Here We Go Again — Budget Crisis Looms in Ten Days
Author: Greg Valliere
November 7, 2023
THE OUTLINES OF A MASSIVE DEAL are beginning to come into focus; whether there’s time to iron out the details by Nov. 17 is doubtful. It may include all 12 appropriations bills, aid to Israel and probably Ukraine, new funds to secure the Texas border, changes in U.S. asylum laws, and possibly some spending cuts. Major elements of this emerging package are deal-breakers in the Senate.
YET WE THINK NEITHER PARTY wants a shutdown, largely because Congress has been mocked so mercilessly this year for provoking one budget crisis after another — provoking credit agencies to lower the U.S. rating. Johnson’s ideal legislation would be far to the right on spending and immigration, but he knows that it would be dead on arrival in the Senate.
AS CONGRESS BEGINS SERIOUS NEGOTIATIONS later this week, some key elements look likely to pass: more money for border security and a tougher asylum policy seems virtually certain; even the White House has indicated a willingness to negotiate.
THE IMMIGRATION CHANGES would make it tougher for migrants to make an asylum claim in the U.S. and more difficult to win a case if they try. The proposal also would shut down the Biden administration’s use of an immigration tool known as “humanitarian parole,” which allows migrants to make appointments to enter at a legal port of entry. This part of a package will be difficult to negotiate, epecially the level of funding for more immigration officers and quicker processing.
AID OF AT LEAST $14 BILLION TO ISRAEL is likely, with another massive package to Ukraine, perhaps something in the $30 billion neighborhood. Johnson has conceded, reluctantly, that Ukraine will get aid, but this will require lots of Democratic votes, since isolationist Republicans in the House will push for little or nothing for Kyiv.
A DEFICIT COMMISSION: This is a wild card — a final bill may create a commission to explore deficit reduction options, which both parties view as a political opportunity. Republicans could seek spending cuts while Democrats would blast away against entitlement reductions. Johnson has been very blunt about his desire to cut funding for Social Security, Medicare and Medicaid, perhaps by raising eligibility ages. If House radicals rally for that ahead of the 2024 election, the Democrats would de delighted.
DONALD TRUMP opposes any major entitlement cuts (he wants increases), so he would tell House Republicans to stay away from that issue. If there are spending cuts, the most likely option would be a freeze or an increase of only 1 percent, an idea that Johnson will push for in a final deal; automatic cuts would kick in by next year.
BOTTOM LINE: The markets have shrugged off threats of a government shutdown this year, so investors may not worry until the deadline day, Nov. 17, when a brief shutdown can’t be ruled out. But we think there’s a better chance that Congress will pass an extension lasting through the holidays.
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