Why MBA Jobs in 2021 Depend on Federal Budget Reconciliation
Typically, about 80 to 90 percent of MBA students receive job offers before graduation. But with Covid-19 dragging down the economy, this isn’t a typical year.
This Poets and Quants report shows that during 2020, job offers plummeted across the board at 22 of the top 25 graduate business schools across the United States. Only the Tuck School of Business at Dartmouth College kept pace with the preceding year; all the other business schools posted declines, and many endured steep ones.
The Poets data confirmed earlier reporting that suggested many of last summer’s MBA internships were canceled, that graduates received offers later in the season than typical, and starting salaries for the MBA grads were lower than anticipated.
It’s not challenging to understand why. On January 28, 2021, the Commerce Department released data showing that during 2020 the U.S. economy contracted at 3.5 percent, the sharpest rate of decline since 1946. That was 74 years ago, during World War II.
Starting in March 2020, a broad and nearly universal consensus of economists, led by the Federal Reserve Board’s Jerome Powell, has argued in favor of aggressive and repeated federal fiscal stimulus packages. Aggressive fiscal stimulus formed the core of the platform that won control of Washington for the Democrats in the November election, including the special January election in Georgia in which the party took back control of the Senate. Accordingly, making good on his campaign promise six days before his inauguration, President Biden introduced a sweeping $1.9 trillion stimulus initiative called the American Rescue Plan.
However, oddly enough, control of all three branches of the federal government doesn’t automatically guarantee bipartisan passage of the ARP. The reason is that the Senate rules require a 60 vote supermajority to end debate on every measure. And as long as the rules require this supermajority, it makes no difference if the Democrats have a 51-vote majority in the Senate; they can’t pass any legislation they cannot bring up for a vote.
This 60-vote requirement forms the modern Senate filibuster. No longer do Senators need to have cots carried into the Senate chamber so that they can deliver speeches all night long to delay passage and wear down their opposition, as Senators like Strom Thurmond of South Carolina did as recently as the 1960s to block civil rights legislation.
Under modern Senate rules, if enough senators refuse to vote for “cloture,” which means the end of the debate, they can prolong floor speeches and thus stop a vote on any measure. And it doesn’t look like those rules can be repealed anytime soon because at least two moderate Democratic Senators from conservative states have already signaled they won’t vote for that rule change.
Understanding Budget Reconciliation
Despite the good game that President Biden talks about how he’s calling Senators to try to persuade them to support his American Rescue Plan, most Capitol Hill insiders privately scoff at suggestions that he could ever find ten GOP Senators who would break partisan ranks to vote for his bill.
But there’s an alternative that would smash this filibuster, and MBA students need to know about it. That’s because in 2021, their job offers at graduation could very well depend upon a sudden revival in economic growth resulting from the successful application by Democrats of this alternative passage mechanism.
This alternative is known as “budget reconciliation.” It’s a parliamentary mechanism that permits legislation to bypass cloture if it significantly affects the federal budget. In other words, any bill with a significant fiscal impact—that is, a bill that in macroeconomic terms substantially increases or decreases government spending or taxation revenue—only needs a simple 51-vote majority to pass. And in 2021, the Democrats own 50 votes plus the vote of Vice President Kamala D. Harris, who will cast the decisive tie-breaking vote.
Budget reconciliation was introduced in 1974 to serve completely unrelated procedural purposes that had nothing to do at the time with enabling fiscal legislation. This vehicle was first used over the fierce objections of Democrats by Senate Republicans during the Reagan Administration in 1980 to dramatically slash entitlement programs while cutting federal taxes for corporations and the wealthy. Since then, it’s been successfully applied 20 more times, during which many landmark legislative initiatives have become law because of the use of budget reconciliation, frequently driven by Republicans.
Think back to George Herbert Walker Bush’s infamous campaign slogan, “Read my lips: no new taxes.” In 1989, the Republicans didn’t have a Senate supermajority that would vote the Bush tax cuts into law, so the GOP used budget reconciliation to pass the reductions. More recently, in 2017, Republicans attempted budget reconciliation twice during the first 12 months of the previous administration, most notably in their massive tax cuts for corporations and the richest Americans.
Limits on Budget Reconciliation & Possible Economic Effects
That trend by Republicans brings up a crucial point. Byzantine limits ostensibly exist on the frequency and character of the legislation that qualifies for passage under budget reconciliation. However, MBA students might want to grab their popcorn. That’s because political observers are getting ready to witness the testing of these limits by the current Democratic leadership in ways that no Senate leadership has ever tested such limits before.
For example, three instances during a Congressional term appear to have encompassed the upper limit on the use of budget reconciliation since 1980. That’s because Congress needs a budget for the federal government before it can “reconcile” any fiscal bill with it. Also, each budget theoretically sets up three reconciliation bills: one for tax revenue, a second for spending, and the third to raise the federal debt limit.
Yet incredibly, last year, no federal budget was ever submitted to Congress; that’s why the government almost shut down twice before Congressional leaders hammered out emergency deals to keep the lights on through the use of temporary continuing resolutions. For that reason, some experts argue that as many as four instances will be available for reconciliation that intersect with the current 2021-2022 term.
It’s also not in dispute that the American Rescue Plan qualifies for passage through budget reconciliation as a fiscal spending measure. Moreover, the President’s forthcoming Build Back Better infrastructure renewal and expansion initiative would also qualify, although there appears to be widespread Republican support for federal financing of infrastructure construction projects built by private industry that probably will obviate the need to pass the BBB plan through reconciliation.
Republicans do oppose a jobs provision that would create a modern update of the Works Progress Administration, the ambitious infrastructure and employment program created by President Roosevelt in 1935. And that jobs bill would drive many Republican Senators apoplectic if such a plan also proposes to federalize the minimum wage—as many economists have advocated for decades—and introduce it nationwide at an initial $15.00 per hour level.
As that minimum wage legislation would carry a substantial fiscal impact because it would raise much more money for the government through increased federal income taxation, such a bill would arguably qualify for passage through reconciliation.
Indeed, although President Biden campaigned on that promise, reconciliation would be the only way that such a bill could ever pass the current Senate.
Enforcing Budget Reconciliation Limits
Who would enforce the limits on the frequency and character of legislation that qualifies for budget reconciliation? By Senate custom and tradition, that role has been fulfilled by the Senate’s parliamentarian.
The parliamentarian evaluates legislation submitted for a budget reconciliation process for compliance with a set of six relevancy tests originally promulgated by West Virginia’s Senator Robert Byrd, who served for one of the longest periods in history—for 51 years from 1959 until his death in 2010. The parliamentarian has the authority to send legislation back to lawmakers for redrafting if in that staff member’s opinion it fails to meet any one of the Byrd tests.
On Capitol Hill, a number of puns have developed to characterize legislation in relation to the Byrd tests. For example, the process by which the parliamentarian analyzes a bill for compliance is called a “Byrd bath.” Legislation passages that the parliamentarian rejects are called “Byrd droppings,” or sometimes—yes, here it comes—even “Byrd sh*t.”
The current parliamentarian, Elizabeth MacDonough, was appointed in 2012 by the then-Democratic Senate Majority Leader, Harry Reid of Nevada. When evaluating legislation submitted for budget reconciliation, MacDonough has a reputation for insisting on strict, unwavering compliance with the Byrd relevancy tests. When the Senate Republicans, at the behest of the previous Administration, had tried to use reconciliation to destroy Obamacare—the Affordable Care Act—MacDonough was single-handedly responsible for effectively killing that legislation.
However, MacDonough serves at the pleasure of the Senate’s leadership. Some have argued that before any more legislation crosses her desk, Majority Leader Chuck Schumer should simply replace MacDonough with another Democrat who would be less strict about compliance with the Byrd tests, and less likely to delay or reject any majority legislation for the rest of the term.
What Comes Next
Others expect that what will instead occur will be that Vice President Harris will simply ignore MacDonough’s adverse analysis and recommendations. Although that will be the first time since 1975 such an event will have happened, there’s no law or regulation that says Harris cannot approve legislation under reconciliation for a floor vote even if the parliamentarian rejects it.
Senator Schumer and Vice President Harris will probably justify actions like these because of the need for rapid expediency owing to the national emergency brought on by the pandemic, which at the time of this writing has already claimed many more lives than World War II—almost 440,000 American casualties. The real reason, of course, will instead result from a different kind of expediency: political expediency.
In any case, MBA graduates might actually win job offers this June 2021 due to a growing post-pandemic economy—one spurred in part by the passage of any stimulus bills through budget reconciliation. Let’s hope our leaders do the right thing.