Long Slog Looms on Budget Deal — Despite Yesterday’s Happy Talk
Author: Greg Valliere
February 2, 2023
GRANTED, THEY AGREED to take Social Security and Medicare cuts off the table, which McCarthy had to do. That issue is radioactive for Republicans, who don’t want to be accused to harming senior citizens.
THE NEXT STEP: Biden’s State of the Union address is next Tuesday night; he will urge raising the debt ceiling, and will signal whether he might support more conversations like yesterday’s. Biden’s budget will be released in early March; Republicans will follow with their proposal in early April.
DEMOCRATS ARE ADAMANT that they won’t negotiate unless the debt ceiling is raised, and the negotiations clearly began yesterday. While there was little focus on specifics, most sources believe the stage is now set for a two-track process: raising the debt ceiling while simultaneously agreeing to slow the growth of spending.
THIS IS A MINE-FIELD for each party’s base. Hard-line Republicans in the House are already grumbling in private that their goal of Social Security reform is dead, killed by McCarthy, while the Democrats’ base is nervous that Biden will accept some sort of annual spending caps — not cuts, but slower spending growth.
THE RISK, MANY CONGRESSIONAL ANALYSTS TELL US, is that hard-line House Republicans who are already suspicious of McCarthy will reject any deal that has some spending increases. If only a half-dozen Republicans refuse to raise the debt ceiling, that could kill the bill and intensify fears of a debt default.
SO THE DISPUTE MAY NOT FOCUS on Biden versus McCarthy, but rather on getting these hard-line Republicans to accept a deal. They clearly aren’t on board now (Democrats eventually will get behind whatever Biden proposes).
BOTTOM LINE: Despite the positive talk yesterday about working together, a deal is months away. To cynics who are confident that there will be a deal, we suggest you listen to the militant Republicans who distrust McCarthy.
THESE REPUBLICANS SEE A RARE OPPORTUNITY to force a freeze — or even cuts — in federal spending, and they won’t back down any time soon. Chances of a compromise by late summer are still only 60-40, and it may take an intervention by Jerome Powell to get the deal done.
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