Will “Budget Reconciliation” Play a Role in 2021 Tax Legislation?

February 04, 2021

By Richard Shapiro

The Biden presidency has begun, with the 117th United States Congress closely divided, though in Democratic control – a small majority in the House and a 50/50 split in the Senate (with Vice President Harris able to cast a tie-breaking vote if necessary).  But, in order to avoid a filibuster in the Senate, 60 votes are required to end debate and allow legislation to proceed.  Given the realities of the political situation in Washington currently, getting 60 votes for anything other than the most non-controversial matter is likely to be a formidable task. 

That is where budget reconciliation becomes key.  Reconciliation is a special legislative process created as part of the Congressional Budget Act of 1974. One of the attributes of reconciliation is that a reconciliation bill cannot be filibustered – thus allowing the Senate to pass a reconciliation bill with a simple majority vote (including a tie vote plus the vice president).  In addition to a number of significant procedural limitations, there can be only one reconciliation bill under an annual budget for each of revenue, spending and debt.  If a single reconciliation bill has both spending and revenue provisions (which would be the case for legislation with tax provisions), no other reconciliation bill affecting spending or revenue is allowed with respect to that budget.  To use reconciliation, a budget resolution needs to be adopted by Congress that includes “reconciliation directives” for specified Congressional committees.  While a budget resolution does not itself become law, reconciliation is a procedure for enacting parts of a budget resolution into law. 

Since 1980, Congress has sent 25 reconciliation measures to the president – four bills were vetoed and 21 enacted into law, including major spending cuts during the first year of the Reagan presidency; several deficit-reduction programs during the 1980s and 1990s; welfare reform in 1996; the major Bush tax cuts in 2001, 2003 and 2006; some parts of President Obama’s Affordable Care Act (“ACA”) and President Trump’s Tax Cuts and Jobs Act in 2017.  The Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015 was passed by Congress in an effort to repeal many of the provisions of the ACA, but it was, not surprisingly, vetoed by President Obama.  And, early in 2017, another effort was made to use reconciliation to repeal major provisions of the ACA and cap federal funding for Medicaid, but the bill failed to pass in the Senate.

Because no fiscal year 2021 budget resolution was adopted in calendar year 2020, Congress will have the opportunity to take up an additional reconciliation bill this year by passing two budget resolutions  -- one for the overdue budget resolution for fiscal year 2021 (which began October 1, 2020) and a second for fiscal year 2022 (which begins on October 1, 2021).

In the early days of the Biden Administration, there has been serious talk of using budget reconciliation to move its massive coronavirus relief package (the process has already begun), as well as possibly infrastructure and client legislation.  Where does that leave major tax legislation in 2021? Will the road to enacting President Biden’s tax agenda run through budget reconciliation? Perhaps.  It may be the only way possible to pass tax legislation, given the likely difficulty of getting those 60 votes in the Senate.  Indeed, it may have already started, with calls by many Democratic members of Congress to include in the coronavirus relief package a reinstatement of the limitation on excess business losses for pass-through businesses and a restriction on net operating loss carrybacks, undoing sections of the CARES Act.  Other tax provisions will no doubt be considered for inclusion as the bill works its way through the legislative process.   

EisnerAmper will continue to keep you informed on developments regarding federal tax legislation.

About Richard J. Shapiro

Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has over 35 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.