Major Hurdle Today for Budget Deal, Which is Looking Like “Austerity Lite”
Author: Greg Valliere
May 30, 2023
THE NEXT HURDLE comes later today, when the House Rules Committee meets to send the deal to the House floor. Speaker Kevin McCarthy agreed earlier this year to allow three hard-line conservatives to serve on the committee, which leaves him with little room to get the measure passed today because all three hate the deal.
WE’RE ASSUMING THAT THE BILL WILL PASS in the committee, paving the way for a House vote later this week. Ironically, McCarthy will have enough Democrats to pass the measure; he may need 100 to compensate for massive defections among conservative Republicans who are furious that their initial bill has been significantly watered down.
THEN THE SUSPENSE WILL BEGIN in the Senate. Democrats will need 60 votes, and they face a livid push-back from Sen. Lindsey Graham and others who want to spend more on defense, which probably will rise by about 3% — but that’s a modest cut when factoring in inflation.
GRAHAM HAS THREATENED A FILIBUSTER, and he’s aware that one Senator can tie up legislation for days. Thus it’s possible that a final vote in the Senate may not come until next week — perilously close to the June 5 default deadline.
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WE DON’T THINK THERE WILL BE A DEFAULT, which of course is the main takeaway. The other angle is the magnitude of the spending cuts, which we consider “austerity lite.” Most all of the Republicans’ proposed reforms got dramatically reduced, and savings over the next ten years might not even hit $1 trillion. Is this a headwind for economic growth? More like a light breeze, in our opinion.
“IT COULD HAVE BEEN WORSE,” a Democratic staffer told us yesterday; most all of Joe Biden’s programs survived, with a tepid haircut.
FUNDING WILL BE ESSENTIALLY FLAT for two years for domestic programs, with no cuts to Social Security or Medicare. Most of the reforms demanded by Republicans got watered down: an $80 billion boost for the Internal Revenue Service was reduced to $60 billion, with the extra $20 billion tucked away for a rainy day; work requirements were only slightly toughened for recipients of federal aid.
THE DEAL ENDS Biden’s freeze on student loan repayments by the end of August and restricts his ability to reinstate such a moratorium. This may do Biden a favor, since he has been seeking an exit ramp on this — either from Congress or the Supreme Court — for the past year.
ALTHOUGH REPUBLICANS had initially called for 10 years of spending caps, this legislation includes just 2 years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions, according to this morning’s New York Times. The agreement seeks $1 trillion in savings over the course of a decade from reduced discretionary spending, far below the GOP target.
YET THIS IS A BILL WORTH PASSING, the Wall Street Journal’s lead editorial proclaims this morning. This deal is hardly a panacea — deficits will rise by $1 trillion or more annually for the foreseeable future. But it claws back some of the staggering post-covid spending and sends a message that there are some limits to Washington’s fiscal spigot.
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