An expected scramble among Senate Democrats over who will succeed Minority Leader Harry Reid who announced earlier this morning that he intends to step down late next year may already be over. Reid just confirmed in an interview with the Washington Post that he supports New York Senator Chuck Schumer to be his successor.
*** Schumer, currently number three in the Senate Democratic leadership, is among the more liberal Senate Democrats, but he is a proven dealmaker who can work with Senate Majority Leader Mitch McConnell and the Republican leadership towards getting bi-partisan legislation passed. And this, we think, is going to prove a boost to the prospects for at least a modest fiscal tailwind next year (see SGH 12/8/14, “US: A Modest 2015 Fiscal Tailwind”). ***
*** A tailwind to federal spending after the prior years of fiscal drag will provide further support to the US recovery next year, something the Federal Reserve will be only too happy to see. It would also be coming at a time when the central bank is already expecting the strong dollar constraints on prices and exports to be subsiding, and the higher demand and spending from the lower levels of unemployment and a long awaited growth in wages should be underpinning a pace of growth above the economy’s trend potential (see report earlier today, SGH 3/27/15, “Fed: The Emerging Policy Path”). ***
Schumer as Dealmaker
Reid, who will skate away now in 22 months, has been sharply criticized from both within and outside the Democratic ranks for his hardball stance refusing to allow GOP (or Democratic) amendments and debate on any bills that threatened embarrassing votes for vulnerable Democrats going into the 2014 Senate elections.
That so-called “goalie” strategy — which his critics contend stretched across his six years as Senate Leader — not only proved disastrous in costing the Democrats control of the Senate last year, but coupled to the confrontational tactics of the Tea Party dissidents in the House Republican conference since 2011, stalled any prospects for more bi-partisan, pro-growth legislation.
If Schumer is indeed to become the next Democratic leader in the Senate, it would not come just because of the Reid endorsement, but because of a combination of talents his Democratic Senate colleagues recognize. Schumer is smarter, tougher, and yet simultaneously more willing to compromise, than his chief rivals, Illinois Senator Dick Durbin or perhaps Ranking Budget Committee member Patty Murray, or any Democratic Senator since Ted Kennedy for that matter.
That he can also raise more campaign money than anyone else in the Senate is not exactly a negative in winning the support to become party leader.
And more to our point in going forward, despite what he says to the contrary, Minority Leader Reid’s power is now instantly reduced with today’s announcement. Schumer can be expected to exert his sway among his Senate colleagues even as he stays publicly loyal to Reid.
We think Schumer, for one, will give Senate Democratic moderates facing re-elections in 2016 far more running room than in the past to draft bi-partisan legislation with more moderate Senate Republicans who are also facing pressures to move to the center to win re-election in purple or blue states. We think the change in tone and tactics should steadily become apparent through the current legislative year.
Good Signs in the House “Doc Fix” Deal
Reid’s slow stepping away is in fact only one of three recent developments on Capitol Hill that we think all point to a greater fiscal tailwind in the coming years.
The second big breakaway from the budget austerity of the last few years to emerge this week was the deal recently reached in the House between Speaker John Boehner and Democratic Minority Leader Nancy Pelosi on the Sustainable Growth Rate (SGR) — a supposed limitation on entitlement spending that is so unpopular it has never been allowed to go into effect.
The SGR purports to set a formula for annual price controls on the fees paid to physicians who treat Medicare patients. Each year, Congress has acted to “patch” its cost reduction with other savings, negating the SGR from going into effect. The annual patch is called “the doc fix.”
The deal essentially meant Pelosi got an extension of funding for health care coverage subsidies for children, while Boehner got more realistic reductions in other Medicare spending. Even better, the Boehner-Pelosi bill is legislation President Obama has indicated he will sign.
But perhaps even more importantly, by reaching out to Pelosi from the outset, Boehner looks to have finally found a way to circumvent the initial wall of resistance he has often faced within his GOP ranks from either Tea Party dissidents or deficit hawks and going forward, to govern by building a “coalition of the willing” pragmatists in both parties.
And Busting the Sequester Caps
And finally, both the House and Senate adopted FY2016 budgets that aimed to balance within ten years but which funded the desired increase in defense spending by pushing the higher spending into the Overseas Contingency account that lies outside the 2011 Budget Control Act’s sequester’s caps. Killing off the only effective blockade to increases in discretionary spending — the sequester’s effect on defense spending — is welcome news.
It is important to note that the House and Senate budget resolution are not “bills” and they are not sent to the president for signature or veto. Budget resolutions bind the operations of the Congress, not the rest of government unless a reconciliation bill is later passed and signed, a highly unlikely prospect.
But the real value in the budgets is not that they passed so much as how they passed in indicating a willingness to work around the sequester-imposed lower spending levels. We still think that by the time the dozen spending bills are passed or lumped into an Omnibus this fall they will reflect a net boost to federal spending next year that will provide a fiscal tailwind to US growth after the prior years of fiscal drag.