Flying Right: Avoiding Byrd Rule Challenges in Budget Reconciliation

Client Alert  |  February 11, 2025

Gibson Dunn is monitoring the reconciliation process closely. Our lawyers include former key Capitol Hill staff members, including those who worked on instructed committees during reconciliation processes in the Senate. These lawyers can help clients interested in understanding how reconciliation could help them or assess provisions for compliance with the Byrd Rule. 

I. Introduction

With Republicans controlling both chambers of Congress, the majority is planning to use a budget process called reconciliation to implement significant policy measures.  Reconciliation allows Congress to pass certain legislation through expedited procedures, including by a simple majority vote in the House and Senate.  As their majorities in both chambers are slim, Republicans see reconciliation as their best opportunity for advancing legislative priorities.  That opportunity is not unlimited: an arcane Senate requirement known as the Byrd Rule creates a point of order against any “extraneous material” in reconciliation bills.  Legislation passed through reconciliation must be budget-related and cannot include provisions without a fiscal impact or with a “merely incidental” fiscal impact.  Additionally, committees are asked to adhere strictly to instructions provided by the Budget Committee.

Members of Congress and outside organizations hoping to include policy measures in the upcoming reconciliation bills must ensure that those measures comport with the Byrd Rule, which can be a challenge.  If they do not, a senator opposing the provision can object to it on the Senate floor and the provision will be stricken absent a supermajority vote to waive the point of order.  Senate Majority Leader John Thune has urged Republicans to retain the supermajority requirement because overturning it would have the same effect as overturning the Senate filibuster.[1]

Current priorities for the reconciliation bills include energy deregulation, border security, defense spending, federal funding cuts, and tax cuts.  Congress can pass one reconciliation bill each fiscal year.   Usually, this equates to one opportunity per calendar year, but the 118th Congress failed to adopt a budget resolution for fiscal year 2025.  As a result, the 119th Congress could pass two reconciliation packages in 2025: one before the fiscal year ends in September, and another once the 2026 fiscal year begins in October.  Republicans are currently divided on whether to pass a single reconciliation bill covering all their priorities or to pass one bill in early 2025 and a subsequent bill later in the year.

To date, Congressional Republicans have struggled to align on a single strategy for budget reconciliation.  Senator Lindsay Graham (R-SC) has been pushing Congress to pass two reconciliation bills over the course of the year while House Speaker Mike Johnson (R-LA-4) has been a vocal advocate for a single bill.[2]  The Senate released a budget reconciliation blueprint on February 7 that would instruct nine committees to make a $11.5 trillion net spending reduction over the next ten years,[3] and Chairman Graham has announced plans to mark up his resolution shortly.[4]  The blueprint does not include an extension of the 2017 tax cuts, which will decrease the total savings.[5]  House Republican leaders have privately signaled they are looking to cut federal spending by a smaller amount, $2 trillion to $2.5 trillion, though their single bill would include an extension of the tax cuts.[6]

Regardless of how many packages Congress ultimately passes, reconciliation presents clients an opportunity to propose and champion helpful legislation.  In addition, reconciliation could change programs that affect clients, including major subsidies in the Inflation Reduction Act.

Below, we explain the reconciliation process and targeted areas for reconciliation in the 119th Congress.

II. Process

a. Statutory Reconciliation Process

Budget reconciliation is an optional procedural tool authorized by the Congressional Budget Act that supplements the annual budget process.  To begin, the House and Senate Budget committees draft a concurrent budget resolution.[7]  The committees then report the resolution to their respective chambers and provide reconciliation instructions that direct certain committees to develop legislation that will advance the required budgetary outcomes.

When the Budget committees consider the budget resolution, they each determine which committees in their chamber to instruct to develop legislations to meet the determined budgetary outcome.  Not all committees receive instructions in each reconciliation package and which committees receive instructions depends on the legislative goals the majority wishes to advance in the reconciliation bill.  Notably, the House and Senate do not have the same committees and similar committees do not always have the same jurisdiction, so the same provision may end up in different committees in each chamber.  For example, the House Energy and Commerce Committee may have five provisions under its jurisdiction, but those provisions may be divided between the Senate Commerce Committee and Senate Energy and Natural Resources Committee.

The instructions frequently tell the committees how much money they are allowed to spend or how much they must save.  The provisions assigned to each committee must comport with those limits.  For example, the 117th Congress passed a reconciliation measure with the following instructions:

(a) Committee on Agriculture, Nutrition, and Forestry. — The Committee on Agriculture, Nutrition, and Forestry of the Senate shall report changes in laws within its jurisdiction that increase the deficit by not more than $135,000,000,000 for the period of fiscal years 2022 through 2031.[8]

In this example, the budget resolution instructed the Senate Committee on Agriculture, Nutrition, and Forestry to increase the deficit by not more than $135 billion.  In other words, provisions under the committee’s jurisdiction cannot increase the deficit by more than $135 billion.

Armed with instructions, the committees draft legislative proposals and return them to the Budget committees by the deadline specified in the budget resolution.  The Budget committees then incorporate those reports into an omnibus reconciliation bill.

The House and Senate consider the resulting reconciliation legislation under expedited procedures.  In the House, the Rules Committee typically sets limits on debate and amendments for reconciliation procedures.  In the Senate, debate on reconciliation legislation is limited to 20 hours, and any proposed amendments must be germane.[9]  The Senate’s 20-hour limit on debate prevents members from filibustering and allows the Senate to pass reconciliation legislation with a simple majority rather than the usual 60 votes required to invoke cloture.  Unsurprisingly, these limitations make reconciliation bills attractive vehicles for the majority to advance its legislative priorities.

In the 1980s, to address concerns that Congress had increasingly larded reconciliation bills with policies unrelated to the budget, the Senate implemented, and later codified, the Byrd Rule to focus reconciliation on its budgetary purpose.

b. The Byrd Rule

The Byrd Rule allows a senator to raise a point of order to strike “extraneous material” contained in a reconciliation bill or reconciliation resolution.  When a reconciliation measure is considered, the Senate Budget Committee is required to submit for the record a list of potentially extraneous material included therein.  The Byrd Rule is not self-executing, meaning a member must affirmatively raise the point of order.  If the Senate chair sustains the point of order, the extraneous material is struck from the bill and may not be offered as an amendment.  A vote of three-fifths of the Senate (typically 60 senators) is required to waive the rule or to overturn a ruling of the Chair.  A provision is extraneous if it falls under one or more of the following six definitions:

  1. it does not produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made or revenues are collected;
  2. it produces an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions;
  3. it is outside of the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure;
  4. it produces a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision;
  5. it would increase the deficit for a fiscal year beyond the “budget window” covered by the reconciliation measure; and
  6. it recommends changes in Social Security.[10]

When interpreting the Byrd Rule, the Senate Parliamentarian refers to precedents established by prior decisions.  Some precedents are located in the Congressional Record, but many are not publicly available.  Although the Byrd Rule allows members to make formal points of order during debate, the Parliamentarian works with instructed committees’ staff prior to the floor debate to determine what provisions would be subject to the Byrd provisions—a process known as a “Byrd bath.”  In that process, the minority staff typically scour the reconciliation legislation for potential Byrd Rule violations and raise them with the Senate Parliamentarian.  Frequently, minority staff will submit memoranda arguing their points and majority staff will respond with their own memoranda.  For more complicated questions, the Parliamentarian may ask the staff to present oral arguments making their case.  These discussions happen behind closed doors, so there is no public record of the arguments or outcomes.  As a result, it can be “difficult to divine the standard that the Parliamentarian applies to make determinations under the Byrd Rule, and in particular, the ‘merely incidental’ test.”[11]

Two interrelated provisions under the Byrd Rule that are subject to frequent debate are the requirements that reconciliation legislation (1) must “produce a change in outlays or revenues or a change in the terms and conditions under which outlays are made or revenues are collected” and (2) must not produce a budgetary change which is “merely incidental to the non-budgetary components.” These requirements are discussed in turn.

First, each provision of a reconciliation bill must produce a budgetary effect or change the terms of a law that makes outlays or collects revenues.  Reconciliation measures often satisfy this requirement by changing eligibility definitions or formulas used to determine federal benefits.[12]  A spending-related provision will survive a challenge under this provision if it allocates money for various programs and an amendment will withstand a challenge if it modifies funding allocations in the underlying legislation.[13]

Second, the Byrd Rule creates a point of order against any provision with a budgetary effect that is “merely incidental” to its non-budgetary components.  This judgment requires a balancing analysis: whether the provision creates a policy change that would substantially outweigh its budgetary impact.[14]  This element does not stand on its own and must be read in conjunction with the requirement that a provision must create a budgetary effect.

Whether a provision increases or decreases the deficit is not dispositive.  “[A] Senator can find it easy to defend as budgetary a provision that does nothing but spend a great deal of money.  On the other hand, a provision that actually reduces the deficit but does so through the device of an extensive policy change will receive strict scrutiny.”[15]

The outcome of this prong of the analysis can depend on the score a bill receives from the Congressional Budget Office (CBO).  The greater the budgetary impact of a provision, the more difficult it will be for opponents to contend that its budgetary effects are “merely incidental.”  Reputable tax economics firms can provide cost estimates for proposed legislation.

Although the size of the budgetary impact from a provision is relevant to the Byrd Rule analysis, it is not dispositive.  During consideration of the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, the Parliamentarian considered a provision to repeal the Affordable Care Act’s individual mandate.[16]  She advised that “while the dollars associated with repeal are large (a net savings of approximately 147 billion dollars over 10 years if combined with the employer mandate repeal), they are dwarfed by the scope and impact of this mandate on the 270 million Americans who are covered by it.”[17]  As the “law constitutes a massive, national policy change[,] the primary purpose of which is not budgetary” it was found to violate the Byrd Rule.[18]

This provision frequently gives rise to staff arguments to the Parliamentarian and Senate floor points of order.  There is little public precedent defining the “merely incidental” test, which means it is often difficult to predict how the Parliamentarian will rule on a particular question.  Hence, careful thought needs to be given as to whether a provision can pass the “merely incidental” test as well as how to present the provision to the Parliamentarian.

The four remaining Byrd Rule provisions are more straightforward:

  1. Where a Senate Committee is directed to increase or decrease the deficit by a certain amount, it must comply with those instructions in its legislative recommendations to the Budget Committee. If a House-passed reconciliation bill does not align with a Senate Committee reconciliation instruction, the House may offer an amendment to address the disparity.
  2. A committee may only make recommendations to the Budget Committee—in response to reconciliation directions—on matters under the committee’s jurisdiction. If a committee makes recommendations on matters outside of its jurisdiction, those may be stricken as extraneous.
  3. A provision must not increase the deficit for a fiscal year beyond the “budget window” covered by the reconciliation measure. The budget window will be ten years.  In some cases, Congress can save a provision that would run afoul of this rule by adding a sunset provision.
  4. No provision may recommend changes in Social Security.

III. Targeted Areas for Reconciliation

As Republicans in Congress prepare to implement President Trump’s legislative agenda, priorities for reconciliation include energy deregulation, border security, defense spending, and tax cuts.[19]  A top reconciliation priority is extending the tax cuts enacted through reconciliation during the first Trump administration in the 2017 Tax Cuts and Jobs Act.[20]  Those tax cuts are set to expire in December 2025.[21]  In order to meet their targeted deficit reduction goals while cutting extending tax cuts, Republicans are reportedly considering slashing Medicaid, which may prove politically challenging.[22]

Of the energy policies being considered for reconciliation, the most significant would be repealing parts of the Inflation Reduction Act (IRA),[23] which provides funding for clean energy.[24]  The law includes an array of green subsidies—including consumer tax credits, grants, and loans—in exchange for using clean energy.[25]  Republicans have not publicly announced specific IRA provisions they will target through reconciliation, although Speaker Johnson mentioned wanting to take a “scalpel” rather than a “sledgehammer” to the green subsidies.[26]  Republicans are also reportedly considering using reconciliation to address energy permitting reform and opening the Artic Wildlife Refuge for drilling.[27]

Republicans are also expected to attempt to use reconciliation to increase border security, namely by providing funding for completion of a wall along the country’s southern border and increasing funding for Customs and Border Protection and Immigration and Customs Enforcement.[28]  And they are expected to convert a portion of discretionary defense spending into mandatory spending.[29]

Beyond those priorities, members have mentioned using reconciliation to expand child tax credits,[30] require site neutrality for Medicare,[31] reform welfare, and provide for greater scrutiny of “mandatory” spending.[32]  The bill also may address the debt ceiling.[33]

IV. Conclusion

Gibson Dunn is monitoring the reconciliation process closely.  Our lawyers include former key Capitol Hill staff members, including those who worked on instructed committees during reconciliation processes in the Senate.  These lawyers can help clients interested in understanding how reconciliation could help them or assess provisions for compliance with the Byrd Rule.  Clients with policy interests related to these bills should be aware that the situation is evolving rapidly and should reach out to the firm with any questions.

[1] Andrew Desiderio, Thune to Senate GOP: Don’t Overrule Parliamentarian on Reconciliation, Punchbowl News (Jan. 6, 2025), https://punchbowl.news/article/senate/thune-tells-gop-not-to-overrule-parliamentarian/.

[2] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[3] Paul Krawzak, Graham unveils budget blueprint ahead of markup next week, Roll Call (Feb. 7, 2023), https://rollcall.com/2025/02/07/graham-unveils-budget-blueprint-ahead-of-markup-next-week/.

[4] Melanie Zanona, John Bresnahan & Samantha Handler, AM: The reconciliation race: Can the House get its act together?, Punchbowl News (Feb. 10, 2025).

[5] Id.

[6] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[7] Floyd M. Riddick & Alan S. Frumin, Riddick’s Senate Procedure 502 (1992) [hereinafter “Riddick’s”].

[8] S. Cong. Res 14, 117th Cong (2021) (adopted).

[9] See Congressional Budget Act of 1974 § 310(e)(2) (codified as amended at 2 U.S.C. § 641(e)(2)); Congressional Budget Act of 1974 § 305(b)(2) (codified as amended at 2 U.S.C. § 636(b)(2)); Congressional Budget Act of 1974 § 305(c)(4) (codified as amended at 2 U.S.C. § 636(c)(4)).

[10] Congressional Budget Act of 1974 § 313 (codified as amended at 2 U.S.C. § 644).

[11] Budget Process Law Annotated—2022 Edition, by William G. Dauster, 117th Cong., 2d sess., S. Prt. 117–23, December 2022, notes on pp. 622.

[12] Id. at 669.

[13] Id. at 671.

[14] Id. at 690.

[15] Id. at 693.

[16] Id. at 703.

[17] Id. at 704.

[18] Id.

[19] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[20] Pub. L. 115–97, 131 Stat. 2054.

[21] See Pub. L. 115–97, § 11001(a), 131 Stat. 2054, 2054 (codified at 26 U.S.C. § 1).

[22] Jake Sherman, John Bresnahan, The race for reconciliation, Punchbowl News (Feb. 10, 2025), https://punchbowl.news/article/house/republican-leaders-house-look-to-cut-federal-spending-big/.

[23] Pub. L. 117–169, 136 Stat. 1818 (2022).

[24] Emma Dumain et al., Republicans plot energy-focused reconciliation package, Politico (Dec. 4, 2024), https://www.eenews.net/articles/republicans-plot-energy-focused-reconciliation-package/.

[25] See Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[26] See Emma Dumain et al., Republicans plot energy-focused reconciliation package, Politico (Dec. 4, 2024), https://www.eenews.net/articles/republicans-plot-energy-focused-reconciliation-package/.

[27] Id.; Kelsey Brugger, Republicans cooking up 2025 permitting plan if lame-duck push fails, PoliticoPro (Nov. 20, 2024), https://subscriber.politicopro.com/article/eenews/2024/11/20/republicans-cooking-up-2025-permitting-plan-if-lame-duck-push-fails-00190527.

[28] Alexander Bolton, Thune lays out plan for separate border and tax reconciliation bills, Hill (Dec. 3, 2024), https://thehill.com/homenews/senate/5020333-senate-republicans-reconciliation-tax-cuts-border-security/.

[29] Id.

[30] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[31] Ben Leonard & Robert King, Cassidy: ‘Premature’ to say if site-neutral is a reconciliation target, PoliticoPro (Dec. 11, 2024), https://subscriber.politicopro.com/article/2024/12/cassidy-premature-to-say-if-site-neutral-is-a-reconciliation-target-00193735?site=pro&prod=alert&prodname=alertmail&linktype=headline&source=email.

[32] Sahil Kapur, Republicans eye tax breaks, border funds and clean energy cuts when Trump returns, NBC (Dec. 1, 2024), https://www.nbcnews.com/politics/congress/republicans-eye-tax-breaks-border-funds-clean-energy-cuts-trump-return-rcna181927.

[33] Gregory Svirnovskiy, Johnson wants budget reconciliation bill on Trump’s desk by end of April, Politico (Jan. 5, 2015), https://www.politico.com/news/2025/01/05/johnson-budget-reconciliation-trump-april-00196504.

The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Amanda Neely, and Alexandria Murphy.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Congressional Investigations or Public Policy practice groups, or the following authors:

Michael D. Bopp – Chair, Congressional Investigations Practice Group,
Washington, D.C. (+1 202.955.8256, [email protected])

Barry H. Berke – Co-Chair, Litigation Practice Group,
New York (+1 212.351.3860, [email protected])

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
Washington, D.C. (+1 202.955.8515, [email protected])

Thomas G. Hungar – Partner, Appellate & Constitutional Law Practice Group,
Washington, D.C. (+1 202-887-3784, [email protected])

Amanda H. Neely – Of Counsel, Public Policy Practice Group,
Washington, D.C. (+1 202.777.9566, [email protected])

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