The US Constitution grants Congress the "power of the purse" — the authority to appropriate (authorize spending of) federal funds. In theory, the process works like this: the President submits a budget proposal to Congress in early February. The House and Senate Budget Committees produce a budget resolution setting overall spending and revenue targets. Then 12 separate appropriations subcommittees write bills funding each area of the government: Agriculture, Commerce/Justice/Science, Defense, Energy/Water, Financial Services, Homeland Security, Interior/Environment, Labor/HHS/Education, Legislative Branch, Military Construction/VA, State/Foreign Operations, and Transportation/HUD. These 12 bills must pass both chambers and be signed by the President before October 1, the start of the federal fiscal year.

In practice, this almost never happens. Congress has passed all 12 appropriations bills on time only 4 times since 1977. Instead, the government typically operates on a series of continuing resolutions and, periodically, omnibus spending bills that package multiple appropriations together. The dysfunction is partly procedural and partly political: the 12-bill process was designed for an era of bipartisan compromise, but the current partisan environment makes consensus on individual spending levels nearly impossible to achieve by the October deadline.

Budget reconciliation is the single most consequential mechanism in contemporary US fiscal politics. It allows the Senate to pass legislation with 51 votes rather than the 60 required for most legislation, bypassing the filibuster. The catch: the Senate Parliamentarian must certify that each provision has a direct budgetary impact. Policy changes that are merely tangentially fiscal can be stripped out via a "Byrd rule" point of order. This limitation explains why Republican reconciliation bills combine tax policy (clearly fiscal) with Medicaid restructuring (directly fiscal) but cannot include, for example, immigration enforcement policy changes (not directly budgetary).

Major legislation in recent decades has used reconciliation because 60-vote bipartisan consensus is nearly impossible. The 2001 and 2003 Bush tax cuts passed via reconciliation. The ACA's final passage used a reconciliation fix. The 2017 Tax Cuts and Jobs Act (TCJA) passed via reconciliation. The 2022 Inflation Reduction Act — which included the largest US climate investment in history — passed via reconciliation. The current Republican package, the "One Big Beautiful Bill," uses reconciliation to extend the expiring TCJA provisions, restructure Medicaid, and increase border security funding. Because reconciliation bills can only be used once per budget year, they represent extremely high-stakes legislative vehicles. Failing to pass a reconciliation bill is a major political defeat; passing one with politically toxic provisions is a major campaign liability.

The debt ceiling is unique among developed nations — most countries do not have a separate statutory cap on borrowing beyond their budget laws. The US debt ceiling requires Congress to separately authorize the Treasury to issue debt to fund spending that Congress has already approved through appropriations and mandatory spending law. It is, in effect, Congress voting to pay a bill it has already incurred. Most economists and former Treasury officials consider the debt ceiling an irrational constraint that creates unnecessary default risk without reducing spending.

Despite its irrationality, the debt ceiling has become a recurring political leverage point. Republicans typically use debt ceiling negotiations to extract spending cuts from Democratic administrations (2011, 2013, 2023). Democrats have generally resisted, arguing that paying existing obligations should not be conditional on new policy concessions. The 2023 debt ceiling deal between Biden and House Republicans — the Fiscal Responsibility Act — suspended the ceiling through January 2025 in exchange for discretionary spending caps. As of spring 2026, Treasury is using "extraordinary measures" to avoid breaching the newly reinstated ceiling, and the Republican reconciliation package is expected to include a provision raising or suspending the ceiling as part of the overall fiscal package.