With the election of President George W. Bush in 2001, the Republicans controlled majorities in the House, the Senate and the White House for the first time in almost 50 years. The Senate, however, was split 50-50. Instead of pursing bipartisan, filibuster-proof legislation, the Republican-controlled Congress opted to use the legislative process of last resort.
The biggest tax policy changes under President Bush were the 2001 and 2003 tax cuts; both were passed via the reconciliation process. Effectively, since 2001, all major legislation has been passed under the reconciliation process, including the Bush tax cuts, the Trump tax cuts and now the proposed Biden tax increases under the Build Back Better Act.
The slippery slope that worried Senator Byrd has arrived. By moving from the traditional legislative process to the reconciliation process under President Bush, the tax cuts enacted in 2001 were set to expire in 2011. Post 2001, we, as a country, were on a treadmill. Congress was going to either have to continue to extend the law or the law would revert back to that of 2001. Because simple majorities have taken control of Congress and the Executive, tax pivots happen quickly.
The budget reconciliation process, once a one-off safeguard, is now the dominant legislative process for tax policy. The last bipartisan, filibuster-proof revision of the tax code was in 1986, and it is likely to be the last.
Limits on reconciliation?
If our new normal is to legislate through the reconciliation process, what are its limits?
To be sure, the outward boundary of what is possible through reconciliation will be tested going forward. During the Trump Administration, advocates for more robust tax cuts proposed lengthening the conventional 10-year window for which the policy had to be budget-neutral to 50 to 100 years. This year, Senator Schumer asked the Senate Parliamentarian about having multiple subreconciliation bills under a master bill. He also wanted to continuously amend the reconciliation instructions, which would effectively allow for unlimited bills, rather than the single use allowed under the current rules. Although the Senate Parliamentarian ruled against Senator Schumer, the Senate could overrule the Senate Parliamentarian with a simple majority vote.
What to expect going forward
Now that reconciliation is the new normal, taxpayer expectations and behaviors will have to change.
It does matter whether the decision to green-light the budget reconciliation process for deficit-increasing tax cuts came in 1975, 1996 or 2001. Once the decision to move from bipartisan tax policy to simple majoritarianism, we have embarked on a slippery slope. We seemed to have passed the point of no return and, at best, can expect a 10-year world of tax policy.