In this timely episode, TCS President Steve Ellis and Director of Research Josh Sewell dive deep into the complexities of budget reconciliation as Congress grapples with competing strategies in early 2025. They explore the stark differences between the House’s “one big beautiful bill” approach and the Senate’s two-bill strategy, breaking down how reconciliation works, its limitations under the Byrd Rule, and the massive fiscal implications of proposed spending increases and tax cut extensions. The conversation highlights the cognitive dissonance between simultaneous pushes for defense spending cuts and increases while examining how the process could add trillions to America’s already staggering $36 trillion national debt.

Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget spending and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about and pushed to Washington, brought to you by taxpayers for common sense. And now the host of Budget. Watchdog AF TCS President Steve Ellis.

Steve Ellis:

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place. For 30 years TCS, that’s taxpayers for common sense, has served as an independent nonpartisan budget watchdog group based in Washington DC We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted. It’s February, 2025 and with Valentine’s Day now behind us, the cent of budget reconciliation hangs in the air on Capitol Hill. A powerful aphrodisiac budget reconciliation is a loophole. Lawmakers love to exploit when they can. Joining me now to track the scent and sniff out the obstacles is our very own TCS Director of Research and policy. Josh Sewell. Welcome back to the Hunt. Josh.

Josh Sewell:

It’s great to be here again.

Steve Ellis:

So Josh, let’s set the scene for everyone. Both the House and the Senate have released their proposed budget resolutions. Are they on the same page?

Josh Sewell:

Not even close.

Steve Ellis:

What’s their different strategy?

Josh Sewell:

So I think the big issue is that you actually have two different strategies in the house. They want one big beautiful bill and in the Senate you’re talking about a two bill strategy when it comes to the budget resolution.

Steve Ellis:

Okay, so now we’ve talked about the budget resolution. What does a budget resolution do in normal years?

Josh Sewell:

Basically a budget resolution is how Congress sets the terms of debate for the annual spending process. In a budget resolution. The House and the Senate will agree to revenue assumptions, the amount of money that the government is going to have to spend for the year, the top line level of spending, and basically it provides the pool of funds available in the appropriations process. The budget resolution, which does not have to be signed by the president, it is not signed by the president, is in agreement between the House and the Senate basically laying out the terms of debate. Oh, it’s also an opportunity for budget reconciliation instructions.

Steve Ellis:

We teased reconciliation there at the head. What do they do?

Josh Sewell:

Budget reconciliation. It’s a process where the committees and the house and the Senate can be directed to come up with legislation to meet spending or revenue targets. It’s important because reconciliation is done under, you call non-normal as I call ’em, house incentive procedures. And one of the biggest differences is that in a reconciliation package, that package only requires a majority in the Senate and there’s a baked in amount of debate time. A single senator cannot put a hold on it, they can’t oppose it through unanimous consent and it can’t be filibustered. So basically it’s this powerful tool and that’s why typically when you do reconciliation, you can use it to say each committee, here’s a certain target that you can increase the deficit by, or here’s a certain amount that you have to decrease deficits by. And it just becomes a powerful tool to either increase spending or find savings that are both more likely to occur than if you had to do it under a regular process of debate.

Steve Ellis:

So why don’t they always use reconciliation? It seems like this is this powerful tool that avoids some of the limitations in the Senate.

Josh Sewell:

It is a very powerful tool and undercurrent rules reconciliation requires that the House and Senate, first of all, adopt a budget resolution that includes reconciliation instructions. So you have to have a budget resolution, which we don’t always have. Right, Steve?

Steve Ellis:

That’s true. And I guess the other thing that I would flag is of course you need to have unified control that if you don’t have the president, the Senate and the House all in the same party or run by the same party, then you’re not going to be able to get an agreement. Right,

Josh Sewell:

Exactly. For much of the time I’ve worked in DC many of those years, there hasn’t been a budget resolution because the house has been controlled by one party, sin has been controlled by another and they just haven’t come to agreement. Now, in theory, they could come to an agreement on a budget resolution and they have in the past, but lately when different parties control different chambers, there’s just not an agreement on spending. So they don’t come up with an actual budget resolution. So without that formal resolution, they don’t have a chance for instructions. So the first step is you have to have a budget resolution.

Steve Ellis:

And I guess the thing is is even when you had unified control of Congress in the opposite party of the White House, well then the White House would just veto reconciliation it didn’t like. And so you really have to have that unified control.

Josh Sewell:

Exactly. It has to basically you have to have one party controlling every chamber and the White House.

Steve Ellis:

Okay, we’ve got these instructions that have gone to the various committees, it comes back, the budget committees put this together. So what’s the next step and what can be in these reconciliation packages?

Josh Sewell:

So reconciliation, like pretty much everything in Washington, it gets very technical, but the gist of it is that the way the Senate especially interprets the rules around the budget resolution is that a budget resolution can only produce one bill that touches on one of three categories, either spending revenue or the debt ceiling. So you can have an increase or decrease in spending over a set period of time. The resolution with the reconciliation instructions can increase or decrease in revenues over a set period of time, or it can mandate a modification, which is always an increase in the debt limit.

Steve Ellis:

Right. But that set period of time we should flag for our listeners is within a decade they can’t have implications outside of that 10 year budget window. Right,

Josh Sewell:

Exactly. And so oftentimes what will happen is may actually mandate increases in spending for the first four years, but the budgetary effects are calculated over the 10 year scoring window. So then that’s what you’re actually playing within that 10 years, which is why oftentimes it’ll be short-term spending or it’ll be some of the revenue provisions will expire so that they don’t have an effect outside of that window.

Steve Ellis:

You mentioned earlier that there was this two bill strategy that the Senate was potentially going on and the house was doing the one big beautiful bill strategy. Why are they able, if it’s tied to the budget resolution, why is the Senate even able to do a two budget resolution reconciliation strategy?

Josh Sewell:

Well, this is because if you remember, it feels like it was four years ago, but me, a couple months ago, Democrats were in control of the Senate in the last Congress and Republicans controlled the house. So for this fiscal year that we are currently in fiscal year 2025, there was not an agreed to budget resolution. They came up with other procedures to do the spending bills, which haven’t actually been finished yet. But so there was no budget resolution. So what they are actually doing right now is passing a budget resolution for fiscal year 2025, which has six months left in it, and that would be the first set of reconciliation instructions. The Senate would then follow that up and say, in fiscal year 2026, we’re going to do a budget resolution for 2026, and that’ll have a separate set of instructions. And for them, they want to do that.

Second bill is what they want to do, the revenue on which the first one wants to be the increase in spending for Trump’s priorities. Let’s take people behind the curtain a little bit, this debate around how to do budget reconciliation. This didn’t just start on the day after the election when it was clear that Republicans were going to be in charge. We were involved in some conversations with folks, folks who were projecting that they were going to have uniparty control back in the summer. And so there was just sort of teeing up this idea, but it was even back then it was do we do a one bill strategy or do we do two? And it was exactly at least the conversations I was involved in. Steve, the point was brought up exactly what you were saying. It was other organizations that wanted to get a win for the president and build momentum are really advocating for that. They would argue and easier lift, which is the increased in spending as opposed to doing the whole package. But again, as we’ve seen in the four weeks or so that this administration and this new congress, nothing’s easy here. Even things that are easier can still be pretty difficult. You got to agree to stuff.

Steve Ellis:

Yeah, and I mean the margins, it’s not very often where you talk about the margin and the Senate being greater than the margin in the house, but that’s what the Republicans are facing right now. So let’s dig in a little bit into what’s in these bills. You mentioned that there’s the spending and I mentioned that the second one is the tax cut and jobs Act expiration, other tax issues. So what is in the house budget resolution as far as instructions to the committees and what is in the Senate one?

Josh Sewell:

Sure. So broadly in the house, there are instructions to almost every committee, and three of them are instructed to come up with spending increases. So Homeland Security judiciary and Armed Services, and in the legislative language says 300 billion in increases. And so those are the committees that are involved in national defense and border security primarily. So these would be ways of increasing spending on the President’s campaign priorities. That also calls at the same time for a floor of one and a half trillion dollars in reductions from seven other committees, ag, energy and commerce, et cetera. And so that is the spending increase. And then that’s some of the offsets because the other big thing in the house is there’s the tax Writing Committee is instructed for up to four and a half trillion dollars increase in the deficit they’re allowed to do in order to extend the tax cuts that are expired.

And the Senate has different increases also for the Armed Services Committee and the same committees. They’re named different things in the Senate, but same committees in jurisdiction and all told, it’s a little murkier on the Senate in some respects because they don’t have any instructions for increasing the deficit based on the revenue, but they do in the tables that the committee has released, they are assuming the tax cuts are extended. And then the committee’s assuming the dynamic scoring that comes from extending these tax cuts. And so all told they have more increases in spending on the committees that they want to spend money on, but they also don’t include any real bending reduction targets in the other committees. The legislative text only calls for 4 billion in spinning reductions across these other committees, which is technically a floor. But yeah, we’ll see if they go anything above that floor.

Steve Ellis:

Well, and we’ve seen gimmicks here before. I mean Bois, IAF listeners may recall from previous episodes that some of the major pieces of legislation in the last decade plus have come through reconciliation. We’ve been talking about the tax cut and Jobs Act, and that came through reconciliation, but same was the Inflation reduction Act that was also under reconciliation. So was the creation of the Affordable Care Act. So these are all big legislative packages that move through reconciliation, and I think it’s kind of a convenient trick that the Senate can assume that they’re going to extend these tax cuts and then get the dynamic scoring and the revenue generated or economic activity generated from that, but not actually include them in the package. So Josh, when you talked about reconciliation, you mentioned that it can only be dealing with revenue, with spending or the debt ceiling. What does that preclude from being on the bill and how is that enforced and why does that exist?

Josh Sewell:

Yeah, so under the rules in this expedited process, any changes have to have a direct impact on either revenue or on spending. And so that direct, it can’t be, there’s different terms to use for it, but basically it can’t be a policy change that has some sort of indirect or ancillary effect on spending or revenue. So if the goal is really just to change a policy, that’s not what this is. This is about spending revenue assumptions and then policies that then have the direct impact. And so what that means, especially in the Senate, you have the parliamentarian who is very powerful in this process where they get to make that determination of whether or not a specific proposal is in fact if someone challenges it, whether or not that does in fact have a substantial and direct impact or if the revenue or spending changes are just tangential basically.

Steve Ellis:

And that’s the bird rule named for the legendary former Senate majority leader Robert Bird, Democrat from West Virginia.

Josh Sewell:

And the idea again is to, this is supposed to be about, is’ not supposed to be some huge policy bill where you are going through the authorization committee and doing this process. This is about meeting that revenue target or that spending target. And so in some ways it’s a truncated version of doing a bill for an effective programs, but also it’s really dollars and cents. And so that’s why it’s more flexible in some respects, but then it’s also limiting in other effects at the same time.

Steve Ellis:

And I think Senator Byrd put that in there because you wanted to be sure that if you could do big policy legislation like the Farm Bill or transportation bill or other major pieces of legislation, then what’s the point of having the Senate filibuster at all? And so that was I think part of where he was coming from on that and limiting it. The other thing though that it does is we mentioned that debt ceiling is another thing that can be included in budget reconciliation, but I’m pretty sure that doing the debt ceiling the way they’ve liked to do most recently, which is suspend it to a date in the future, which is not a number, and that they would actually have to increase the debt ceiling in this by a few trillion dollars or something like that, which might not look so good optically, at least to the public of having all of this revenue loss, all this spending and then the debt ceiling being increased in the same package.

Josh Sewell:

Exactly. And especially as both of these bills are either currently constructed or it looks like the two bill strategy would happen is you’d have to figure out, because we’ve met the debt ceiling, and so that’s already an issue that moving forward we’re going to have to figure that out. And if you have $4 trillion and foregone revenue from the tax cuts, and you’re going to have to be like you’d sit there and put pencil to paper to figure out how much do we actually want to as our first major legislative achievement increase the debt ceiling, which is something that they spent the last two years at least hammering as a major issue and had used as a leverage against fenestration to get some spending constraints at least.

Steve Ellis:

So the other thing is the president is the self-proclaimed tariff man, and there’s purportedly going to be revenue generated, but it doesn’t seem to me that unless they direct something that they can actually use any predicted revenue from tariffs as offset or something in reconciliation.

Josh Sewell:

I would hope not. But one of the challenges in these processes, you can technically overrule the parliamentarian if you get enough votes. And also you can, as part of this process, there will likely be attempts to do directed scorekeeping. And as sort of alluded to in the current understanding of the Senate’s bill, is there are assumptions that go into this process and there’s also an agreement on the baseline. So you have to have an agreement on which baseline you use and the baseline being the assumed revenues, the assumed spending. And so that’s where you could see some cooking the books and some assumptions that aren’t based in the reality that many of us expect to put it kindly.

Steve Ellis:

Got it. Bo Faithful, if you recall as we were talking about some of the things that were the spending that was going into the reconciliation instructions, it was at least in the Senate 150 billion for the Armed Services Committee to add to the Pentagon spending. Now you juxtapose that with just this week Doge, the Department of Government efficiency is entering the Pentagon and going to be looking presumably for cuts. And Secretary Hegseth has directed the service chiefs to come up with 8% reductions in their various services. So you have both cuts and more cash.

Josh Sewell:

I mean, that’s what they’re saying. And so it’s one of the challenges right now is here in Washington, which I think many folks can see, is that it’s a question of whether the left hand is working with the right hand or if the feet are walking together. You don’t know what’s talking to who right now. And so it’s a real question, especially in the Senate to increase spending on defense. And so this idea that you’re going to find 8% cuts to, was it about an 850 billion spending, I think in this current fiscal year, good luck unless you’re going to actually really take some real hard looks at some of the major weapons systems and some real reforms. I think you could do it, but not if you’re also going to immediately before at your simultaneously increase spending under reconciliation.

Steve Ellis:

Yeah, there’s a cognitive dissonance that even after all my time in Washington seems kind of stark here about cut foot increase and this whole approach and I that going back to reconciliation, tell our listeners what the schedule is right now as far as what we’re understanding, and then some of the more recent hiccups that have occurred.

Josh Sewell:

The house as we’re recording, this isn’t even in session and the Senate is moving forward, but the President most recently has said he’s prefers the house’s process. So this is just I think another example of how even things that should be easier are not necessarily easy in Washington. And the better process would be to have, I would argue, is go through a regular order, include the entire Congress and actually make some of these tough decisions. Don’t defer this, don’t try to make major changes through reconciliation and also don’t defer all of our spending decisions or our pursuit for savings to Doge or some other entity. We need to involve more people, get more people a seat at the table and just really come to grips with some of these issues.

Steve Ellis:

And that’s why as budget wa, if listeners know, I mean last Congress, there was a fiscal commission, a bipartisan bill to establish a bicameral fiscal commission that we supported that could make some of these tough decisions and choices, which we’re not getting from Doge at all right now. And we’ll have a podcast episode coming up very soon that I’ll talk about the Doge and Inspectors general. So Jonas, before we go, we talked about the debt limit and increasing the debt limit and we know it’s more than $36 trillion and interest payments on that debt are a trillion dollars annually right now. How much is that going to increase even without this additional revenue loss and spending that being proposed?

Josh Sewell:

A ton. The last time I looked, congressional Budget Office was projecting that the interest payments alone would be up to $1.7 trillion in 2034. That’s assuming the current spending and revenue baselines. So that would be an enormous amount of money just to service our

Steve Ellis:

Debt. And when you say the current baselines, that means that tax cut and jobs Act, individual provisions all expire. So you don’t have that four and a half trillion dollars revenue loss, not including this additional hundreds of billions of dollars of spending that has been proposed. And so that is staggering and that is more than we spend in the discretionary budget currently, all just going to interest to service the debt.

Josh Sewell:

Yeah, it’s mind boggling and it’s hard to imagine that it was just a few years ago was in 2018, I think it was 20 $20 trillion was our debt and many of us were pulling our hair out trying to get that under control. And here we are at 36 trillion, Amir, less than seven years later.

Steve Ellis:

Yeah, it’s staggering. It certainly means that we’re in a completely different situation than we were when the 2017 Tax Cut and Jobs Act was enacted. Absolutely. Josh Sewell, thank you for being here with us for this important conversation. Happy

Josh Sewell:

To do it, and that’s going to be a great

Steve Ellis:

Exciting year. Well, there you have at podcast listeners, whether it’s one bill or two, the hundred 19th Congress is poised to add a staggering amount to the national debt. This is the frequency market on your dial, subscribe and share and know this taxpayers for common sense has your back America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spent our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.