A Glimmer of Hope on Debt Ceiling/Default Talks
Author: Greg Valliere
January 30, 2023
BUT BOTH BIDEN AND McCARTHY are master deal-makers, and Wednesday’s meeting is an encouraging sign. Both men will probably agree to continue talking, and by spring there may be proposals from both sides.
ANOTHER ENCOURAGING SIGN is that McCarthy has taken Social Security and Medicare cuts off the table, and based on poor reviews, tax changes will be off the table as well. McCarthy said yesterday that defense cuts might be part of negotiations, but that’s an issue that bitterly divides Republicans.
McCARTHY HAS TO TREAD CAREFULLY, because a deal with the President could enrage hard-line House conservatives, who could seek to oust the House Speaker if there’s a compromise that allows for some spending increases.
WHAT’S NEW IN THE LAST FEW DAYS? There’s growing House support for across-the-board spending caps rather than digging into all 12 appropriations bills and the thousands of programs that can’t possibly be addressed individually. Spending caps have actually worked in the past few decades (until they expired).
THERE’S ALSO SUPPORT for passing a short-term debt ceiling extension in late summer, lasting a couple of months, and tying it to the massive budget that has to be passed before the new fiscal year begins on Oct. 1. Any effort to “kick the can” usually wins support in Congress.
ANOTHER TACTIC HAS LANDED WITH A THUD: A Republican effort to “prioritize” spending has no support at the White House. This scheme would allow for making interest payments, funding veterans’ benefits, etc., while shutting down funding for much of the government until there’s a deal.
WE’RE STILL COMFORTABLE WITH A 60-40 CALL that there will be a last minute deal, with a reduction in the pace of spending growth. A flat-out freeze in spending seems unlikely, but the growth of spending is likely to slow.
BIDEN’S MEETING WITH McCARTHY COULD BE A GOOD START: Others will enter the debate, including House Minority Leader Hakeem Jeffries and Senate Minority Leader Mitch McConnell. This won’t be easy – the Republicans eventually will have to make a formal proposal – but it’s still winter and the talks are about to begin already.
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