Budget Reconciliation

With Congress planning to use budget reconciliation to pass tax legislation this year, this page offers background on what reconciliation is, how it has been used previously, and limitations on the process.

What is reconciliation?

Reconciliation is a special process used by Congress to fast-track the passage of legislation that makes changes to revenue, certain mandatory spending, and/or the debt limit. The process has been used to move major legislation in Congress due to the Senate rules allowing legislation pursuant to this process to pass the Senate with a simple majority and avoid the filibuster.

Reconciliation begins with the passage of a budget resolution by both the House and Senate that provides relevant Congressional committees with instructions for reporting legislation that makes changes to spending, revenues, or the debt limit in the resulting reconciliation bill. As a budget resolution can only provide for one reconciliation bill, Congress has historically used the process to pass a reconciliation bill that packages together the majority’s policy priorities.

Twenty-three pieces of legislation have passed under reconciliation, including the Affordable Care Act in 2010, the Tax Cuts and Jobs Act in 2017, the American Rescue Plan Act in 2021, and the Inflation Reduction Act in 2022. Because it allows Congress to bypass the filibuster, budget reconciliation is often used to pass large tax packages.

Limitations and the Byrd Rule

Reconciliation has limitations on its movement and content. In the Senate, a reconciliation bill must be in compliance with the Byrd Rule. Under the rule, a reconciliation bill is prohibited from containing any “extraneous" measures. An extraneous measure:

• Has an incidental or no budgetary effect
• Is outside of the jurisdiction of an involved Congressional Committee
• Makes changes to Social Security
• Increases the deficit for a fiscal year outside of the reconciliation window (usually a 10-year period)

The Senate Parliamentarian is tasked with deciding whether a provision violates the Byrd Rule, which has resulted in the removal of many sections of House tax bills that violate these rules. Additionally, reconciliation must adhere to Senate Pay As You Go rules, which typically prevent legislation from increasing the deficit, unless detailed in the resolution.

Process Overview for Reconciliation Bills

1. The House and Senate Budget Committees introduce and mark up budget resolutions providing instructions for reconciliation.
   • If using the traditional legislative process, the House and Senate pass their respective budget resolution, resolve differences through a conference committee, and vote on a final version on which both chambers agree.
   • However, there are ways for the majority to draft, consider, and pass the budget resolution that do not involve some of these steps, such as a conference committee.
2. Committees that are directed to draft and report legislation in the budget resolution get to work writing legislation that achieves the policy goals the majority seeks to accomplish.
   • Generally, committees convene markups to consider the legislation. At these markups, members offer and vote on amendments to the legislation.
3. The legislation passed out of each committee is compiled into a single bill by the House Budget Committee and then sent to the full House for a floor vote.
4. The Senate must then also pass the bill. Generally, the Senate uses the House-passed version of a tax reconciliation bill because bills that raise revenue must originate in the House.
   • Before the legislation receives a vote in the Senate, the Senate Parliamentarian determines if there are sections of the bill that do not adhere to the Byrd Rule.
   • After up to 20 hours of debate, Senators may offer additional amendments that are germane to the bill in a process known as “vote-a-rama.”
   • When it comes time to vote on final passage, the legislation only needs to pass the Senate with a simple majority.
5. Because of the Byrd Rule in the Senate, changes are likely to occur between the two bills even if the Senate uses the House-passed version.
   • If there are differences, the House and Senate have the option to form a conference committee with members from both chambers to resolve differences between the two bills. An agreed-upon version of the bill must be approved by both chambers in a final vote.
   • Congressional leadership, generally of the majority party, may opt for informal negotiations instead of a conference committee.
6. Legislation is sent to the President’s desk for signature or veto.