CRS Reports on Reconciliation's Deficit Effects

Reconciliation is a two-step process. First, reconciliation instructions are included in the budget resolution, directing the appropriate committees to develop legislation achieving the desired budgetary outcomes. Second, the resultant legislation is merged together by the House and Senate Budget Committees into an omnibus reconciliation measure that is considered in the House and Senate under expedited procedures (in some instances, instructed committees may report their legislation directly to the floor).

Reconciliation was first used by the House and Senate during the administration of President Jimmy Carter, in calendar year 1980 for FY1981. As an optional procedure, it has not been used every year. During the period covering budget resolutions for FY1981-FY2005, 16 omnibus reconciliation measures were enacted into law and three were vetoed.

From 1980 into the 1990s, reconciliation was used to reduce the deficit through reductions in mandatory spending, increases in revenues, or a combination of the two. In more recent years, however, reconciliation has been used to reduce revenues and, in a few instances, to increase spending levels in particular areas.

The FY2006 budget resolution (H.Con.Res. 95/S.Con.Res. 18), as passed by the House and Senate on March 17, 2005, includes reconciliation instructions affecting mandatory spending and revenues. For the first time since 1997, reconciliation is proposed to reduce mandatory spending as part of a deficit-reduction plan. As background on past efforts in this regard, the deficit impact of three major reconciliation acts enacted in the 1990s is briefly summarized below.

Reconciliation Legislation in 1990, 1993, and 1997

During the period from 1990 to the present, the House and Senate completed action on nine reconciliation measures and sent them to the President. Three of the measures were vetoed by President Bill Clinton and are excluded from this discussion.² The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193), which dealt with welfare reform, and the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27), which implemented large tax cuts, also are excluded from this discussion.

The remaining three reconciliation acts that the House and Senate completed action on during this period were omnibus bills, covering an array of issues, that in the net reduced the deficit significantly (see Table 1). Each of the acts included reductions in mandatory spending, as well as changes in revenue levels.

As Figure 1 indicates, the 1990 and 1993 reconciliation acts were estimated to yield a reduction in the deficit in the first applicable fiscal year, but a deficit increase ($21 billion) was estimated in the first year for the 1997 acts. Thereafter, deficit reduction occurred in each year for all three measures and the amounts escalated over the period.

 

Figure 1. Annual Deficit Impact of Reconciliation Acts

 

 

 

In each case, the reconciliation legislation implemented deficit-reduction policies agreed to by Congress and the President involving both spending and revenue changes. In the case of spending, in addition to mandatory spending reductions in reconciliation, the deficit-reduction policies assumed a reduction in the growth of discretionary spending over the ensuing years. Although discretionary spending is provided in annual appropriations acts, statutory limits on discretionary spending were established (and extended) in the three reconciliation acts. Accordingly, CBO included estimates of the savings expected to occur in discretionary spending pursuant to the statutory limits in its assessments of the deficit impact of the reconciliation legislation.

Figure 2 shows that all three reconciliation acts relied on mandatory savings, amounting over five years to an estimated $75 billion in the 1990 act, $77 billion in the 1993 act, and $112 billion in the 1997 acts. With regard to revenues, however, the 1990 and 1993 acts reflected estimated increases over five years of $158 billion and $241 billion, respectively, while the 1997 acts reflected an estimated reduction of $80 billion over five years. Five-year savings in discretionary spending attributable to the statutory limits ranged from an estimated $69 billion (in the 1993 act), to $89 billion (in the 1997 acts), to $190 billion (in the 1990 act). Debt service savings accounted for the remaining deficit reduction.

 

Figure 2. Five-Year Deficit Impact of Reconciliation Acts

 

 

 

² President Clinton vetoed the Balanced Budget Act of 1995 on Dec. 6, 1995, the Taxpayer Refund and Relief Act of 1999 on Sept. 23, 1999, and the Marriage Tax Relief Reconciliation Act of 2000 on Aug. 5, 2000.