Reconciliation: How A Deficit Control Tool Adds Fuel To The Debt Fire

Forbes

2 days ago

Much like the broader U.S. budget process, a legislative procedure currently being used to advance Republican policy priorities such as tax cuts and increased spending on border security has evolved to a point where it no longer serves its intended purpose.
The One Big Beautiful Bill Act, now before Congress, is being considered using a budgetary tool known as reconciliation, which was designed to expedite passage of deficit-reducing measures. While the 1974 law establishing the procedure did not strictly limit the use of reconciliation to deficit reduction, the overarching goal of that legislation was to equip Congress with stronger tools to adopt responsible budgets. Unfortunately, the present application of reconciliation is threatening to do just the opposite, increasing the national debt by trillions over the next decade.
The term 'reconciliation' refers to a unique component of the congressional budget process. While often contentious, current budgetary procedures once found success because elected officials were committed to adhering to statutory budget rules and possessed the political will to elevate governance and the country's fiscal well-being above other considerations. The budgetary surpluses achieved between 1998 and 2001 were, at least in part, a product of that more disciplined approach.
Federal budgeting is designed to begin with the president submitting a funding request to Congress, followed in short order by the development of an intra-legislative branch budget resolution. Though lacking the force of law, this resolution serves as a fiscal blueprint guiding broad spending, revenue, and debt levels for the upcoming year.
While not required, the resolution can include reconciliation instructions directing action from congressional committees responsible for mandatory programs and revenues. (Annual appropriations matters are typically considered separately.) Those committees are typically tasked with developing proposals to generate program savings or higher revenues for activities under their purview. Essentially, they are instructed to craft legislation that, if enacted, would reconcile spending and revenue levels with the budget resolution's targets.
Once such legislative language is developed, a reconciliation bill is introduced and makes its way through the legislative process. Reconciliation measures benefit from expedited consideration, requiring a simple majority for passage, unlike the regular process which demands 60 votes to overcome a filibuster in the Senate.
Reconciliation Process
Congressional Research Service
Given the relative ease of passing legislation through reconciliation, it has evolved to become an end-run around regular legislative order. Concern about how the procedures might be used dates back to the adoption of the Byrd Rule in 1985. That rule restricted the inclusion of 'extraneous' provisions—those lacking significant fiscal impact—in reconciliation bills.
From its inception in 1974 until the end of the 20th century, reconciliation had been used to reduce deficits. While policy objectives such as welfare reform were accomplished using reconciliation, such legislation was expected to result in fiscal savings.
That changed in the 21st century when reconciliation began to be used to expedite the passage of legislation that, while having fiscal impacts, would increase deficits. Prime examples include the tax cuts enacted through reconciliation in 2001 (though the intent then was to reduce forecast surpluses rather than increase deficits), 2003, and 2017, as well as the 2021 American Rescue Plan Act. The Inflation Reduction Act, enacted in 2022, was initially thought to be a deficit-reducing measure, though a growing body of research on the topic suggests the IRA could add to the deficit or at least generate smaller amounts of deficit reduction than expected.
The evolution of reconciliation, from facilitating deficit reduction to making it easier to add to the national debt, has not followed a straight line. Congress has at times over the past 20 years tightened rules by prohibiting its use for measures that raise deficits and disallowing instructions that would increase net mandatory spending.
For instance, the Conrad Rule, in effect from 2007 to 2015, sought to rein in the practice of worsening deficits through reconciliation and instead returned the procedure to its original purpose, deficit reduction. The abandonment of past constraints like the Conrad Rule has created a loophole, enabling legislators to use reconciliation to enact policies that could harm the nation's fiscal outlook, simply by demonstrating fiscal impact.
Another indicator of how poorly the current budget process is faring at present is the fact that Congress is pursuing reconciliation legislation for the fiscal year that ends in four months. Reconciliation was designed to be completed before the fiscal year begins. Longer-term fiscal policies, however, are affected by the legislation making its consideration relevant for years beyond FY 2025.
A key driver of the bill is a desire by some elected officials to extend certain tax reductions passed via reconciliation during the first Trump presidency, the Tax Cuts and Jobs Act of 2017. The Byrd Rule affected the content of TCJA because it does not allow reconciliation legislation to increase the deficit beyond a 10-year budget window. To comply with that requirement, key parts of the tax cut package are slated to expire at the end of 2025.
Add to that a number oBudget f new Trump administration priorities, like additional tax cuts and more spending for border security and the military, coupled with an increasingly compelling need to extend the nation's debt limit, and one big bill results. Whether it's beautiful is in the eye of the beholder.
Despite the built-in advantages of using reconciliation, some policymakers are also advocating a shift to a current policy baseline to assess the cost of the legislation. Arnold Ventures has made clear in several recent publications that such an approach hides the true fiscal impact on taxpayers and further undermines the U.S. fiscal position.
In a previous post on Forbes.com, I wrote about how the U.S. budget process is broken and requires considerable reform to put the nation on a sustainable fiscal path. Contrary to the intent of existing budgeting statutes like the law establishing reconciliation procedures, the legislative package now moving through Congress will cause the national debt to soar. And it will do so by leveraging a process designed to do just the opposite.
Clearly, we need to rethink our broken budget process—manipulating reconciliation is hardly the only issue. Otherwise, we must reconcile ourselves to an ever-expanding national debt and the substantial risks accompanying that unstable fiscal state.