Obama, Republican Leadership Groping to Break Shutdown Impasse, Revive Grand Bargain-Type Deal

The two sides in the budget staredown have finally agreed to talk. Obama, after meeting with Democrats on Wednesday, will confer with House Republicans on Thursday to see if they can resolve the impasse over the Federal budget and avoid hitting the debt ceiling on October 17. Note that despite the fixation on that date, the US would move in steps into an intensified crunch. The expectation is that the first phase would be shutting down more government operations to conserve cash. The acute danger date is around October 31-November 1, when the US faces big bond and Social Security payments.

But while the official meeting, and the fact that the two sides are also talking behind the scenes, represents progress, don’t labor under any delusions. Obama is looking for a stopgap deal that will keep pressure on in the hope that he can cinch his long-sought Grand Bargain Great Betrayal. Remember, Obama was disappointed that the sequester didn’t inflict enough pain to force Democrats and Republicans to the negotiating table. Don’t be fooled that Obama is unhappy that most House Republicans would reject a one year extension of the debt ceiling and continuing resolution. Both he and the corporate Republicans are looking to steer things back to where they’d hoped they’d be before the Tea Party went off the reservation.

But just because the two sides are talking does not necessarily mean that negotiations will move rapidly. One indicator of the lack of mutual understanding is that Obama wanted to meet with all the House Republicans. The leadership instead is sending 20 representatives to the session. Obama is clearly unduly impressed with his powers of persuasion. Many of the Tea Partiers have a visceral antipathy for him. The Republicans did him a big favor by keeping the hotheads out of the room.

Nevertheless, efforts to broker a deal are already underway. For instance, per Politico:

After taking a back-seat role in this fall’s fiscal battles, Senate Minority Leader Mitch McConnell and fellow Republican senators are quietly seeing whether they can break the political impasse between House Republicans and Senate Democrats.

Behind the scenes, the Kentucky Republican is gauging support within the Senate GOP Conference to temporarily raise the debt ceiling and reopen the government in return for a handful of policy proposals. Among the ideas under serious consideration are a repeal of medical device tax in the health care law, a plan to verify that those seeking subsidies under Obamacare prove their income level and a proposal to grant additional flexibility to federal agencies to implement sequestration cuts…

Those proposals could be paired with a two-month increase of the national debt ceiling and a six-month continuing resolution to reopen the government at a $986-billion funding level that both parties have agreed to, under one package discussed among McConnell and GOP senators on Wednesday, sources said. McConnell is not endorsing the proposal, aides stressed, but is simply taking the temperature of his caucus.

Politico adds that some of these provisions are also part of an outline being floated by Susan Collins of Maine. But notice the state of play: the Republicans are struggling to find terms that will appeal to at least some of the out-for-blood Tea Party types.

One part that is still opaque is how many votes Boehner thinks he needs for him to decide to table a resolution. Remember, now, it’s clear from public statements of members of his own party that he already has about 20 votes in favor a clean continuing resolution, which with House Democrats is already enough to assure passage. That also means he’d have at least that many for an extension of the debt ceiling. What is not clear is how many additional votes he thinks he needs to prevent de-legitimation within his own party and what has to be in a deal to entice them.

The party leadership would clearly like to get Obamacare out of the equation; the Financial Times notes that a Wall Street Journal op ed by chairman of the House budget committee Paul Ryan pointedly omitted it. And the idea of income verification for low income people to get subsidies is a nasty way to try to force them out of the program (which means paying the opt out charges) by increasing the bureaucratic hurdles considerably (of course, the Administration could do what it should have done, which is rely on IRS data, but that would not mean integrating another database into an already failing IT implementation).

And remember, once the Republicans figure out what concessions it would take to peel some Tea Partiers loose to agree to buy time to negotiate a bigger deal, that still doesn’t mean the Democrats will agree to that.

Having said the foregoing, there are several things that will likely start putting more pressure on the participants. One is that the Republicans are taking a big hit in the polls (but remember, that does not necessarily mean the particular House Republicans holdouts are facing pain in their districts). Second is that the real economy damage is almost certainly compounding, and even the hard core Tea Partiers will start having important constituents that are suffering. Third is that as we start getting closer to October 17 with no deal, Mr. Marker and the business press will go into hysterics, which will focus the mind of the pols.

But even if the two sides steer out of this nosedive early next week (unlikely but possible) or later, what they will have signed up for is a European-style kick the can down the road solution. I suspect even getting to an interim solution will be hard. And as I keep stressing, Obama and Boehner, in a much more favorable negotiating environment in 2011, were not able to come to a budget deal, even when both sides really really wanted the prize of the Great Betrayal. I’d love to be wrong, but this budget drama looks to be about to become a bad serial novel.

This piece is cross-posted from Naked Capitalism with permission.