US Fiscal: Bigger is Better, Eventually

Published on October 3, 2013

For most of this morning President Obama and Senate Majority Leader Harry Reid have followed through on last night’s mostly unproductive White House meeting to pound away at House Speaker John Boehner to relent and pass the “clean” Senate Continuing Resolution with an overwhelming majority, with the help of House Democratic votes.

It will have little if any effect, however, on the Republican leadership, despite the stream of wavering Republican House members now going public against holding out on a clean CR. For now, the leadership will continue to refuse to take up the Senate CR and instead spend the day shaping what is admittedly a still-in-flux strategy, and honing the arguments they will use to present to their rank and file in a special conference meeting tomorrow morning.

This is where things stand as of this afternoon going forward:

*** It is highly unlikely there will be any substantial progress before next week, and there are likely to be several more nasty rounds back and forth between the highly polarized Senate and House. The public intensity of those volleys is being made that much worse by damaged back channels we noted yesterday afternoon (see SGH 10/3/13, “US Fiscal: The White House Meeting”) that would normally be used to smooth the way to the resumption of more effective private negotiations. ***

*** The leadership remains highly unlikely to let the “clean” Senate CR go to a floor vote, but when the time is ripe it could craft and send back another amended CR that is nearly as clean as the Senate version, but including some sort of minimal face saving provisions like the Medical Device tax repeal to offer the Tea Party a “victory” to win their votes. But right now, Boehner and the House Republican leadership still do not have enough support within the 232 member conference to move the agenda off the Obamacare defunding demands of the Tea Party dissidents, who remain deeply distrustful of the leadership, much less the President and the Democrats, and that may still take at least several more days. ***

*** A debt ceiling bill is likely to be revived by early to mid-next week, but how it is going to be written is still unclear. The original scheme was to load it up with a Republican legislative wish-list in order to secure the necessary 217 Republican votes to move it out of the House without needing Democratic votes. But that now seems unlikely. Stripping out the demand for one year defunding of Obamacare only means the duration of the debt ceiling increase must now be driven by something else, the length of the authorization to the increase in the debt ceiling could be penciled in at the last minute, depending on what sort of commitments to deficit reduction or entitlement cuts in exchange for lifting the sequester and higher discretionary spending levels could be mapped out in the language of the CR, which would probably be tied to the Senate’s November 15 end date. It will be extremely difficult to negotiate a longer or full fiscal year Omnibus CR that would deal with the sequester issue in the two weeks before October 17 – maybe, but not likely. ***

*** The hope for now is that simply by changing the subject off the focus on Obamacare and moving it back to the broader fiscal issues, it will have the effect of dislodging the hardening positions on both sides, and especially among the Tea Party dissidents to create a sense of forward movement again. The main case to be made by the Speaker and the House Republican leadership tomorrow will be on moving the line of attack from a dead-end of focusing solely on Obamacare to the fundamental fiscal problems of Obamacare, and from there, to move a solid majority of the conference at long last back to the original FY2014 fiscal budget agenda waylaid since spring by the mutiny of the Tea Party dissidents. However long that messaging takes, the GOP House leadership believe they can then move parallel spending and debt limit bills sometime next week. ***

*** In effect, Boehner is also stalling for time, taking the short term pummeling in the media and deepening fractures in the ranks over the shutdown, in order to exhaust the Tea Party revolt and bring enough of the dissidents on board to isolate the ten to a dozen core of the Tea Party “suicide caucus.” Until then, the GOP is going to have to endure at least several more days of a political beating in the hopes that either the Democrats overreach to give them an opening, or that enough of the Tea Party faction come to their senses in concluding the Obamacare path is an extremely costly dead-end. ***

*** To pave the way to this strategy shift, behind the scenes all day yesterday and continuing through today, the leadership sanctioned the lead taken by Budget Committee Chairman Paul Ryan, Ways and Means Committee Chairman David Camp, Appropriations Committee Chairman Hal Rogers, and Joint Economic Committee Chairman Kevin Brady in the internal conference discussions to get the agenda back to entitlement reforms, spending cuts, and dealing with the sequester to deter deeper defense spending cuts looming next year if the sequester is not lifted. Once the leadership is confident it has whittled down the Tea Party rebellion to the core “suicide caucus,” it is likely to move forward with a still undefined twin CR and debt ceiling bill. ***

*** President Obama and Majority Leader Reid are holding firm to their hard line stance of no negotiations to anything other than a clean debt ceiling, and with the Republicans seen as taking the political pain for the shutdown, they have for now little incentive to give ground. One way around that for the President would entail holding up the CR re-opening the government in parallel to the “clean” debt ceiling bill and loading the amendments needed to win the necessary Republican support on the CR, rather than formally on the debt bill, and then moving both to a vote at the same time. ***

*** But beyond averting the immediate crisis, while the Democrats want the fiscal issues off the political agenda through the election next year, Boehner and GOP are more than willing to keep chipping away at driving the fiscal wars to a succession of return engagements through the end of this year and well into next in order to achieve their fiscal policy objectives with entitlement spending reforms and a lower spending trajectory over the next ten years. ***

*** In other words, even if a near term deal is struck to avert dislocations around the October 17 first deadline date to increase the debt ceiling, it will only mark the end to the current battle in a fiscal war that will go on for a while. Both the markets and a Federal Reserve anxiously watching for evidence of deepening fiscal retrenchment are probably going to have to adjust expectations that the political fiscal wars are going to go on for a good while longer. ***

*** There has been and will continue to be a lot of chatter above moving towards a “Grand Bargain” style agenda of a broader and more comprehensive deal. It would, however, be extremely difficult in fact to pull together an agreement on ending the shutdown, increasing the debt ceiling, and trading the sequester for entitlement reforms and some sort of additional tax revenues in just two weeks. ***

*** In any case, while the shift in the story line may open the door to some movement soon, any sort of compromise deal on the debt ceiling and possibly the shutdown as well is unlikely to emerge and pass both sides of the Capitol until the days around or even a bit after the October 17 deadline before the risks of a funding accident or missed payment sharply rises. ***

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