Reconciliation 3.0 Must Be a Vehicle for Deficit Reduction, Not Partisan Appropriations

David Ditch

The federal debt is on pace to rise uncontrollably, driven by rapidly escalating spending. Bond markets are demanding higher interest rates on Treasuries. Economic growth will no longer be sufficient to address mounting fiscal pressures.

Against that backdrop, one might expect Congress to prioritize reining in the growth of spending. Instead, the House has cancelled planned session days, leaving just six weeks in session for the remainder of 2026. Worse, both the House and Senate have set up the fiscal year (FY) 2027 budget reconciliation package, or Reconciliation 3.0, to facilitate new appropriations rather than generate savings. 

Some congressional leaders have suggested that deficit reduction could be part of a fourth reconciliation package. However, with FY 2027 appropriations and Reconciliation 3.0 still unfinished and only a handful of session days remaining, a hypothetical Reconciliation 4.0 is not a serious prospect. Rubber-stamping new deficit spending in exchange for a nebulous promise of future spending cuts would be irresponsible even if there was more time on the legislative calendar. 

As such, Reconciliation 3.0 is the last chance the 119th Congress will have to address the unsustainability of federal finances. Including offsets for Reconciliation 3.0, past-due offsets for previous reconciliation packages, and new appropriations, Congress needs to enact at least $796 billion in savings.

The House FY 2027 budget resolution, which the chamber passed on July 22, provides instructions to authorizing committees for up to $95 billion in spending. The Senate resolution’s draft text provides instructions for up to $150 billion in spending. Neither committee has instructions that call for deficit reduction, meaning there is currently a lack of offsets.

Although any new spending produced through the reconciliation process counts as mandatory spending, the planned Reconciliation 3.0 functions as supplemental appropriations, using the reconciliation process to avoid negotiating with Democrats. 

Congress has passed a continuing resolution to fund government operations through December 11. CBO has scored the resolution as setting a $1.667 trillion level for base discretionary budget authority. This is $29 billion higher than the FY 2027 target of $1.638 trillion established by the Fiscal Responsibility Act (FRA) in 2023.

If Congress passes a Reconciliation 3.0 package in line with the House budget resolution, total FY 2027 appropriations would be $124 billion above the FRA level. Using the larger sum envisioned in the Senate budget, the appropriations boost could reach $179 billion. 

Congress should ensure that Reconciliation 3.0 contains enough offsets to cover any FY 2027 appropriations above the FRA level. Congress should also address unfinished fiscal business from previous reconciliation packages.

The FY 2025 budget resolutions facilitated the One Big Beautiful Bill Act (OBBBA). The House resolution required a minimum amount of spending reduction relative to the level of tax cuts. However, the OBBBA fell $600 billion short of the necessary savings.

The FY 2026 reconciliation package bypassed offsets altogether, containing $72 billion in new appropriations.

Combining still-needed offsets from the FY 2025 and 2026 reconciliation packages with the proposed new spending for FY 2027, Congress would need $796 billion to $851 billion in savings as part of Reconciliation 3.0.

Crucially, the bulk of reconcilable spending falls under the jurisdiction of committees that did not receive instructions in the FY 2027 budget resolutions. As such, to generate $796 billion or more in savings, the House and Senate must amend the resolutions to enable changes to expensive programs that are accelerating the US debt crisis, such as Medicare and Medicaid.

Congress, whether controlled by Republicans or Democrats, has spent most of the last 25 years exacerbating deficit spending and the unsustainability of major benefit programs. Today, Americans face higher borrowing costs and elevated inflation because of poor fiscal practices, both of which will worsen if Washington fails to take constructive action soon. 

For the sake of the nation’s current and long-term economic health, Congress must turn Reconciliation 3.0 into a vehicle for reform rather than just another partisan spending binge.

Source: https://www.cato.org/blog/reconciliation-30-must-be-vehicle-deficit-reduction-not-partisan-appropriations