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Why analysts believe "Reconciliation 3.0" is unlikely
Economy
House Republicans have introduced a significantly scaled-back version of their new reconciliation package, cutting proposed defense funding to $60 billion from the previously planned $350 billion.
According to analysts at Wolfe Research, this slightly increases the bill's chances of passage, but significantly reduces its relevance to investors.
The draft budget resolution allocates $60 billion to the Armed Services Committee, $13 billion for intelligence, $11 billion for agriculture, and $10 billion for administrative needs, laying the procedural foundation for the reconciliation bill. Wolfe noted that the reduced size of the package reflects the political realities in Congress, where lawmakers are struggling to find funding sources for a more ambitious defense package.
The research firm reported that the revised proposal is generally consistent with its long-standing position: Congress is unlikely to approve a significant structural increase in defense spending. Instead, the package appears to be aimed at covering costs related to the Iran conflict and effectively replaces the administration's previously proposed $67 billion supplemental defense request, without including any new spending.
While Wolfe believes that alignment between the White House and congressional leadership around a narrower bill slightly improves its chances of passage, the company warns of significant remaining obstacles. Analysts point to the narrow Republican majority in the House, procedural complexities in the Senate, and the compressed legislative calendar ahead of the midterm elections as key risk factors.
The House Budget Committee was expected to begin drafting a framework document before it was voted on in the House and then the Senate. Even under an optimistic scenario, Wolfe estimates that final legislation is unlikely to be passed before September. Despite the new proposal, Wolfe maintains his forecast that overall U.S. defense funding will remain broadly unchanged: Congress will ultimately cover the costs of the war, but will avoid any significant long-term expansion of defense spending—either through the reconciliation mechanism or through the regular budget process.