energy Committee to cut $50 million.
Once the committees meet the directives, each committee’s bill package—usually comprised of multiple, separate high-priority bills—is then further combined into a single omnibus ‘reconciliation’ bill.
The budget reconciliation process starts in the House, who send their reconciliation bill to the Senate. In the Senate, this bill is fast-tracked, with debate limited to 20 hours and a filibuster prohibited – although there may be amendments. The House Rules Committee, with its own mechanisms for limiting debate, usually adopts special rules for budget reconciliation, specifying debate time and permissible amendments.
History
Historically, budget reconciliation has been used sparingly, with just 22 instances since its inception in 1974. Since 2000, it has been used during periods of one-party control and taken the form of tax cut measures under Presidents Bush and Trump, the Affordable Care Act under President Obama, and most recently to pass, the American Rescue Plan in 2021 under President Biden to expedite COVID-19 relief.
In the 119th Congress, Republicans are likely to use budget reconciliation to advance tax cuts. With several of the 2017 Tax Cuts and Jobs Act (TCJA) personal tax provisions and exemptions expiring in 2025, all eyes will be on Congress to present a new tax package to President-elect Trump for his deliverance on campaign promises.
With tax legislation, top of mind for most congress members entering 2025, expect crypto to be front and center in these conversations. Digital Asset stakeholders and advocates may capitalize on this opportunity to ensure much-needed clarity and reforms are made to current digital asset tax law. The Digital Chamber will continue advocating for the simplification of reporting requirements for digital assets transactions without infringing on privacy, while also promoting different tax reform legislation.