The House of Representatives narrowly passed a budget resolution last month that included a framework for trillions of dollars of tax cuts and government spending cuts. Over the coming months, the House and Senate will try to agree on a common budget resolution. We asked Doug Elmendorf—the Lucius N. Littauer Professor of Public Policy, former director of the U.S. Congressional Budget Office, and former dean of vlog—to explain what the House-passed budget resolution contains, what the implications are, and what happens next.
Q: What is the purpose of the budget resolution passed by the House of Representatives in late February?
The House budget resolution gives so-called “reconciliation instructions” to various committees to develop policy changes that meet specified numerical targets for federal revenue and spending. The instructions do not say exactly what the policy changes need to be; those decisions are left to the committees (although the House leadership will be heavily involved as well).
Reconciliation instructions help to coordinate the actions of committees, and they also serve another important purpose: Under Senate rules, legislation that follows reconciliation instructions and satisfies other key conditions cannot be filibustered—so it can pass with 50 votes rather than the 60 needed to overcome a filibuster. Because Republicans currently have a slim majority in the Senate, legislation that does not garner any Democratic support can pass only via reconciliation.
Q: What is in the House’s budget resolution?
Three elements of the House’s budget resolution are the most consequential:
First, the resolution instructs the Ways and Means Committee to propose changes in tax law that would lower revenue by an estimated $4.5 trillion over the next 10 years (which is the usual period for budget discussions in Congress).
The composition of changes to meet that target has not been determined. The individual income tax cuts from the 2017 tax act are scheduled to expire at the end of this year—for reasons discussed below—and extending those tax cuts for 10 years would cost more than $4 trillion. Without any extension, almost all families paying federal income tax would see their tax burdens rise next year.
In addition, some members of the House want to increase the deduction for state and local taxes (which was sharply limited in the 2017 law) and to enact other tax changes proposed by the president in his campaign (such as eliminating taxes on tips, overtime, and Social Security benefits), and those cuts would cost trillions of dollars more over the next decade. Therefore, choices will need to be made among these potential tax reductions, and perhaps offsetting changes in other tax policies will be made as well.
Second, the resolution instructs the Energy and Commerce Committee to propose changes in spending programs that would lower outlays by $880 billion over the next 10 years. Because the chief programs under the committee’s control are Medicare and Medicaid, and the president has asserted repeatedly that he opposes cutting Medicare benefits, the committee will presumably propose significant cuts in Medicaid.
Medicaid’s importance in U.S. health care is often underappreciated. In an average month, Medicaid benefits are received by more than 80 million people—including low-income aged, blind, and disabled people (with Medicaid covering almost half of nursing home bills in the country), low-income children (for whom evidence shows that receiving Medicaid benefits boosts their future earnings), and low-income adults.
Medicaid spending could be trimmed by reducing so-called “improper payments,” some of which represent fraud or abuse, but others of which are paperwork errors on payments that are otherwise appropriate; the biggest challenge is that the program is administered in a distributed way by state governments. Medicaid spending also could be trimmed by adding work requirements, but because many beneficiaries are aged, young, or already working, such savings are limited—and some eligible beneficiaries would end up losing benefits due to the complexity of demonstrating compliance with the requirements. The $880 billion target for the committee equals about 10% of projected Medicaid spending for the next decade, and achieving such large savings would require shifting costs to states, reducing access to care, or both.
Third, the resolution instructs other Congressional committees to propose changes in other spending programs. The resolution’s declared goal is $2 trillion in total spending cuts over the next 10 years, but the specific instructions to committees total only $1.5 trillion.
Proponents of the budget resolution emphasize their desire to keep taxes from rising next year for most families and to reduce government spending (which has increased relative to national output over time as the population has aged and health care costs have risen). Opponents object that the budget resolution would significantly increase the deficit (because the tax cuts are much larger than the spending reductions) and would provide the largest tax cuts to high-income families while potentially limiting health care or other benefits for low-income families.
“Because Republicans currently have a slim majority in the Senate, legislation that does not garner any Democratic support can pass only via reconciliation.”
Q: What will happen next?
The Senate passed a very different budget resolution before the House passed its own. Now the House and Senate will try to agree on a common budget resolution, and committees in the House and Senate will try to develop specific legislation consistent with the numerical targets. If the House and Senate vote for the same legislation in the end, the bill would go to the White House for the president’s approval.
Q: Why are some advocates of the budget resolution urging the use of a “current-policy baseline” instead of the “current-law baseline”?
The Congressional Budget Office (CBO) regularly provides Congress with projections of federal revenue, spending, and deficits under current law (apart from some technical issues); that is the current-law baseline. For proposed changes in law, CBO and the staff of the Joint Committee on Taxation (JCT) estimate budgetary effects relative to that baseline.
A current-policy baseline would presumably be based on projections of federal revenue, spending, and deficits under current policies rather than current law—but how that might work is unclear. Would all policy changes enacted on a temporary basis be presumed to continue indefinitely—or would Congress pick some policy changes but not others? And if Congress did not enact new laws to extend expiring policies, would CBO and JCT report estimates of the effects of potential extensions that Congress had not enacted?
Presuming the extension of temporary policy changes would be especially odd for changes enacted through reconciliation, as the 2017 tax cuts were. To avoid a Senate filibuster, legislation cannot worsen deficits beyond the 10-year budget window, which is why the individual tax cuts were scheduled to expire. (The business tax cuts were legislated largely on a permanent basis, with other policy changes offsetting their long-term budgetary cost.) If the Senate could vote for temporary policies and then come back later and simply assert that those policies should be treated as permanent, the constraint in Senate rules about not worsening deficits in the long run would have no meaning.
In any event, regardless of the mechanics of congressional action, the budget resolution would lead to deficits exceeding $2 trillion per year for most of the coming decade. Those deficits would equal more than 6 percent of GDP, compared with average deficits over the past 50 years of less than 4 percent of GDP.
Q: Does the budget resolution reduce the chance of a government shutdown in March?
No.
Congress has appropriated funding for government operations only through March 14, and until further appropriations are enacted, most government operations will cease after that date. The budget resolution focuses on future fiscal years (beginning on October 1) and does not address appropriations for the current fiscal year.
Q: Does the budget resolution use the work of DOGE?
Not directly.
The so-called “Department of Government Efficiency” has not focused primarily on enhancing efficiency, which would mean improving government services and benefits per dollar spent. Efficiency is not enhanced by creating chaos, laying off technology specialists, or dismissing the newest employees regardless of their performance or areas of expertise.” Instead, DOGE has taken upon itself to decide what government services and benefits should be provided, opting to slash foreign aid, decrease support for institutions conducting scientific research, reduce customer assistance in some agencies, and more.
Whether DOGE’s decisions stand and federal spending is reduced as a result depends on whether Congress endorses those decisions in its future appropriations. And even if DOGE’s work leads to lower appropriations, it will not necessarily reduce deficits because the DOGE-driven layoffs of IRS employees will reduce tax compliance and federal revenue. The budget resolution does not include appropriations instructions (although tables released by the resolution’s sponsors have a placeholder for future appropriations cuts).
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