Reconciliation Update

The Senate is expected to remain in session through the weekend as the GOP grapples with the policy, process and politics of its version of the One, Big Beautiful Bill. While the last 24-48 hours have been noteworthy for several high-profile setbacks including various parliamentary rulings, behind the scenes differences are narrowing and pressure is building for the Senate process to come to completion.

Timing. Senate Republicans had hoped to begin debate on the bill today, however, that timeframe is slipping and it is clear that the Senate will be in session through the weekend, with an initial vote likely to come as soon as Saturday.

Process. Despite several adverse parliamentary rulings, including relating to the Medicaid provisions in OBBB, Senate Republicans continue to plug away and re-work their proposals to pass procedural muster. For example, Senate Agriculture Committee Republicans got the green light yesterday to replace language the Parliamentarian had previously ruled as violating reconciliation rules (and hence subject to 60 votes to keep in the bill) with updated language that complies fully with the Byrd Rule.

We expect a new version of the Medicaid provider tax provisions from the Finance Committee GOP as well, as Leader Thune continues to work to assuage member concerns relating largely to the impact on rural hospitals.  While the reporting of Parliamentary rulings adverse to the GOPs position can seem breathless, those initial rulings are often not the last word or final judgment on particular policies, especially big-ticket items with significant budgetary impact.

Meanwhile, the Parliamentarian’s office continues to finish up its Byrd Bath review of the tax items in the bill, with some items deemed to run afoul of rules earlier today, and others still pending review.  Despite some Member venting to the contrary, we do not expect the Parliamentarian to be fired, nor do we expect the Parliamentarian’s rulings to be overturned on the floor.  Rather, we expect Senate Republicans to continue to plug away, remediating where they can and moving on when they cannot. There are a lot of issues yet to be resolved, and the speed with which that happens is a big part of what will determine when the bill is ready for the floor.

As a reminder, once the bill does come to the floor, it is subject to up to 20 hours of debate, equally divided, which can be yielded, followed by “vote-a-rama.”

Vote Counting. Proceeding to the OBBB reconciliation bill will require a simple majority vote, as will germane amendments that comply with reconciliation rules and final passage. While it is true that Senate Republicans do not yet have 50+ votes to move forward, the context is important.  First and foremost, there’s no final bill or Substitute Amendment yet, and until there is, expect members to continue to work to exert as much influence as possible over its contents. Relatedly, the Leadership is utilizing the time it has now to refine policy items to ensure sufficient member support exists when the bill is brought to the floor. Members understand that this process can’t go on forever; at some point, the choice becomes binary.

Budget Math. It’s difficult to know exactly what the cost of the Senate’s changes will be given so many moving parts, but there is clearly sensitivity to maintaining a level of balance similar to that which the House bill struck as between net tax relief and deficit reduction.  The House bill included just under $4 trillion in tax relief; $325 billion in defense spending/border security; and about $1.6 trillion in deficit reduction.

Making the Senate’s challenge even more difficult: the initial tax title of the Senate bill was scored to be several hundred billion more costly than the House bill, and that is before the “revenge tax” – which scored at $52 billion over 10 years in the Senate tax draft – was removed, or before an emerging individual SALT agreement is incorporated into the Senate legislation.

These realities – and a reticence to include tax offsets that are poor policy and unpopular with members – also drives the Senate’s interest in exceeding the total deficit reduction of the House bill, while at the same time looking to make as many of the tax provisions in the bill permanent in law as possible. It is a delicate balance, and there are various levers that might be pulled.

OUTLOOK/ANALYSIS. Senate leadership continues to push to have this bill on the floor this weekend. For that to occur many pieces still must come together – including Medicaid, SALT, IRA, and overall balance between tax and spending cuts — and there are signs that they are beginning to. It continues to be the case that it is less important what day debate starts or ends, and more important to note that leadership remains resolved to complete consideration of this bill prior to July 4. That has not changed and will not change.

Depending upon when the Senate concludes this process, it remains likely that the House GOP leaders – whose members are leaving town subject to being recalled to session early next week – will look to expedite a vote. All involved continue to work towards enactment by July 4; that aggressive goal is still possible, and realistic if the Senate can move forward by the end of the weekend.

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