And The Fight Goes On…

Who’s on first? It’s hard to keep up with the shut down machinations in DC, so in a nutshell, here’s what’s happening as of this morning.

House Speaker John Boehner and other GOP leaders wanted to raise the debt ceiling until Feb. 7 and end the shutdown by funding the government through Dec. 15. They proposed virtually no spending cuts but also no increases. Their plan would have cancelled special Obamacare-related insurance subsidies for the president, vice president, political appointees, members of Congress, and all their staffers. They had already given up on demanding a repeal, delay or defunding of the entire Obamacare law.

Senate Democratic leader Harry Reid wants the same debt-ceiling time-frame, but prefers to fund the government through Jan. 15. The Senate plan would also require a joint House/Senate committee to find a longer-term solution by Dec. 13. Sen. Reid wants to roll back the March 2013 “sequester” budget cuts, adding approximately $100 billion in new spending, mostly on entitlements.

His proposal would also delay a “reinsurance” plan that could cost labor unions $63 per year for each employee they cover, although one Washington, D.C. newspaper has determined this element of the deal was taken “off the table” on Tuesday night.

GOP efforts in the House stalled when conservatives announced they wouldn’t support any deal that failed to cut government spending or significantly weaken Obamacare, two measures that would be “dead on arrival” in the Democrat-controlled Senate. Tellingly, President Obama had earlier told House Democrat leaders he would veto any bill that stripped Obamacare subsidies from senior government executives – including himself – and their staffers. Republicans also nixed their plan for a two-year delay on a controversial medical device tax slated to raise $30 billion for Obamacare.

House Republicans could still call a vote on their plan if conservatives back down or moderates beef up their offering with stronger language, but that’s unlikely. The Senate will likely vote to pass a package by today, dropping the hot potato back in Republicans’ laps. Senate conservatives, however, could still block a vote in that chamber by refusing to end debate “by unanimous consent.” If Sens. Ted Cruz or Mike Lee or others with a spine were to object, a super-majority of 60 senators would be needed to call a final vote. That scenario will depend on what’s in the Senate’s final bill.

Sen. Mitch McConnell and most other Republican senators unfortunately believe Republicans should focus on the 2016 election and re-establish their majority before focusing on cutting government spending or derailing Obamacare. They tend to scoff at true fiscally responsible senators who stir up controversy because they live by the polls, which generally show the public blames Republicans a bit more than Democrats for the resulting fallout.

Until Tuesday morning, the Senate’s proposal was the only one with any momentum so Sen. Reid believed the House would settle for making minor amendments to his plan. But on Monday night Sen. Cruz met secretly with a group of conservative House members and urged them to stand their ground. After that contingent spoke during a Republican policy meeting Tuesday morning, Speaker Boehner announced that he wouldn’t be passive. Democrats understood that Sen. Cruz temporarily outflanked them by working with members of the other house of Congress, an unconventional move that they didn’t anticipate.

The U.S. has actually been spending past its official debt limit since mid-May 2013, and few in Washington believe that the sky will fall on Oct. 17 if Congress fails to find a solution. Tax revenues are $240 billion every month, and we are paying $18 billion in interest on the national debt. So the government will have what the Treasury Department needs to satisfy America’s creditors for weeks, if not months. The government shutdown has served to illustrate that some expensive government programs really are “non-essential.”

Only the president can order the Treasury to skip interest payments. But if bond ratings agencies jump the gun and downgrade U.S. creditworthiness, the effect in the markets could be the same even if there’s no real default.