President Trump and Congress can and should use the reconciliation process to drive significant regulatory reform. Given the constraints of that process, some reforms may be tougher to reach, but others should be more straightforward to achieve.
Reconciliation provides a perfect opportunity to zero out the fines, fees, and penalties associated with unduly burdensome federal regulations. While these financial penalties may not be the focal point of most rules, including many of the extremely onerous rules of the past few years, they often play an important role in compelling adherence to those rules.
By zeroing out the penalties of regulations, Congress may be able to help neutralize key features of many burdensome regulations and help bring about the “golden age” of America. This approach should satisfy the limitations of the reconciliation process by focusing on the direct and inherent budgetary impact of those fines, fees, and penalties.
Meeting Reconciliation Requirements
Each provision of a reconciliation bill must produce changes in outlays, revenues or a change in the terms and conditions under which outlays are made or revenues are collected. A change in these terms and conditions means provisions that are necessary for administering the collection or distribution of funds.
Fines, penalties, and forfeitures are sometimes recorded in the federal budget as revenues. In FY 2023, the government collected more than $14 billion of such receipts. Additionally, fees associated with permits and regulatory and judicial services comprised nearly $23 billion of total federal revenues in FY 2023.
Other fees, fines, and penalties may be categorized in the budget as offsetting collections or offsetting receipts, which are recorded as negative outlays.
However, specific program level data on fines, penalties, and fees is not available to the public and instead only totals are provided in the Office of Management and Budget and Department of the Treasury reports. GAO has identified this as a problem that results in uninformed Congressional oversight and decision-making.
Regardless of the budgetary treatment of fines, fees, and penalties as receipts or outlays, it is clear that these policies have a direct impact on the government’s finances. Provided that the language of the provision does not violate one or more of the six tests of the Byrd Rule, removing the penalties associated with a prior law or regulation is fully compliant with the purpose of the budget reconciliation process.
The Obamacare Mandate Repeal: A Case Study in Regulatory Reconciliation Reform
Reconciliation has previously been a legislative vehicle for the elimination of the penalty associated with a controversial regulation.
Under the individual mandate enacted in the Affordable Care Act or “Obamacare,” individuals are required to maintain “minimum essential coverage” for themselves and their dependents. The statue offers different options of what constitutes this “minimum essential coverage” and introduces penalties for individuals who do not comply with the mandate. In the original law, penalties consisted of either 2.5% of applicable income or a yearly rate of $695 depending on which was greater.
Originally, lawmakers sought to repeal the individual mandate itself through reconciliation legislation. However, the Senate Parliamentarian advised that removing the mandate itself would violate the Byrd Rule’s “merely incidental” test and that the provision must be struck from the final reconciliation bill.
However, the Senate Parliamentarian ruled that a provision zeroing out the penalties and removing the teeth from the individual mandate would not violate the Byrd Rule. She stated:
We have concluded that the penalties associated with the Individual and Employer Mandates can be adjusted, as they previously were in [the Health Care and Education Reconciliation Act of 2010], and that such an adjustment may be to zero. The penalties are inherently budgetary… The zeroing out of the penalty does have a policy impact—that is undeniable—but the mandates remain, the incentives for purchasing and maintaining health insurance remain, the insurance reforms remain.
The Senate Parliamentarian’s logic was that since reconciliation adjusts “budgetary aspects” of broader policy structures, adjusting the penalty provided a significant impact that was primarily budgetary in nature rather than focused on policy making. This revised policy that simply set the penalty at $0 was ruled budgetary, compliant with the Byrd Rule, and was successfully included in the reconciliation package.
The elimination of the Obamacare individual mandate penalty was successfully enacted as a part of the Tax Cuts and Jobs Act of 2017.
An Opportunity to Act
With the successful removal of the individual mandate penalties in 2017, Congress demonstrated that this form of regulatory reform is possible in reconciliation and can have long-lasting impacts.
This blueprint can be extended not only to other health regulations, but also to any regulation that imposes a significant financial burden through fees, fines, and penalties. Lawmakers working on reconciliation today have an opportunity to enact similar reforms on regulatory penalties from agencies such as the Environmental Protection Agency, the Department of Labor, and the Department of Health and Human Services.
To reduce the burden on American citizens, Congress should work with the Executive Branch to target underlying regulatory provisions that impose financial penalties and zero out or reduce those penalties through the reconciliation process.
