Understanding the Budget Reconciliation Process and 2024 Election Predictions
If you remember “I’m Just a Bill” from School House Rock, you may remember that in order for a Bill to become a Law it needs over 50% of the House of Representative, over 60% of the Senate and a Presidential signature.
However, in the world of Tax, there is a “work around” on how law gets passed called the Budget Reconciliation Process. This maneuver reduces the Senate requirement to over 50%.
As TCJA is set to expire at the end of 2025, the likelihood of new tax law being passed under the Budget Reconciliation Process is extremely high.
With the 2024 elections rapidly approaching, understanding the potential political landscape is crucial to understanding how tax law will change. This blog post is based on the best available non-partisan information available in mid-September 2024, so the climate could have changed quickly since then. This is not intended to predict the outcome of races but to understand the impact the coming election will have on future tax policy.
High Level Overview of the Rules Around the Budget Reconciliation Process
The budget reconciliation process is a legislative procedure that expedites the passage of certain budgetary legislation in the United States Senate. The actual administrative rules and process are complex, so we will restrict ourselves to what we believe to be the most important to this process.
Budget Resolution:
The process begins with the adoption of a budget resolution by both the House of Representatives and the Senate. This resolution sets the framework for federal spending, revenue, and debt levels for the upcoming fiscal year.
Reconciliation Instructions:
The budget resolution includes reconciliation instructions, which direct specific congressional committees to draft legislation that achieves the budgetary goals outlined in the resolution. These instructions can cover spending, revenue, or the debt limit. The Bill must be “budget neutral” for no more than a 10 year period. This is the reason TCJA, which was passed under this process, is set to expire or sunset after only 7 years.
House and Senate Consideration:
In the House, the reconciliation bill is debated and voted on. In the Senate, the bill is also debated, but it is not subject to a filibuster, meaning it can pass with a simple majority (51 votes) rather than the 60 votes typically required to close debate.Byrd Rule:
The Byrd Rule, named after Senator Robert Byrd, restricts the content of reconciliation bills to provisions that directly affect the federal budget. Any provision deemed extraneous can be removed unless waived by a 60-vote majority.
Conference Committee:
If there are differences between the House and Senate versions of the reconciliation bill, a conference committee is formed to reconcile the differences. The final version is then sent back to both chambers for approval.
Presidential Signature:Once both chambers pass the final version of the reconciliation bill, it is sent to the President for signature. Upon signing, it becomes law.Since, it is most probably that neither party will have 60 votes in the Senate, it is important to look at the possible make up of Congress. Depending on how the party affiliations play out in each Chamber and the Executive Office will give us great insight into how the tax landscape may be formed over the coming years.
Probability of Party Control in the 2024 Elections
The 2024 elections are shaping up to be highly competitive, with significant implications for tax policy and other legislative priorities. Here’s a look at the current predictions for control of the House of Representatives, the Senate, and the Presidency:
House of Representatives:
As of now, Republicans have a slight edge with a 56% chance of winning control of the House. The narrow margin reflects the competitive nature of many congressional districts and the potential for shifts in voter sentiment leading up to the election.
Senate:
The Senate is also highly contested, with Republicans currently holding a 70% chance of gaining control. This is partly due to the number of Democratic seats up for re-election in states that lean Republican.
Presidency:
Vice President Kamala Harris has a 55% chance of winning the presidency, according to recent forecasts5. However, key battleground states such as Nevada, Arizona, Wisconsin, Pennsylvania, North Carolina, and Georgia remain toss-ups, making the race highly unpredictable.
Conclusion
Understanding the budget reconciliation process is essential for grasping how significant tax legislation can be passed with a simple majority in the Senate. As we approach the 2024 elections, the potential shifts in political control of the House, Senate, and Presidency will play a crucial role in shaping future tax policies.
We will continue to closely monitor the impact the current election will have on future tax policy and continue to provide our view and strategies on how to navigate the coming year. Please let us know if you have any questions regarding our view of how tax policy will get formed.