Congress poised to negotiate significant budget reconciliation package

The U.S. House and Senate have approved a unified budget resolution, setting the stage for a budget reconciliation process that could provide a vehicle for significant tax legislation. Expiring provisions of the 2017 Tax Cuts and Jobs Act will be a cornerstone of a legislative package that is expected to include other priorities from President Donald Trump’s legislative agenda.

Budget reconciliation can smooth the path for controversial legislation

Budget reconciliation is an important legislative tool this year. Its procedures allow legislation to move through the Senate with a simple 51-vote majority rather than the 60 votes that are typically needed to overcome Senate procedural hurdles. As a result, budget reconciliation bills usually serve as a legislative vehicle for a wide range of tax and budget provisions.

The Senate’s budget reconciliation rules, however, limit the provisions that may be considered as part of a budget reconciliation bill. Under these rules, provisions may be subject to a point of order if they:

• Do not produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made or revenues are collected
• Increase outlays or decrease revenue when the instructed committee is not in compliance with the instructions in the budget resolution
• Fall outside of the jurisdiction of the committee submitting the provision
• Produce changes in outlays or revenues that are merely incidental to the non-budgetary components of the provisions
• Increase the deficit for a fiscal year beyond the "budget window" covered by the reconciliation measure
• Recommend changes in Social Security

It would require 60 votes to overcome a point of order, so provisions that are subject to a point of order are rarely included in budget reconciliation legislation.

Budget reconciliation will not be limited to expiring tax provisions

Expiring tax provisions will help drive the budget reconciliation process and push lawmakers to enact legislation before key provisions sunset at the end of 2025. Provisions that will expire at the end of 2025 include:

• Individual tax rates and other individual tax provisions of the Tax Cuts and Jobs Act, such as the increase in the child tax credit, the increase in the phase-out and exemption amounts for the alternative minimum tax, and the increase in the standard deduction
• Enhanced premium tax credits under the Affordable Care Act (ACA)
• Exclusion for employer-provided student loan repayment assistance under Internal Revenue Code section 127
• The employer tax credit for paid family and medical leave
• Certain expansions of ABLE accounts, including the increased contribution limit and eligibility for the saver’s credit

In addition, the safe harbor that allowed health savings account (HSA)-qualifying high-deductible health plans (HDHPs) to offer telehealth services without a deductible or with a deductible below the minimum HDHP deductible expired at the end of 2024.

The budget reconciliation process will not be limited to these expiring provisions. Lawmakers are also expected to consider other tax provisions, such as those related to reduced corporate tax rates and the taxes on overtime and tip compensation.

Benefit and compensation provisions may also be included. These provisions often meet the budget reconciliation requirements because they affect federal spending and revenues. Healthcare provisions — such as those affecting the ACA premium tax credits, HSAs and other account-based plans — and other tax-related provisions could be considered. Changes to retirement or executive compensation could also be under discussion. Congress has not yet drafted or debated the detailed provisions of the upcoming budget reconciliation legislation, so it is not yet clear which benefit and compensation provisions —if any — may be included.

Next steps

Congressional committees will begin to develop the detailed provisions of the budget reconciliation legislation. Provisions approved by the committees will be combined into legislative packages that will be debated by their respective chambers. The House and Senate will have to develop a unified budget reconciliation bill before the legislation can gain final approval and be signed into law. The outlook for benefits and compensation as part of the budget reconciliation package will emerge as Congress begins to develop and negotiate these details.