[One tool of Senate procedure—the budget reconciliation
process—provides a limited end run around the filibuster. The
reconciliation process allows a certain subset of legislation to pass
with a simple majority.]
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THE ECONOMIC CASE FOR EXPANDING THE SCOPE OF RECONCILIATION  
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Josh Bivens
January 30, 2023
Economic Policy Institute
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_ One tool of Senate procedure—the budget reconciliation
process—provides a limited end run around the filibuster. The
reconciliation process allows a certain subset of legislation to pass
with a simple majority. _

, House Budget Committee

 

THE PROBLEM: Congress is gridlocked in large part because of the
Senate filibuster. Even bills that enjoy broad public support—for
example, proposals to raise the federal minimum wage—are unable to
pass through Congress.  

WHAT CAN BE DONE ABOUT IT: The most direct way to break gridlock in
the U.S. Senate would be to abolish the filibuster. Failing that, the
second-best option would be to expand the scope of reconciliation to
allow a broader range of nonbudgetary measures to pass through
Congress.

Republicans have only a razor-thin majority in the U.S. House of
Representatives, while Democrats have a 51–49 majority in the U.S.
Senate. Under these circumstances, it should in theory be possible to
pass broadly popular legislation through the 118th Congress.

In practice, however, the Senate filibuster will continue to block
policymakers from making progress with such legislation. Sixty votes
are required to break and move past the filibuster. The filibuster’s
expanded use in recent decades has made it radically more difficult
for even significant Senate majorities to move legislation.

One tool of Senate procedure—the budget reconciliation
process—provides a limited end run around the filibuster. The
reconciliation process allows a certain subset of legislation to pass
with a simple majority.

One feature of the reconciliation process—the so-called Byrd
Rule—limits its scope to budget-related measures. However, the
criteria for what types of bills should or should not be allowed to
proceed under the Byrd Rule is highly subjective.

The most direct way to restore majority rule and break gridlock in the
U.S. Senate is to abolish the filibuster. However, short of that, one
could still allow a simple majority to pass a broader range of
legislation than it currently can by expanding the scope of what is
allowed to proceed under the expedited rules of reconciliation. While
this is a suboptimal path, it would be far better than the status quo.

In this report, we argue that the criteria currently interpreted as
dictating what legislation can proceed under the auspices of
reconciliation are arbitrary, incoherent, and outright damaging. Given
this, the carve-out from the filibuster’s reach offered to (some)
fiscal measures in the Senate under the current rules of
reconciliation has no particular logic and protects far too few
potentially popular legislative proposals from Senate gridlock.

Consequently, the Senate should either abolish the filibuster for the
vast majority of legislation, or, second best, greatly expand the
scope of reconciliation to allow many pieces of legislation to pass
under its auspices that would have in earlier periods been ruled out
of reconciliation’s scope.

Our argument rests on the following points:

* THERE IS A PERCEPTION THAT FEDERAL BUDGET CHANGES HAVE LARGER
IMPACTS ON THE ECONOMY THAN OTHER LEGISLATION. The history of the
budget reconciliation process and the Byrd Rule strongly suggests that
they were instituted in response to this perception.

* BUT THIS PERCEPTION IS INCORRECT. Many legislative changes that
older conventional wisdom would have argued were outside the bounds of
budget reconciliation have profound effects in shaping the trajectory
and distribution of economic growth. Given this, there is no
reason _even on narrow economic grounds_ to privilege budget-related
rules over other rules that affect economic outcomes.
* THE BYRD RULE’S EXPLICIT BIAS TOWARD DEFICIT REDUCTION HAS NOT
PROVED USEFUL EVEN FOR THE NARROW GOAL OF REDUCING DEFICITS. Narrow
Republican majorities have been able to game the rule to allow large,
sustained regressive tax cuts to pass in the past 20 years, which have
increased budget deficits substantially.

* THE GOAL OF ALWAYS BIASING POLICY TOWARD DEFICIT REDUCTION IS
ITSELF MISGUIDED. Sometimes deficits should be made smaller to foster
economic growth, but sometimes they should be made larger. For most of
the past three decades, the U.S. economy has faced chronic shortfalls
of aggregate demand relative to productive capacity. (These shortfalls
are sometimes labeled “secular stagnation.”) This means that
larger deficits would have been useful over that time. The past two
years have seen evidence of a demand shortfall fade away, but it is
possible that the longer-run trend of secular stagnation will reassert
itself before too long.
* To achieve smaller deficits while also providing a counter to
chronic shortfalls in demand, IT MAKES SENSE TO ALLOW A BROADER RANGE
OF MEASURES—including nonbudgetary measures that would boost
aggregate demand—TO PASS UNDER THE AUSPICES OF THE BYRD RULE.
* The most obvious drawback to expanding the scope of reconciliation
is that it compacts much of an entire year’s legislative agenda into
a single vehicle. This potentially short-circuits a thoughtful
policymaking process around each individual plank of a reconciliation
bill and could lead to poorly crafted bills. Crucially, however, THE
DRAWBACKS OF THE RECONCILIATION PROCESS HAVE MINIMAL IMPACT ON
POLICIES THAT ARE STRAIGHTFORWARD, LIKE INCREASES IN THE FEDERAL
MINIMUM WAGE OR LABOR LAW REFORM.

This report is organized as follows: First, we provide a short history
of the budget reconciliation process and the Byrd Rule. Second, we
critically examine the reconciliation process’s privileging of
fiscal-related legislation. Third, we critically examine the Byrd
Rule’s bias toward deficit reduction. Fourth, we identify a
counterargument against expanding the scope of the reconciliation
process, and we examine this criticism’s applicability to using
reconciliation to pass a federal minimum wage increase or fundamental
labor law reform. We conclude that reconciliation, while suboptimal,
is nevertheless a useful tool for breaking gridlock to pass
legislation that is straightforward and has popular support.

The budget reconciliation process and the Byrd Rule

Today’s budget reconciliation process is the result of the
Congressional Budget Act (CBA) of 1974 and the subsequent adoption of
the “Byrd Rule” in 1985.1
[[link removed]] Before
1974, the filibuster could be applied to budget bills in the U.S.
Senate. The Congressional Budget Act of 1974 made significant changes
to the federal budgeting process, most intended to shift power for
making and enforcing budgetary decisions away from the executive
branch and toward Congress. One key impediment to Congress asserting
more influence in the budget-making and enforcement process was a
minority’s ability to filibuster budget-related bills and hence
cause legislative gridlock.

Between 1974 and 1985, the availability of a new fast-track procedure
to pass bills that could not be filibustered eroded the
supermajoritarian norms of the Senate. In response, a prominent
defender of these norms—Sen. Robert Byrd (D-W.Va.)—introduced the
“Byrd Rule,” putting limits on what could be included in budget
reconciliation bills.

The most important provision of the Byrd Rule for today’s political
debates was the one that disallowed “extraneous” legislation from
being included in budget reconciliation bills. One key Byrd Rule
definition states that legislation “is considered to be extraneous
if it…produces a change in outlays or revenues which is merely
incidental to the non-budgetary components of the provision” (CRS
2022, 5).

This is the part of the Byrd Rule that defenders of the current
conventional wisdom regarding its reach say disallows a federal
minimum wage increase or labor law reform to pass under its auspices.
This interpretation should be rejected, as it often leads to
incoherent outcomes. For example, the current interpretation of the
Byrd Rule’s “extraneous” exclusion rules out some bills that
have _larger_ fiscal effects than previous bills passed under
reconciliation. For example, Zipperer, Cooper, and Bivens (2021)
surveyed evidence showing that raising the federal minimum wage to $15
by 2025 would likely reduce public expenditures by roughly $10 billion
annually. This is several times the size of the fiscal effect of a
provision allowed to pass under reconciliation in 2006—opening up
the Arctic National Wildlife Refuge (ANWR), which was forecast to
boost federal revenues by about $2.5 billion over a three-year period
(CBO 2005).2
[[link removed]] Hence,
even on its own terms of privileging legislation with significant
fiscal effects, the Byrd Rule is inconsistently applied.

Beyond this, the prohibition on economic measures with only
“extraneous” effects on fiscal policy highlights that past
policymakers thought that fiscal measures were the most important way
congressional action affects the economy. However, this is incorrect.

In addition, the explicit target of the Byrd Rule’s “extraneous”
tests was deficit reduction, but imparting a bias toward deficit
reduction in the congressional budget process is unwise. Finally,
despite this bias toward deficit reduction embedded in the Byrd Rule,
Republican majorities have managed to sidestep the rule multiple times
in the past to enact large tax cuts.

There is no convincing _economic_ rationale for privileging
budgetary bills in the legislative process

By most accounts, a precipitating event leading to the CBA of 1974 was
the Nixon administration’s refusal to spend money that had been
appropriated by Congress. For example, the Nixon administration
refused to disburse funds from the Environmental Protection Agency
(EPA) that Congress had appropriated for distribution to states to
invest in clean water efforts. This impoundment of funds in defiance
of Congress was indeed an abuse of executive power and one that was
properly rectified by congressional action.3
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But Congress noticed and reacted to this impoundment only because
revenue and spending flows are more _visible_ to them than other
economic influences that are under the joint control of Congress and
the executive branch. It is not obvious, however, that _more
visible_ means _more important_. The Nixon impoundment of funds that
attracted the ire of Congress was related to legislation aimed at
boosting environmental quality. Yet there are other ways besides
outright impoundment of appropriated funds through which the executive
branch can frustrate the intent of Congress to improve environmental
quality. For example, it has been widely agreed upon by historians of
environmental policy that the Reagan administration’s EPA gutted the
effectiveness of environmental protections through lax enforcement and
the redistribution of resources within agencies to activities that
slowed enforcement of regulations.4
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begs the question: Why should a fast-track legislative remedy be
available for executive branch _fiscal_ actions that impede the
improvement of environmental quality but not
for _regulatory_ actions?

There is a common perception that tax and budget policy is the most
important policy tool available to Congress to achieve their goals. If
this were true, then privileging tax and budget policy through the
reconciliation process would make some sense. But this is not true.
The U.S. economy, and the economic security of typical U.S. families,
is profoundly shaped by policies passed by Congress that do not see
their first-order effects run through changes in the federal budget.
Once the full scope of these policies’ effects is recognized, the
case for privileging one subset of economic policies (those that deal
with taxes and spending) over others stops making sense.

This is perhaps most easily illustrated by looking at a very broad
measure of rising inequality in the U.S. economy in recent decades:
the ratio of median to average household incomes. Using data from the
Congressional Budget Office (CBO 2022), Banerjee and Bivens (2022a)
show that the share of post-tax-and-transfer income claimed by the
middle 60% of households fell by over 6 percentage points between 1979
and 2018.5
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tax rates _fell_ while transfer rates _rose_ for these households
over this time, and at a faster rate than for average incomes.

So why did inequality rise if the federal budget and tax system became
more equalizing over this time? Because market incomes became far more
unequal and this rising inequality of market-based incomes swamped any
equalizing effect of fiscal redistribution. The share
of _pre_-tax-and-transfer income claimed by the middle 60% fell by
nearly 9 percentage points over the same time period. What happened in
the market mattered far more for economic outcomes than what happened
to the federal budget and taxes for the majority of middle-class
families.

What does congressional action have to do with the evolution of market
income over this time? Bivens and Mishel (2021) show that a number
of _specific policy decisions _can explain most of the rise in
market inequality over this time. Key among these are the declining
inflation-adjusted value of the minimum wage and the failure to
enforce the right of U.S. workers to form unions and bargain
collectively. The decline in unionization by itself likely lowered
median hourly wages by almost 8% between 1979 and 2017. Given that
labor earnings make up the overwhelming majority of market income
accruing to the median household, the decline of unions can account
for a large portion of the decline in median income relative to
average.

In turn, the decline of unionization in the U.S. economy can be
accounted for by policy decisions, either of commission (passing
anti-union “right to work” laws at the state level) or of omission
(failing to protect the right of private-sector workers to organize
unions in the face of growing employer hostility).

Bivens and Mishel (2021) also highlight the role of macroeconomic
policy in driving the rise of inequality in recent years. Importantly,
this macroeconomic policy has been driven by the decisions of the
Federal Reserve. The Federal Reserve Board of Governors is confirmed
by the Senate, and congressional committees have oversight of the Fed.

Finally, Banerjee and Bivens (2022a) highlight evidence that the sharp
rise in pre-tax-and-transfer inequality has by itself had profound
effects on both the pace of overall economic growth and the fiscal
stance of the federal government. As rising inequality concentrates
more of the nation’s total income in households at the top of the
income distribution with higher savings rates, this will—all else
equal—slow growth in aggregate demand. If no countervailing support
to demand growth springs forth, this will translate into a binding
constraint on overall economic growth. Banerjee and Bivens (2022a)
find that rising inequality since 1979 was by 2019 reducing aggregate
demand growth by up to 2% of gross domestic product (GDP) annually.
For most of the years post-2000, this almost surely translated
directly into significantly reduced growth overall.

In short, Congress has shaped many crucial policies that have driven
economic outcomes in recent years even outside the area of tax and
budget policy. In fact, changes in market incomes over recent decades
have driven income trends far more than changes in taxes and
transfers. Given this reality, the idea that Congress needs a
privileged way to fast-track tax and budget policies while other
policies languish makes very little sense. The modern U.S. economy
needs a Congress able to legislate across all relevant policy areas.

The intended Byrd Rule bias toward fiscal contraction is misguided but
could be partially alleviated by allowing more policies to pass
through the reconciliation process

It is widely agreed upon by historians of the budget reconciliation
process that both the CBA of 1974 and the Byrd Rule were driven
largely by hopes that they would aid the process of deficit reduction.
Most concretely, the Byrd Rule disallows any legislation that adds to
long-run increases in federal budget deficits (with “long run”
traditionally defined as outside the 10-year budget window
traditionally used for scoring legislation). This intended bias toward
deficit reduction reflected a conventional wisdom that public debt
restraint was nearly always and everywhere an economic good (expect
perhaps during outright recessions). But, in fact, since the permanent
codification of the Byrd Rule in 1990, the economic case for needing
painful deficit reduction has been substantially weakened, yet the
bias in the Byrd Rule toward deficit reduction remains.

The data signature that would indicate that deficits are harming
economic growth is supposed to be rising interest rates. Yet
extraordinarily weak economic growth between 2000 and 2019 led to very
large rises in public debt but continued rapid _declines_ in
interest rates, making the imperative for painful deficit reduction
(even during times of economic growth) much less pressing.6
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This confluence of weak growth and low interest rates was driven by a
larger factor—a chronic shortfall of aggregate demand relative to
the economy’s productive capacity. This demand shortfall—sometimes
labeled “secular stagnation”—was the primary constraint on
economic growth for the two decades before the COVID-19 recession.

The recovery from the COVID-19 recession has seen a reversal of many
of the data signatures of secular stagnation—interest rates have
risen as the Fed has sought to contain the largest outbreak of
inflation in nearly 40 years. However, it does not follow
automatically from this episode of high inflation and higher interest
rates that secular stagnation is decisively over, for a couple of
reasons. For one, secular stagnation was always a background condition
of the economy that could be overcome with enough policy force. The
problem was insufficient spending, and any policy that boosted
spending (like deficit-financed federal spending) could overcome this
problem.7
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For another, the COVID-19 recovery saw a sharp decline in the
economy’s productive capacity as labor force participation declined
and rolling supply chain disruptions snarled the ability to
manufacture and produce goods. This decline in supply helped
“solve” the gap between aggregate demand and the economy’s
productive capacity. But these supply declines are highly likely to be
temporary. In the U.S., labor force participation has steadily climbed
back to near pre-COVID trends, and supply chains (at least before the
recent COVID-19 outbreak in China) have been healing rapidly.

Whether one thinks that the reprieve from the condition of secular
stagnation in 2021 and 2022 was the result of extraordinarily rapid
demand growth (spurred by large fiscal policy interventions) or the
result of shocks from the COVID-19 pandemic and the Russia-Ukraine
war, the reprieve seems likely to be temporary. Nothing fundamental
occurred to change the underlying condition (for example, a rollback
of the post-1979 rise in inequality was not achieved), so secular
stagnation is likely to persist as the economy returns to more normal
conditions going forward. In a few years, the Byrd Rule bias toward
fiscal contraction is likely to be as un-useful as it was in the two
decades before the COVID-19 shock.

The Byrd Rule in practice has restrained spending increases, not tax
cuts

It has often been argued—and not just by anti-government
ideologues—that the more politically difficult part of deficit
reduction is spending restraint.8
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the recovery following the Great Recession of 2008 was the most
austere on record for public spending—both at the federal and
subfederal levels. This spending austerity was deeply damaging to the
recovery from that recession, yet it persisted well into the recovery,
largely relenting only by 2017.

In short, recent decades have not seen a steady upward ratchet in
spending programs that have led to larger budget deficits. Instead,
the trend has been toward spending that is too austere given the needs
of the economy.

This problem is exacerbated by Byrd Rule provisions that ostensibly
allow only deficit-neutral or deficit-reducing policies to pass under
its auspices.

Yet while the Byrd Rule has been used to restrain spending in the name
of deficit reduction, it has failed to stop Republican majorities from
passing large regressive tax cuts that add considerably to deficits.
Three times in the past two decades narrow Republican Senate
majorities were able to flagrantly game loopholes in the Byrd Rule to
pass large tax cuts.

These tax cuts had major fiscal implications, but they did little to
solve the chronic shortfall of aggregate demand holding back growth.
That’s largely because higher-income households that see
disproportionate gains from these tax cuts have a high propensity to
save rather than spend additional disposable income.9
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The failure of the Byrd Rule to stop these large regressive tax cuts
shows just how asymmetric the rule has been in putting pressure on
deficit reduction, strongly favoring downward pressure on spending
while not stemming revenue losses.

All in all, to the degree that the Byrd Rule has provided much
enforcement at all of deficit reduction measures, it has been on the
spending side.10
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has meant that it has proved maximally damaging during times when the
economy is demand constrained.

Some reconciliation process downsides could be avoided if the process
allowed a broader range of policies to pass

Above we identified two key problems with the Byrd Rule status quo.
First, nonbudgetary policy changes have enormous effects on economic
well-being and need to be addressed at least as urgently as budgetary
changes—and yet they can’t be addressed under the current
interpretation of the rule. Second, the Byrd Rule bias toward deficit
reduction nudges fiscal policy to be more contractionary even as
chronic demand shortfalls have made such contraction damaging in
recent decades.

These problems would be alleviated by allowing a broader scope of
policy changes to pass through the budget reconciliation process. For
one, expanding the scope of legislation allowed under reconciliation
would allow needed nonfiscal policy changes to escape
filibuster-imposed gridlock. For another, many proposed nonfiscal
changes would boost economywide spending and solve the problem of
deficient demand.

Two high-profile policy changes that the incoming Biden administration
has announced support for would be of particular help: a significant
increase in the federal minimum wage and reform of labor law to secure
workers’ rights to join unions and bargain collectively.

Both of these policy changes would result in a significant
redistribution of income downward, reversing some of the previous
decades’ rise in inequality. In the long run, the combined effect of
these two interventions on average income growth for households in the
bottom half of the income distribution could be as large as any
single _fiscal_ policy change enacted since Medicare and Medicaid
were created in the mid-1960s.11
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this, it is hard to understand why Congress has maintained a
privileged legislative process for purely fiscal measures when
nonfiscal measures can have such a profound effect on living
standards.

This downward redistribution of income would also go far in
alleviating the chronic shortfalls of demand that have characterized
the last quarter century in the U.S. economy. Banerjee and Bivens
(2022a), for example, have shown that rising inequality that boosted
the income share of higher-income (and hence higher-saving) households
has exerted a huge drag on demand growth since the late 1980s. Bivens
and Mishel (2021) have shown that this large upward redistribution has
been driven overwhelmingly by policy changes that affected the labor
market. In short, policy changes that boosted the bargaining power of
the bottom 90% of the labor market and led to faster broad-based wage
growth would likely raise aggregate demand measurably. This would make
the Byrd Rule’s bias toward fiscal contraction less damaging.

Even under narrow budgeting-based views of the Byrd Rule, higher
minimum wages and fundamental labor law reform have significant fiscal
effects

Part of what makes the Byrd Rule’s barring of “extraneous”
provisions so arbitrary is that many policy changes that do not see
their first-order effects run directly through revenue or spending
still end up having quite large fiscal impacts. In fact, the fiscal
impacts of both a higher minimum wage and fundamental labor law reform
are nearly guaranteed to be substantially larger than allegedly more
direct “fiscal” measures that have been passed under
reconciliation.

For example, Zipperer, Cooper, and Bivens (2021) highlight a range of
evidence showing that, all else equal, higher federal minimum wages
lead to reductions in public expenditures. For a federal minimum wage
of $15, these public expenditure reductions would be significant—on
the order of $10 billion annually or more. The mechanism that links
higher minimum wages to reduced public expenditures is fairly direct:
Higher labor incomes would push some workers and their families over
the threshold for receipt of certain public assistance program
benefits or would reduce the size of tax credits they receive, such as
the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC).

The fiscal effects of fundamental labor law reform are equally clear.
One example of this type of fundamental labor law reform is the
prohibition on state “right to work” (RTW) laws contained in the
Protecting the Right to Organize (PRO) Act. There is ample evidence
that RTW laws lead to reductions in unionization rates at the state
level. Ellwood and Fine (1987) estimate that adoption of RTW laws in a
state results in a permanent reduction in the share of the workforce
that is represented by a union in that state of up to 3 percentage
points. Given that more than 40% of the U.S. workforce in 2019 lived
in RTW states, this implies a reduction in the overall unionization
rate of 1.2%, or about 3 million workers not in unions due to the
influence of RTW laws. Fortin, Lemieux, and Lloyd (2021) find similar
effects in an event-study analysis of more recent movements of states
into right-to-work status: Within five years of a state’s change in
status, the share of workers in the state who are unionized falls by
roughly 3 percentage points.

Sojourner and Pacas (2018) have found that unionized workers pay
$2,800 more in taxes annually than nonunionized workers and that they
receive $350 less annually in transfer payments. Multiplying the 3
million workers deprived of union coverage through the direct
influence of RTW laws by the $2,800 in additional taxes paid by
unionized workers implies that tax receipts are more than $8 billion
lower due to the influence of RTW statutes. Meanwhile, public transfer
payments are $1 billion higher. If the PRO Act provisions to bar the
use of RTW laws reverse these causal effects, there would a large and
direct fiscal impact.

Moreover, there is plenty of reason to believe that the PRO Act’s
fiscal effects could be far larger than this. For example, the Ellwood
and Fine (1987) estimates could well be an understatement of the
long-run effect of RTW laws. As a raw average, unionization rates in
RTW states are 50% lower than rates in non-RTW states. It is true that
not _all_ of this difference is the causal effect of RTW laws, but
analyses looking at short periods of time or specific margins of
adjustment might understate the true extent of this causal
relationship. Ellwood and Fine, for example, note that their estimate
could be an understatement because it looks only at the effect of RTW
on new union organizing. But if the free-rider problems associated
with the introduction of RTW laws encourage more rapid deunionization
of previously unionized workplaces, or if RTW laws make it more likely
that new businesses opening in the state will be nonunion, then the
RTW effect will be larger.

More importantly, the PRO Act does more to potentially boost
unionization rates than simply roll back RTW laws. It provides tougher
penalties for a range of employer behaviors routinely undertaken to
thwart union-organizing efforts.12
[[link removed]] Given
growing employer hostility toward unions and the effectiveness of
employer actions in thwarting unionization efforts, it seems clear
that the PRO Act could boost the share of workers represented by a
union in the U.S. labor market significantly over the long run.

If, for example, the PRO Act resulted in an increase of 5% in the
share of the U.S. workforce represented by a union, and the fiscal
effects estimated by Sojourner and Pacas (2018) held, this would imply
a boost to tax revenues of over $40 billion annually, along with a
reduction in transfer expenditures of nearly $5 billion. These effects
are larger than the vast majority of items allowed through the
reconciliation process.

Broadening reconciliation, while suboptimal, works well for many
issues

It’s worth repeating that the best way to restore majority rule to
the U.S. Senate is to abolish the filibuster. Broadening the range of
bills allowable under the reconciliation fast-track process is just a
second-best option to that. But if the politics of the moment allow
only second-best solutions, they should be undertaken, as they are
clearly preferable to the status quo.

The most convincing counterargument to using reconciliation for an
expanded array of potential legislation is that the process is already
so crowded that it degrades the policymaking process, leading to poor
policy design that is overlooked until too late. There is a grain of
truth to this. Reconciliation can be used only once per year
(generally), so this puts enormous pressure on policymakers to crowd
as many different pieces of legislation into the single reconciliation
bill as possible. Because these different (and often complex) pieces
of legislation go all at once into the same policy debate and follow
the same timeline, an extended policy process—in which expert
consultation and debate over each provision can happen—is
short-circuited.

An obvious recent example of this involved what is commonly known as
the Tax Cuts and Jobs Act (TCJA) from 2017. The reconciliation process
was used to push through a permanent reduction in corporate income tax
rates as well as dozens of temporary changes in other parts of the
federal tax code. Among many other technical corrections made after
its passage, one provision of the TCJA—the “retail glitch”—had
to be fixed as part of the Coronavirus Aid, Relief, and Economic
Security (CARES) Act in 2021.13
[[link removed]] The
retail glitch unintentionally raised effective tax rates on a wide
range of businesses by extending the time period over which durable
assets could be depreciated in the tax code.

It is fair to weigh the benefits of allowing more responsive
government against the costs of giving insufficient attention to
complex policy changes. But the status quo does not just
give _insufficient_ space for debating many potentially desirable
policy changes, it gives them effectively no space at all.

Further, there are a whole host of policy changes that are extremely
well understood, that have been subject to great expert scrutiny, and
that are broadly popular—yet they cannot get past a Senate
filibuster. Two obvious ones are an increase in the federal minimum
wage and labor law reform like the Protecting the Right to Organize
(PRO) Act. The minimum wage increase in particular may be the most
studied and debated federal policy change ever.14
[[link removed]] The
idea that great uncertainties exist in how it will affect the economy
or how it might be implemented seems hard to credit.

On labor law reform, the effect of the PRO Act’s planks is
straightforward. The PRO Act will make it easier for workers to form
unions. Whether the _outcome_ of more workers being able to form
unions is a good thing for the U.S. economy is a fair subject for
debate, but that does not make the PRO Act particularly complex.
Nobody, for example, supports greater unionization in the U.S. economy
but is against the PRO Act on the grounds that it’s so complex that
it might through unintended consequences actually reduce unionization.

In short, both changes to the federal minimum wage and measures to
boost the unionization rate in the U.S. economy are straightforward
policies that should be allowed to move forward through an expansion
of the reconciliation process. These policies would have profoundly
progressive impacts on the U.S. economy and are at least as relevant
to working peoples’ lives as the vast majority of bills that have
been ushered through reconciliation in recent decades.

CONCLUSION AND POLICY RECOMMENDATIONS

Again: Abolishing the filibuster would be the simplest and most
effective way to allow popular legislation to have a chance of
actually moving through the U.S. Senate. However, given the limited
time window for this Congress and the Biden administration to make
progress on an effective economic policy agenda, and given the
political resistance of some senators to abolishing the filibuster on
principle, policymakers should consider all other options
realistically available to them.

AS THEY FINALIZE THE RULES AND PROCEDURES FOR THE 118TH CONGRESS,
SENATE DEMOCRATIC LEADERSHIP SHOULD EXPAND THE SCOPE OF
RECONCILIATION. The economic assumptions used in the past for adopting
the Byrd Rule are not borne out in reality. The status quo limitations
on the types of policies considered under reconciliation need not
continue to artificially constrain the Senate. The Senate should be
enabled to pass much needed economic legislation with the support of a
simple majority.

Notes

1. 
[[link removed]]CRS
2022 is a good overall primer on the budget reconciliation process and
the Byrd Rule.

2. 
[[link removed]]See
Cannan 2013 for a discussion of the use of reconciliation to pass
ANWR.

3. 
[[link removed]]This
interpretation that the 1974 CBA legislation reestablished
congressional control over federal budgets in the face of legislative
impoundment is apparent on the Congressional Budget Office website
today ([link removed]).

4. 
[[link removed]]See
Fredrickson et al. 2018 for this history of EPA enforcement being
thwarted by executive actions.

5. 
[[link removed]]Author’s
analysis based on Banerjee and Bivens 2022a.

6. 
[[link removed]]On
the sharp fall in interest rates and the relationship to fiscal
policy, see Furman and Summers 2020.

7. 
[[link removed]]On
the likelihood that the forces generating the chronic shortfall of
demand might return in coming years, see Banerjee and Bivens 2022b.

8. 
[[link removed]]Probably
the clearest statement of this outlook comes from former Federal
Reserve Chair Alan Greenspan’s testimony before the Senate Budget
Committee in 2001. In that testimony, Chair Greenspan discussed
projected budget surpluses that he thought to be too large. To deal
with these projected budget surpluses, he recommended: “In general,
as I have testified previously, if long-term fiscal stability is the
criterion, it is far better, in my judgment, that the surpluses be
lowered by tax reductions than by spending increases…history
illustrates the difficulty of keeping spending in check…. Moreover,
the greater the drain of resources from the private sector, arguably,
the lower the growth potential of the economy” (Greenspan 2001).

9. 
[[link removed]]On
the high fiscal cost but small economic effect of regressive tax cuts,
see Bivens and Fieldhouse 2012.

10. 
[[link removed]]See
Cannan 2013 for a legislative history of the Affordable Care Act
(ACA). The reconciliation process was eventually utilized in the
process of legislating the ACA. Because the Byrd Rule requires that
fiscal measures not increase the deficit, and because there was a
politically driven limit imposed on how much revenue could be raised
for the ACA, the reconciliation process and the Byrd Rule became a
binding constraint on how much spending could be included in the ACA.

11. 
[[link removed]]Cooper,
Mokhiber, and Zipperer (2021), for example, found that an increase in
the federal minimum wage to $15 by 2025, for example, would likely
have raised wages for affected workers by over $100 billion in 2025.

12. 
[[link removed]]See
McNicholas et al. 2019 for documentation of employer hostility to
union-organizing drives and how straightforward policy changes could
lead to more successful unionization efforts.

13. 
[[link removed]]See
CRS 2021 on the retail glitch as well as a host of other technical
corrections that needed to be made after passage of the TCJA.

14. 
[[link removed]]See
Dube 2019 for evidence that the effects of minimum wages have been
thoroughly studied.

REFERENCES

Banerjee, Asha, and Josh Bivens. 2022a. _Inequality’s Drag on
Aggregate Demand: The Macroeconomic and Fiscal Effects of Rising
Income Shares of the Rich_
[[link removed]].
Economic Policy Institute, May 2022.

Banerjee, Asha, and Josh Bivens 2022b. _Will Secular Stagnation
Return? The Stakes for Current Economic Debates and Fiscal Policy_
[[link removed]].
Economic Policy Institute, August 2022.

Bivens, Josh, and Andrew Fieldhouse. 2012. _A Fiscal Obstacle Course,
Not a Cliff: Economic Impacts of Expiring Tax Cuts and Impending
Spending Cuts, and Policy Recommendations_
[[link removed]]_. _Economic
Policy Institute, September 2012.

Bivens, Josh, and Lawrence Mishel. 2021. _Identifying the Policy
Levers Generating Wage Suppression and Wage Inequality_
[[link removed]].
Economic Policy Institute, May 2021.

Cannan, John. 2013. “A Legislative History of the Affordable Care
Act: How Legislative Procedure Shapes Legislative History
[[link removed]].” _Law
Library Journal_ 105, no. 2.

Congressional Budget Office (CBO). 2005. CBO’s Official Estimate of
Bonus Bids from Leasing ANWR
[[link removed]].
Letter to Sen. Ted Stevens (R-Alaska) from CBO Director Douglas
Holtz-Eakin.

Congressional Budget Office (CBO). 2022. _The Distribution of
Household Income, 2019_ [[link removed]].
November 2022.

Congressional Research Service (CRS). 2021. _“Technical
Corrections” and Other Revisions to the 2017 Tax Revision (P.L.
115-97) [[link removed]]_. CRS
Report no. R46754, April 2021.

Congressional Research Service (CRS). 2022. _The Budget
Reconciliation Process: The Senate’s “Byrd Rule.”_
[[link removed]] CRS Report no. RL30862,
September 2022.

Cooper, David, Zane Mokhiber, and Ben Zipperer. 2021. _Raising the
Federal Minimum Wage to $15 by 2025 Would Lift the Pay of 32 Million
Workers: A Demographic Breakdown of Affected Workers and the Impact on
Poverty, Wages, and Inequality_
[[link removed]].
Economic Policy Institute, March 2021.

Dube, Arindrajit. 2019. _Impacts of Minimum Wages: Review of the
International Evidence
[[link removed]]_.
Report to the United Kingdom Low Pay Commission, November 2019.

Ellwood, David, and Glenn Fine. 1987. “The Impact of Right-to-Work
Laws on Union Organizing
[[link removed]].” _Journal
of Political Economy_ 95, no. 2.

Fortin, Nicole, Thomas Lemieux, and Neil Lloyd. 2021. “Labor Market
Institutions and the Distribution of Wages: The Role of Spillover
Effects.” _Journal of Labor Economics_ 39, no. 52 (May 2021):
S369–S412.

Fredrickson, Leif, Christopher Sellers, Lindsey Dillon, Jennifer Liss
Ohayon, Nicholas Shapiro, Marianne Sullivan, Stephen Bocking, Phil
Brown, Vanessa de la Rosa, Jill Harrison, Sara Johns, Katherine Kulik,
Rebecca Lave, Michelle Murphy, Liza Piper, Lauren Richter, and Sara
Wylie. 2018. “History of US Presidential Assaults on Modern
Environmental Health Protection
[[link removed]].” _American
Journal of Public Health_, vol. 108 (supplement 2): S95–S103.

Furman, Jason, and Lawrence Summers. 2020. “A Reconsideration of
Fiscal Policy in an Era of Low Interest Rates
[[link removed]].”
Brookings Institution Discussion Paper, November 30, 2020.

Greenspan, Alan. 2001. “Outlook for the Federal Budget and
Implications for Fiscal Policy
[[link removed]].”
Testimony before the Committee on the Budget, U.S. Senate, January 25,
2001.

McNicholas, Celine, Margaret Poydock, Julia Wolfe, Ben Zipperer,
Gordon Lafer, and Lola Loustaunau. 2019. _Unlawful: U.S. Employers
Are Charged with Violating Federal Law in 41.5% of All Union Election
Campaigns_
[[link removed]].
Economic Policy Institute, December 2019.

Sojourner, Aaron, and José Pacas. 2018. “The Relationship Between
Union Membership and Net Fiscal Impact
[[link removed]].” IZA Institute of Labor Economics
Discussion Paper no. 11310, January 2018.

Zipperer, Ben, David Cooper, and Josh Bivens. 2021. _A $15 Minimum
Wage Would Have Direct and Significant Fiscal Effects_
[[link removed]].
Economic Policy Institute, February 2021.

See related work on Budget, Taxes, and Public Investment
[[link removed]] | Congress
[[link removed]]

See more work by Josh Bivens
[[link removed]]

JOSH BIVENS is the director of research at the Economic Policy
Institute (EPI). His areas of research include macroeconomics,
inequality, social insurance, public investment, and the economics of
globalization.

Bivens has written extensively for both professional and public
audiences, with his work appearing in peer-reviewed academic journals
(like the _Journal of Economic Perspectives_) and edited volumes
(like _The Handbook of the Political Economy of Financial
Crises_ from Oxford University Press), as well as in popular print
outlets (like USA Today, the Wall Street Journal and the New York
Times).

Bivens is the author of _Failure by Design: The Story behind
America’s Broken Economy_ (EPI and Cornell University Press)
and _Everybody Wins Except for Most of Us: What Economics Really
Teaches About Globalization_ (EPI), and is a co-author of _The State
of Working America, 12th Edition _(EPI and Cornell University Press).

Bivens has provided expert insight to a range of institutions and
media, including formally testifying numerous times before committees
of the U.S. Congress.

Before coming to EPI, he was an assistant professor of economics at
Roosevelt University. He has a Ph.D. in economics from the New School
for Social Research and a bachelor’s degree from the University of
Maryland at College Park.

THE ECONOMIC POLICY INSTITUTE (EPI) is a nonprofit, nonpartisan think
tank created in 1986 to include the needs of low- and middle-income
workers in economic policy discussions. EPI believes every working
person deserves a good job with fair pay, affordable health care, and
retirement security. To achieve this goal, EPI conducts research and
analysis on the economic status of working America. EPI proposes
public policies that protect and improve the economic conditions of
low- and middle-income workers and assesses policies with respect to
how they affect those workers.

Join with EPI to build an economy that works for everyone
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