Introduction
In the United States, all tax legislation must originate in the House. After being considered by the Ways & Means Committee, the House need only pass legislation by a simple majority for the bill to then be considered by the Senate. There, after consideration by the Senate Finance Committee, a bill would likely be subject to the heightened, 60-vote threshold due to the Senate's filibuster procedure.
Congress can circumvent this heightened threshold in the Senate through the budget reconciliation process, passing bills with a simple, 51-vote majority—but reconciliation has specific requirements that prevent it from being a "silver bullet" for legislation.
Budget reconciliation: a streamlined procedure with limitations
The budget reconciliation process was created under the Congressional Budget Act of 1974, and, historically, it has been used sparingly. Reconciliation has become more relevant in recent times due to the typically thin margins held by the majority party. The process is, as indicated by its name, related to the annual budget process.
To begin the reconciliation process, the House and Senate Budget Committees must agree on a budget resolution. This resolution includes reconciliation instructions that direct the relevant committees to draft legislation in order to meet the budgetary goals set forth in the budget resolution, over a specified period of time. For example, before passage of the TCJA, the House and Senate agreed on reconciliation instructions to cut taxes by not more than USD 1.5 trillion over 10 years. (Note that 10 years was selected because that is the length of the "budget window" that Congress currently uses.)
After issuance of the reconciliation instructions, the responsive legislation must proceed through the normal procedure for a bill to become a law. Tax legislation must originate in the House – specifically, the Ways & Means Committee. Once a tax bill has been considered and passed by the full House, jurisdiction shifts to the Senate Finance Committee and the full Senate. Any discrepancies between the bills produced by the House and the Senate are resolved through the Conference Committee process. The main procedural differences under reconciliation are that (1) there is a 20-hour limit on debate in the Senate (as compared to the usual 40-hour limit); and (2) the Senate vote threshold can be lowered to a simple majority.
Though budget reconciliation offers procedural simplicity, it does create significant substantive and budgetary complexity. The bill must of course fit within the budgetary constraints of reconciliation instruction. This requires each provision to be analyzed (or "scored") for its effect on the budget. Thus, before the bill can be passed under reconciliation, it must be scored by the Congressional Budget Office and confirmed to have the required budgetary effect. To meet this requirement, Congress has modified its proposals to expire or "sunset" after a certain number of years. This is the reason that so many TCJA provisions are set to expire in the coming year. Had they been made permanent, the TCJA would not have complied with the reconciliation instruction.
The substance of a bill passed under reconciliation is also limited by the "Byrd rule." Passed by the Senate in 1985 and named for former Senate Leader, member of the Appropriations and Budget Committees, and master of Senate procedural rules Senator Robert C. Byrd (D-WV), the Byrd rule requires any provisions of a reconciliation bill to be "germane" to the reconciliation instruction. Thus, any provisions that do not have a budgetary effect, or which increase deficits outside the reconciliation window, can be struck from the bill by the Senate Parliamentarian. The Byrd rule therefore limits the scope of a potential tax bill, excluding items relating to IRS procedure and administration. Changes to Social Security are also not germane, and including changes to Social Security in a reconciliation bill would violate the Byrd rule.
Another limitation presented by the reconciliation process is that Congress can likely only use reconciliation once per fiscal year. While the Senate Parliamentarian ruled in 2021 that the Senate could use the reconciliation process twice in calendar year 2021, that ruling was made on the basis that one bill related to fiscal year 2021 and the other bill related to fiscal year 2022 (the government's fiscal year ends on September 30). Thus, the likelihood of a tax-focused reconciliation bill depends on whether Congress has other legislative priorities that would also need to be enacted via reconciliation.
Conclusion
If Congress considers major tax legislation in 2025, reconciliation will likely be the path for enacting such reforms. Even if either party gains control of both chambers of Congress, it is unlikely that either party would have a super-majority in the Senate. Thus, Congress may be forced to rely on reconciliation's streamlined approach, and comply with its limitations.
