Budget Deal is Close — With One Major Wild Card
Author: Greg Valliere
May 26, 2023
WHY THE DEAL WILL BE HATED: Conservatives are furious that there won’t be any real spending cuts, just a small spending increase or a freeze that could expire after a couple of years. Liberals are equally angry over several provisions, including a mandate that would require recipients of federal aid to seek work.
THUS THE ONLY ISSUE THAT MATTERS this weekend is whether a final deal can win enough votes in each house. The Senate is the easier call; the bill will pass there. The House is a tougher call, as Speaker Kevin McCarthy seeks votes from Democrats to get the bill passed. The hard right wing is scathing toward the deal, and their noisy criticism could drag at least 100 Republicans into the “no” camp.
THAT WOULD REQUIRE ROUGHLY 125 Democrats to vote for the bill; they will, because the alternative is unacceptable: a default, with huge economic implications.
AS FOR THE DETAILS OF THE DEAL, the best summary this morning is in the New York Times. The emerging compromise would raise the debt ceiling for two years (past the 2024 election) while imposing strict caps on discretionary spending not related to the military or veterans for the same period. That spending would rise, although it’s not clear by how much. Defense could get an increase of 4 or 5 percent.
A KEY FEATURE IN THE EMERGING DEAL is a reduction of the $80 billion in new spending for the Internal Revenue Service. That would be reduced by $10 billion, with that money sent to domestic programs popular with Democrats. All discretionary spending would then grow at 1 percent in 2025, after which the caps would lift.
BOTTOM LINE: Chances of a U.S. default aren’t zero, because many of the details are hotly opposed by the right and left. But House Speaker Kevin McCarthy is likely to patch a coalition together that should prevail. (Whether this will lead to a drive by activists to strip him of the speakership will be an intriguing issue this summer.)
SO IF THE BUDGET DRAMA is close to ending, what issues will dominate the summer? The first is whether the Federal Reserve has more work to do; the second is whether it will become even more apparent that Russia is losing its war with Ukraine. The latter issue may be at a turning point, as troop morale plunges and intrigue grips Moscow.
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