Later this week, the U.S. House of Representatives will introduce and likely vote on the COVID-19 relief bill, which is supported by President Biden. As the vote nears, however, the Byrd rule, originating from former Senator Robert C. Byrd (D-W.V.), will be key in deciding which provisions, such as raising the minimum wage to $15, will survive the congressional process.

To break down the Byrd rule, one must first discuss the budget reconciliation process. Due to their desire to expedite the COVID-19 relief bill, and given its lack of bipartisan support, Democrats are using the budget reconciliation process as the mechanism to pass the bill through Congress. Republicans utilized this process to pass the Tax Cuts and Jobs Act of 2017, and Democrats used it to pass the Affordable Care Act in 2010. It is also the process Republicans used in their attempt to repeal the Affordable Care Act, which failed with then-Sen. John McCain’s (R-Ariz.) opposing vote. This process allows the legislation to pass with a simple majority, limits debate to a maximum of 20 hours, and does not allow senators to filibuster. It also requires any amendments and policy issues within the base text be related to the budget.

Reconciliation was first codified within Section 310 of the Congressional Budget Act. Its original purpose was to reduce the deficit by cutting spending or increasing revenue. The process occurs in two steps: (1) reconciliation language is included in a budget resolution that directs House committees to develop legislation that will change spending or revenues (or both); and (2) an omnibus budget reconciliation measure is considered in the House and Senate to expedite passage of the bill.

Over time, measures passed through the budget reconciliation process have included provisions that did not align with reducing the deficit. Reconciliation legislation “included provisions that had no budgetary effect, that increased spending or reduced revenues, or that violated another committee’s jurisdiction.” [Bill Heniff Jr., Cong. Research Serv., RL30862, The Budget Reconciliation Process: The Senates “Byrd Rule” (2020).] Therefore, the Senate adopted the Byrd rule in 1985 to protect the original intent of the budget reconciliation process and exclude extraneous provisions that often provoked disagreement rather than actively working to reduce the deficit. Now, when a reconciliation measure is considered, the Senate Budget Committee creates a list of potentially extraneous provisions.

A provision is deemed extraneous if one or more of these six statements applies:

  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 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 that is merely incidental to the nonbudgetary components of the provision.
  5. It would increase the deficit for a fiscal year beyond the “budget window” covered by the reconciliation measure.
  6. It recommends changes in Social Security (referring to the Old-Age, Survivors, and Disability Insurance, or OASDI, program, and not Medicare or any additional programs under this act).

Under the Byrd rule, a senator can: (1) submit an amendment to strike extraneous provisions from the proposed legislation; or (2) raise a point of order against the extraneous provision to strike it from the proposed legislation. The presiding officer depends on the Senate parliamentarian for guidance in ruling for or against these points of order and amendments. Therefore, the Senate parliamentarian decides whether the provision falls under one or more of the six definitions outlined in the Byrd rule. The chair may overrule the decision of the Senate parliamentarian; however, this has not occurred since 1975 by then-Vice President Nelson Rockefeller. A three-fifths vote is needed to waive the Byrd rule, or overrule a point of order that the chair sustained.

One provision expected to be included in the House version of the COVID-19 relief package is the increase of the minimum wage to $15 per hour. Utilizing the litmus test outlined in the six statements above, the Senate parliamentarian will ultimately advise the chair on whether this provision will effectively produce a change in outlays or revenues relevant to the federal budget and is not “merely incidental.”

H.R. 582, the Raise the Wage Act, is identical to the provision that will be added to the COVID-19 relief package. When the House passed this resolution in 2019, the Congressional Budget Office (CBO) only noted a seemingly miniscule $76 million budget change from the passage of this act in its April 2019 report. In its 2021 report, however, the CBO states: “The April 2019 estimate included only the effects of raising the pay of federal employees whose wages would be below the new minimum. CBO estimated that those increases in pay would have led to a $76 million increase in discretionary outlays over the 2019-2029 period, subject to appropriation of the necessary amounts. That estimate did not include budgetary impacts stemming from any behavioral effects by firms or individuals.”

Also in the 2021 report, CBO concludes: “The effects of the Raise the Wage Act of 2021 on the budget and other outcomes are uncertain, and there is a wide range of possible outcomes on either side of the estimates shown in this report…. If wage growth in the absence of the policy proved slower than CBO currently projects in its baseline projections, the bill’s effects on employment would be larger, and the bill would probably increase the deficit by a larger amount. If wage growth in the absence of the policy proved faster than CBO currently projects, the opposite would be the case.” In either event, CBO writes that if the Raise the Wage Act of 2021 is enacted, “The cumulative budget deficit over the 2021 – 2031 period would increase by $54 billion.”

A $54 billion increase is significant and may prove that the minimum wage provision will produce a direct budgetary effect. Fortunately for Democrats, previous provisions that would yield less of a budgetary impact were included in measures passed by the Reconciliation Act. For example, in 2017, the Republicans’ tax bill included a provision opening the Arctic National Wildlife Refuge (ANWR) to oil drilling. The CBO wrote that “opening ANWR to development would: Yield about $5 billion in additional receipts over the next 10 years … [and] increase royalties by roughly $2 billion to $4 billion during the 2023-2035 period.” Therefore, although it yielded a much smaller budgetary impact, the provision remained.

Whether the $15 minimum wage provision is deemed extraneous will also depend on the Senate parliamentarian’s judgment on whether the provision is “incidental” to the budget. For example, the $15 minimum wage increase could have a greater impact on the private market than on the public sector and therefore would not be seen as having a direct federal budgetary effect. It could also be seen as motivated by political issues, instead of budgetary ones.

It is likely that Sen. Ted Cruz’s (R-Texas) provision allowing use of 529 savings plans for homeschool expenses was stricken by the parliamentarian from Republican’s 2017 Tax Bill for this reason. During the legislative session, Sen. Ron Wyden (D-Ore.) made an argument opposing the provision: “The Byrd rule states that the primary purpose of a budget bill is to address spending and taxes. If, on the other hand, you are debating a major policy change and the budget impact is merely incidental, the provision just doesn’t comply with the Byrd rule. That is the case here. The Cruz amendment has a modest budget impact, but the impact is vastly outweighed by the profound impact, as a matter of social and education policy, of providing Federal support for homeschooling for the first time.” [163 Cong. Rec. 207, S8139, (2017).]

Ultimately, the current parliamentarian, Elizabeth MacDonough, will decide whether the $15 minimum wage provision is in or out. Although the Senate has the ability to overrule her decision, this rarely occurs. Therefore, her decision will be primary in determining whether the minimum wage passes the Byrd rule’s litmus test.