Budget Suspense

Blog Post
Friday, August 20, 2021

Democrats announced in early July that the progressive and moderate wings of the party had agreed to a top line spending level of $3.5 trillion for the upcoming reconciliation bill. They also promised to pay for most, if not all, of this package.

-Budget Clues to Reconciliation, The Concord Coalition, July 28, 2021 

Last month, The Concord Coalition wrote about potential clues in the FY 2022 budget resolution to the Democrat’s upcoming $3.5 trillion reconciliation bill, the second installment of a two-bill package enacting President Biden’s Build Back Better agenda (the first: the bipartisan infrastructure bill). Passing a budget resolution through the House and Senate is an essential first step in unlocking reconciliation, the special procedure that allows the majority party in the Senate to pass legislation with a simple majority instead of the normal 60-vote threshold. The Senate completed its work on the budget resolution on August 11th (S.Con.Res.14) and sent it to the House. What do we know thus far?

Reconciliation instructions total $1.75 trillion. The Senate-passed FY 2022 budget resolution contains reconciliation “instructions” to 11 committees in the Senate directing them to report out by September 15th changes in laws under their jurisdiction that would increase the deficit by no more than a specified amount over the 10-year budget window (FY 2022-2031, inclusive). A twelfth committee, the Senate FInance Committee, received an instruction to report out changes in laws that would reduce the deficit by at least $1 billion. The sum total of these fiscal targets is a $1.75 trillion increase in budget deficits over the next 10 years. This suggests that if Democrats adhere to their stated goal of producing a $3.5 trillion reconciliation bill, at least half ($3.5T less $1.75T) would have to be offset to conform with the budget resolution’s reconciliation instructions.

Unease over profligate spending among moderates within the Democratic party, most notably West Virginia Senator Joe Manchin and Arizona Senator Krysten Sinema, suggests however, that the final reconciliation bill will be smaller than $3.5 trillion. A budget resolution doesn’t contain any policy prescriptions telling the committees how to achieve their fiscal targets (technically, they aren’t allowed), so Democrats are free to produce a bill with a variety of policy combinations as long as when the dust settles, the final bill does not increase the deficit by more than $1.75 trillion over the next decade (there are some committee-level restrictions but those rules go beyond the scope of this post). This means any number of policy outcomes are possible as long as Democrats have the votes to pass the measure, including a reconciliation bill that spends only half the original goal and contains ZERO offsets. 

Admittedly, a $1.75 trillion reconciliation bill with no offsets is an unlikely outcome. A top priority among Democrats is to ensure that temporary enhancements to certain child anti-poverty tax credits are made permanent, and to do that they will need to include payfors that guarantee those provisions won’t increase the deficit in any year beyond the budget window (otherwise they can be excised from the overall bill).

Still, any legislation that adds $1.75 trillion to the debt over the next decade would be irresponsible. Just because the budget resolution permits Democrats to draft a $1.75 trillion reconciliation bill doesn’t mean they should. The instructions to committees are a ceiling, not a floor. At a time when our national debt exceeds 100 percent of GDP, our entitlement programs are underfunded and at risk, and baseline projections reveal annual budget deficits in excess of a trillion dollars ad infinitum beyond 2025, Democrats should aspire to do better than the bipartisan infrastructure bill, not worse. 

No debt limit instructions. Treasury Secretary Janet Yellen has repeatedly asked lawmakers to raise or suspend the statutory debt limit to avoid default. The limit, which had been suspended since passage of the Bipartisan Budget Act of 2019, was reinstated on August 1 and Treasury has been relying on temporary “extraordinary measures” to avoid breaching the legally binding ceiling. 

Budget law permits a reconciliation bill to carry instructions directing the Senate Finance Committee and the House Ways and Means Committee to increase the statutory debt limit by a specific amount. In the last decade, however, Congress has changed the way it addresses the debt limit, opting to suspend the debt limit until a specific date (after which the limit automatically adjusts to reflect the level of debt outstanding at that time) rather than specify a numerical increase. The rationale is that a vote to suspend is more benign and carries less political risk for lawmakers at election time. 

But the Senate Parliamentarian has suggested that the rules of reconciliation do not permit suspension of the debt limit in reconciliation, leaving Democrats with a tough choice: negotiate with Republicans to suspend the debt limit outside of reconciliation (during which the minority party is sure to demand what Democrats perceive as potentially unpalatable spending reforms), or use reconciliation (and a simple majority) to raise the debt limit by trillions, another politically risky endeavor.

After a suspenseful few weeks, Senate Democrats revealed a budget resolution that did not include any debt limit instructions, a surprise to many budget observers given the bitterly divided Congress and Republican threats to oppose any debt limit increase. Will this position survive House consideration of the measure?

House action next (?) House lawmakers have been called back to D.C. next week for a special session to consider the Senate-passed budget resolution. An intraparty spat, however, threatens to upend progress on the measure. In a letter to Speak Pelosi, nine moderate Democrats led by Representative Josh Gottheimer (NJ-05) stated they will not vote for a budget resolution until the bipartisan infrastructure bill, which passed the Senate in early August, is enacted: 

Some have suggested that we hold off on considering the Senate infrastructure bill for months – until the reconciliation process is completed. We disagree. With the livelihoods of hardworking American families at stake, we simply can’t afford months of unnecessary delays and risk squandering this once-in-a-century, bipartisan infrastructure package. It’s time to get shovels in the ground and people to work. We will not consider voting for a budget resolution until the bipartisan Infrastructure Investment and Jobs Act passes the House and is signed into law. 

- August 12th letter to Speaker Pelosi signed by Representatives Josh Gottheimer (NJ-05), Carolyn Bourdeaux (GA-07), Filemon Vela (TX-34), Jared Golden (ME-02), Henry Cuellar (TX-28), Vicente González (TX-15), Ed Case (HI-01), Jim Costa (CA-16), and Kurt Schrader (OR-05)

Similarly however, there are 90+ progressives (including Speaker Pelosi) who have vowed to oppose passage of the infrastructure bill until the Senate has passed the not-yet-drafted reconciliation bill. 

The House majority is razor-thin and Speaker Pelosi can afford to lose only three votes on the budget resolution. The challenge before her and her leadership team is to find a path that harmonizes the two mutually exclusive positions within her caucus. She has options, both procedural and political, but so far her outreach to the House Gang of 9 has fallen flat. The last time Pelosi faced such high stakes wrangling was in 2010 over passage of the Affordable Care Act.

Get your popcorn ready.