Reconciliation 3.0 Still a Long Shot Even As It Shrinks

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Reconciliation 3.0 Still a Long Shot Even As It Shrinks

argued that a narrow bill to cover the costs of the war in Iran should be doable. This new framework

just signals that Congressional leadership will try to pay for the war through reconciliation rather than a bipartisan

supplemental appropriations bill, which doesn't shift our expectations for total defense funding. Even if this plan

works, we basically view it as an alternative route to provide defense funding that we've always believed would be

delivered eventually. We won't get any clarity about the allocation of this $60b in defense funding until later in the

process (the budget resolution only sets a topline number), but the number lines up closely with the $67b defense

supplemental request that the Administration has already released, which was largely but not entirely devoted to war-

related costs. Given the limited traction on that supplemental, we view Reconciliation 3.0 as a 1-for-1 replacement.

Will this work? Possibly, but we still see major obstacles. Aligning between the White House and Congressional

leadership on a narrower, less ambitious bill that forgoes toxic healthcare offsets does somewhat increase the odds of

enactment compared to the near-zero odds we put on the $350b version of Reconciliation 3.0. But we're still cautious.

The House majority is historically dysfunctional, and Speaker Johnson has only tentatively managed to unlock the House

floor based on promises to conservatives around immigration bills and SAVE America Act provisions that have no path

through the Senate. And as we've noted in the past, Congress is rapidly running out of time before the midterms. The

House is on recess after next week, and our sources on the Hill indicate they're not open to shifting that schedule. So even