Republicans cried foul, arguing that reconciliation wasn't appropriate for such a far-reaching measure. But Democrats pointed out that the Bush tax cuts of 2001 and 2003 -- very significant pieces of legislation -- were passed using reconciliation. In the end, Democrats got what they wanted.
Fast forward to this week. Those Bush cuts are expiring, and Democrats, still the majority party, wanted to extend them for everybody except individuals who make more than $200,000 a year and couples who make more than $250,000. Republicans, who have just 42 votes, wanted to extend all the cuts for all income levels. On Saturday, Democrats were unable to beat a Republican filibuster, and their version of tax cut extension went down to defeat.
So why not try reconciliation? If it was used to pass the Bush cuts in the first place, couldn't it have been used to extend them? That way, Democrats, who have 58 votes, could have passed their bill with just 51 and would not have had to worry about a GOP filibuster. Taxes on the "rich" would go up, and progressives everywhere would be celebrating today.
Alas, it didn't happen. And, although the details are complicated, the Democrats have only themselves to blame.
To pass a measure by reconciliation, the Senate must pass a budget that contains what are called reconciliation instructions. But this year, as they faced an angry electorate and grim prospects in the midterm elections, the Democratic leadership made the specific decision not to pass a budget. Revealing their spending priorities to voters already unhappy with out-of-control federal expenditures was just too risky, so Sen. Harry Reid and party leaders punted, even though passing a budget is one of Congress' core constitutional responsibilities.
With no budget, there could be no reconciliation. And no possibility of using reconciliation to extend the Bush tax cuts -- which were originally passed with bipartisan support -- on the Democrats' terms. Shirking your constitutional responsibilities can have consequences.
Without that option, and with Republicans united, the only question was how long it would take for Democrats to admit defeat. And on Monday night President Obama announced a "framework for a bipartisan agreement" under which all the Bush tax cuts would be extended for two years. "Sympathetic as I am to those who prefer a fight over compromise," Obama said, "it would be the wrong thing to do." In exchange for his concession on taxes, Obama got Republicans to agree to an extension of unemployment benefits that was going to be passed anyway.
There's been a lot of talk that Obama is a wimp for giving in to the GOP. Or that he did it out of naked political calculation, trying to triangulate away from those who led his party to defeat on Nov. 2. Or that he has simply lost his touch and is no longer the politician who forged a winning coalition in 2008.
In fact, the answer is a lot simpler. He just didn't have the votes. Democratic votes. When Democrats tried to pass their version of tax cut extension on Saturday, five of their members -- Russ Feingold, Joe Lieberman, Joe Manchin, Ben Nelson and James Webb -- voted with the Republicans. There was no way Obama could hang tough when his party wasn't united behind him.
It's true that Democrats could not prevail over a filibuster even if they had been united. But a strongly united party would have sent a strong message to everyone. "They would have been more eager to go to the White House and say, 'See, we're united on this, why won't you fight for us?' " says a key Senate Republican GOP aide. "But the fact is, they weren't."
Not very long ago, it seemed impossible that Democrats would lose on the issue of tax cuts. Now they have. And as they search for the reasons for their defeat, the first place they should look is in the mirror.
Byron York, The Examiner's chief political correspondent, can be contacted at email@example.com. His column appears on Tuesday and Friday, and his stories and blogposts appear on ExaminerPolitics.com.