Last week, Senate Majority Leader John Thune (R-SD) publicly acknowledged what many expected: the Senate will not act on a budget resolution ahead of the midterms. At the same time, he stated that without cooperation from Democrats on fiscal year (FY) 2027 appropriations and supplemental defense funding, reconciliation may be the only option to pursue in November.
 
The path to a third filibuster-proof budget bill, or so-called "Reconciliation 3.0," starts with a budget resolution that sets out the broad spending and revenue instructions to be reported by authorizing committees. In the Senate, a reconciliation bill can pass on a simple majority with no filibusters allowed. The budget resolution (S. Con. Res. 38) put forward by Senate Committee on the Budget Chairman Ron Johnson (R-WI) in August maps out up to $150 billion in federal spending with instructions to 11 authorizing committees, including:

• $60 billion for defense and national security priorities
• $13 billion for intelligence
• $20 billion for domestic security
• $20 billion for state election integrity measures
• $12 billion for farm aid

The House already approved a third budget resolution (H. Con. Res. 113) in late July. The House budget plan sketches out $95 billion in new spending from just four authorizing committees, including:

• $60 billion in funding for defense and national security procurement 
• $13 billion for intelligence capabilities, secure operational infrastructure, and national intelligence initiatives
• $12 billion for farm aid
• $10 billion to support state voter integrity actions

As currently drafted, the House and Senate budget resolutions focus on authorizing specific federal spending. No spending offsets or tax policy changes are included.
 
Midterm elections could rewrite the game plan, though. If Republicans lose one or both chambers in the midterm, the White House is almost certain to request, if not demand, an increase in the debt limit covering the remaining two years of the president's term. Doing so would remove a future point of leverage for Democrats in policy disputes with the administration.
 
Republican fiscal hawks aren't expected to support a debt limit increase without substantial concomitant spending reductions. Chairman Johnson says he's ready to go with spending curbs that could total $1 trillion. Deficit hawks are also anxious to offset all or some of the spending that would be authorized in the budget resolution.
 
In any case, the House and Senate will need to get on the same page and approve an identical budget plan before a reconciliation bill can be drafted. That's never easy and likely will hinge on the president's involvement and policy priorities, including a proposal to deliver $5,000 checks to every American adult, presumably via reconciliation.
 
How tax policy may fit into a potential November reconciliation bill is uncertain. It's interesting to note that the rules of reconciliation exclude some tax policy changes that Congress has been working on over the past two years, including tax administration reforms, technical corrections, and legislation to provide benefits similar to a tax treaty for U.S.-Taiwan trade and investment. Those legislative changes don't significantly affect revenue, meaning they could be excised by the Senate parliamentarian based on the Byrd Rule.
 
While the list of reconciliation-compliant tax policy options remains familiar – extending expired/expiring provisions, reinstating the full deduction for gambling losses, digital asset taxation, suspending the federal gas tax, retirement savings, etc. – there is also the concern that tax policy could come into play as a means to partially offset the spending side of reconciliation, which would balloon if the president's $5,000 proposal gains traction.
 
With the House adjourned until after the midterm election, the Senate will spend the next two weeks setting the stage for a post-election session agenda that hinges largely on what voters have to say on November 3. #TaxTake

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