Earlier today, the House passed the Senate’s amendment to the House-passed FY25 Budget Resolution, thus arming the two chamber’s dueling reconciliation instructions. With reconciliation now in effect, the two bodies can begin the process of fulfilling their respective instructions with legislative language from the committees that were instructed (view the House Budget Committee’s reconciliation process guide here).
While the goal remains to enact a budget reconciliation package and send it to President Donald Trump’s desk for signature as quickly as possible, with Speaker Johnson pushing for enactment by Memorial Day, the road ahead will be exceedingly difficult given the various competing priorities of Members, not to mention the chambers. In addition, policy development, which is underway, is a complex process that takes time. Ultimately, we view the timing of the debt limit “x date” (only known to Treasury and dependent on tax receipts April 15 and beyond) and the August Recess as the forcing mechanism for an eventual bill.
In resolving differences between the House and Senate instructions, the biggest hurdle will be the magnitude of spending cuts and other offsets to meet a notional $1.5 trillion spending cut goal (a redline for deficit hawks) and its interplay with sensitive political programs like Medicaid. Some non-tax revenue (for example, revenue to the federal government from the auction of spectrum) can help, but isn’t a panacea. To the extent economic growth from tariff revenue, bilaterial trade agreements, deregulation, and/or DOGE cuts via a forthcoming recissions package (viewable here) from the Administration could help alleviate some of that burden on Congress, it will not be considered inside of the reconciliation package and therefore may be difficult to use to placate deficit hawks, but we anticipate it will be part of the discussion.
On the tax front, what will help, however, is the use of the current policy baseline and the Senate’s more generous tax cut instruction, providing significantly more room above the House’s target. That allows tax-writers to potentially make permanent the individual provisions of the Tax Cuts and Jobs Act (TCJA), incorporate many of President Trump’s tax priorities (e.g., no tax on tips, no tax on overtime, relief from social security taxes), while adding in Member priorities not included in TCJA. The House and Senate will first need to agree to the exact level of revenue they will each write to.
What we do not expect, however, is that the House and Senate legislation will exactly mirror each other (though it will be highly coordinated throughout the process). Instead, the House is likely to consider its own reconciliation bill, packaged by the Budget Committee once each instructed committee marks up and reports, while the Senate considers its own. A conference committee between the two chambers will likely be needed to sort out the differences, similar to TCJA in 2017.
OUTLOOK/ANALYSIS. With reconciliation now unlocked, each instructed committee will begin the arduous process of putting pen to paper and making final policy decisions, increasing the odds for enactment of legislation this summer. This process is likely to take months, not weeks, with the “x date” playing a pivotal role in the timing. Many ideas will be floated, but we do not expect to see paper until shortly before each committee marks. Today is the beginning of the process and the starting gun for each committee; the next step is markups in the House, likely as soon as May. While the House vote (216-214) was strong, Republican unity is far from certain. Nonetheless, today is a big win for President Trump’s legislative agenda and keeps the momentum going heading into the two-week Easter Recess.
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