You’ll be hearing a lot about something called the budget reconciliation process this week. My colleague is already on it. It’s wonky, confusing, and probably boring to most people, but if you want to understand it (and you should), the best place to start is by reading this explainer by David Reich and Richard Kogan of the Center for Budget and Policy Priorities. I refer you to them, in part, because I don’t want to have to explain it all myself but I need you to understand some basics in order to follow what I have to say about the resulting politics.
One part of the Republicans’ legislative plan for this year involves something that has never been done before. Back in November, Senate Majority Leader Mitch McConnell held a press conference to announce that he and House Speaker Paul Ryan would be passing two budget resolutions in one year. Forbes headlined this as “GOP To Use Previously Unheard Of Tactic To Slam Dunk Trump Agenda.” It looked like some kind of mad genius Jedi mind trick stuff, and it was hatched because the Republicans were trying to figure out how to enact things through the Senate without having them filibustered by the Democrats. The only way to do that is to attach instructions to privileged budget resolutions that only require a simple majority to pass. The instructions will tell one or more committees to figure out how to (usually) improve the budget by reducing spending. Then later in the year, those changes can be voted on again with a simple majority. It’s the second vote that is the reconciliation, because it reconciles the budget with what was intended at the beginning of the year. I can feel your eyes glazing over already, so let’s just put it this way: if you want to get around a filibuster, one way to do it is to attach your bill to the annual budget resolution.
But there are a bunch of limitations to what can be included in a budget reconciliation bill. It has to affect revenues, for example. And then there’s this (the bolded emphasis is mine and you can ignore that part about the debt limit):
Under Senate interpretations of the Congressional Budget Act, the Senate can consider the three basic subjects of reconciliation — spending, revenues, and debt limit — in a single bill or multiple bills, but it can consider each of these three in only one bill per year (unless Congress passes a second budget resolution). Consequently, in the Senate there can be a maximum of three reconciliation bills in a year, one for each of the basic subjects of reconciliation.
This rule is most significant if the first reconciliation bill that the Senate takes up affects both spending and revenues. Even if that bill is overwhelmingly devoted to only one of those subjects, no subsequent reconciliation bill can affect either revenues or spending because the first bill already addressed them.
In normal human language, what this means is that when the Republicans decided to use the Budget Reconciliation process to address the changes they wanted to make to the Affordable Care Act, they were doing something that would impact both revenues and spending. That means that they’ve already used up the Budget Resolution they passed in January. If they want to enact tax reform without worrying about the filibuster, they’ll need to pass a second Budget Resolution.
But how do you have two budgets for the same year? Has there been a tear in the space-time continuum?
Actually, no, as Forbes explained last November, this is just a gimmick made possible by a failure to pass a Budget Resolution last year.
This strategy is possible because Congress failed (or, in the case of the Senate, didn’t even try) to adopt a fiscal 2017 budget resolution when it was supposed to last April. As a result, and even though it would be way past the statutory deadline, Congress has the authority to pass one next year.
Congress did pass the fiscal year 2017 Budget Resolution this year. You can read a summary of that bill here, and the January 13th House roll call vote is here. What they just failed to do last Friday is to pass (or even vote on) a very early Budget Reconciliation bill that was meant to be the capstone on that first Budget Resolution.
Now, you’ve probably heard that the failure to pass the Obamacare-gutting Budget Reconciliation bill on Friday has “imperiled” or “jeopardized” or made it “much harder” for the Republicans to act on Trump’s plans for tax reform. What you probably haven’t had adequately explained is why this is the case.
In one sense, the plan hasn’t changed. All along, the idea was that tax reform would get around the Senate filibuster by being attached to this unprecedented second Budget Resolution bill. There is more than one reason why they set things up this way, but one of them was they wanted to act so quickly to repeal Obamacare that it didn’t give them time to really consider this fiscal year’s budget. That’s why they decided to use the empty shell of last year’s unenacted Budget Resolution for Obamacare repeal.
Still, even if Obamacare repeal and tax reform were separated, they needed to work in tandem. And this part is pretty tedious to explain because it gets down in the weeds of something called the Byrd Rule. Here’s the Cliff Notes version. The Byrd Rule determines what can and cannot be included in a Budget Reconciliation bill in the Senate, and it has two important restrictions, one relating to the long-term deficit and one pertaining to the short-term deficit. On the long term deficit, the Byrd Rule prohibits the use of reconciliation for provisions that would increase the deficit beyond 10 years after the reconciliation measure. This is why President Bush’s tax cuts sunsetted after ten years.
On the short-term deficit, the Byrd Rule prohibits changes that would increase the deficit for a fiscal year beyond those covered by the reconciliation measure. In other words, overall, the bill cannot increase the deficit beyond ten years, and in any given year within that ten years, the increases must be authorized in the Budget Resolution.
These constraints present a variety of obstacles, and they are even greater when you consider what Tim Fernholz explained in an excellent Quartz article on March 10th.
…if your reconciliation bill isn’t revenue-neutral, like a tax cut, it will have to sunset in 10 years.
This is how former US president George W. Bush passed his massive tax-cut package in the first term of his presidency, and why it expired in 2013, setting up a massive fiscal showdown as Democrats attempted—and ultimately were able—to roll back some of the tax cuts on the wealthy.
But [Speaker Paul] Ryan and this generation of Republicans aim to avoid the fate of the Bush tax cuts. To do so, they’ll need to pass a reconciliation bill that is largely revenue-neutral. How will they get there with a plan to cut as much as $2.4 trillion in taxes over the next decade?
The answer was supposed to be that savings from gutting Obamacare would offset the costs of tax cuts, but those savings aren’t going to be available now.
Professor Rebecca M. Kysar of Brooklyn Law School explained in Slate recently why it’s bad policy to tackle something as complicated as tax reform in a Budget Reconciliation process, and one of her reasons was that tax cuts that are scheduled to sunset (but might not) create needless uncertainty in the economy. But she was assuming that the tax cuts would have to sunset. The plan, however, was designed to assure that they would not need to sunset. Whatever else you might say for the merits of Trump’s tax reform, the plan to enact them is now in tatters and a sunset provision cannot be avoided.
Another problem is political. While it’s possible to increase the deficit using budget reconciliation, the process is designed to do the opposite. As a result, opponents can raise points of order to object to provisions that raise the deficit unless those provisions are specifically authorized by the instructions given to the drafting committees in the Budget Resolution. This means, a majority in the Senate has to vote to increase the deficit before they even know the details of how the deficit will be raised. And it gets even more complicated when you realize that “the Byrd Rule prohibits changes that would increase the deficit for a (given) fiscal year beyond those covered by the reconciliation measure.” How do you anticipate the year-to-year deficit increases of a tax bill before you’ve even drafted it?
The non-eyes-glazing-over version of this is that it will be very hard to craft instructions in the next Budget Resolution bill that can survive challenges when the time comes to pass the next Budget Reconciliation bill.
So, these are some of the ways that the failure to gut Obamacare has imperiled the effort to enact tax reform using a simple majority in the Senate.
The drafters of the tax reform almost definitely will have to accept that their bill must sunset after ten years because they can’t demonstrate offsets that would make their bill deficit neutral. Politically, they need to convince their Freedom Caucus to authorize what looks like trillions of dollars in deficit spending on the front-end without being able to discuss the details. Technically, they’ll have to craft instructions for short-term year-to-year deficit spending that can survive Byrd Rule challenges, but they’ll have to do this blind before the bill is even marked up.
And if they can accomplish all of that, which seems exceedingly difficult but not technically impossible, they’ll have to make it into something that can pass the House and can avoid losing more than three members of their caucus in the Senate.
This is a challenge that looks a lot harder than getting dealt an inside straight. And that’s probably a big part of the reason that Reince Priebus went on “Fox News Sunday” yesterday and “held out the possibility of working with moderate Democrats” on tax reform.
We need to be clear that there is no way for Trump to work with any Democrats (moderate or otherwise) on tax reform if he’s still planning on using the Budget Reconciliation plan. And, I know that Treasury Secretary Steven Mnuchin tried to keep a stiff upper lip on Friday when he said that “health care is a very complicated issue,” but “in a way, tax reform is a lot simpler,” but that’s not even close to being true. The last real comprehensive tax reform plan was authored by Democratic Senator Bill Bradley for Ronald Reagan in 1986. It wasn’t easy then, and nothing that ambitious in this field has been accomplished since.
As I wrote over the weekend in my Trump Built His Own Prison piece, it’s not going to be a simple pivot for the president from his original plan to enact his agenda with nothing but Republican votes to asking the Democrats to join him on things like infrastructure and tax reform. In fact, I don’t think he’s capable of making that pivot and the Democrats are in no mood to welcome him with open arms.
In fact, I want to reiterate this point:
Of course, so far I’ve been ignoring the elephant in the room, which is the federal and congressional investigations of his campaign’s connections to the Russians. He needs the Republicans to be united enough behind him to create a line of defense that can hold. Having insulted so many key congressional Republicans, and running a foreign policy that is not trusted by the Republican establishment, and having made enemies of the Intelligence Community and the media, Trump can ill afford to give Republicans a reason to abandon him. That effectively cuts him off from running to Schumer and Pelosi and asking them to help him enact new tax reforms, infrastructure investment, and trade policies.
I do not feel sorry for him. But I also can’t see how he can navigate out of the prison he’s constructed for himself. He’s barely been in office for two months and he’s already cut off every possibility for success.
His administration had a plan. That plan is not going to work. The problem is, the way they pursued their initial plan has blocked them from finding a viable Plan B.
His tax reform is dead in the water and cannot be revived.