A winter of bitter discontent in DC? Maybe not
As things start to go quiet heading into Thanksgiving, it's worth taking a look at what Washington has in store for markets and the economy this winter.
The basic forecast is for bitter, partisan cold but limited chance of cataclysmic storms. There also remains a slight possibility of an early spring thaw on tax reform and immigration.
The biggest risk factor emanating from the Beltway remains a fresh government shutdown in January and a bitter fight over raising the debt ceiling in February. But there is still ample reason to believe neither will happen.
Senate Democrats going "nuclear" and blowing up the filibuster on nominations left Republicans fuming and promising some kind of retribution, as we discussed last week. But shutting down the government again would be as much retribution on themselves as it would be on President Barack Obama and the Democrats, given how much the last shutdown hurt the GOP.
The impact of the nuclear option on partisan sentiment and deal-making is difficult to gauge but it seems much more likely that Republicans will opt to play a longer game and use Majority Leader Harry Reid's move against him if and when the GOP gains control of the Senate in 2014 or later. They would then likely move to wipe out the filibuster on legislation and look to roll back Obamacare and other big Democratic achievements.
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And there is little reason for Republicans to generate a fiscal crisis again when they believe they are already gaining significant leverage over Democrats for 2014 with the disastrous Obamacare rollout.
With the deadline approaching Sunday for the White House to have HealthCare.gov working again—and amid signs that it will still have big problems—the GOP is likely to want the spotlight squarely on Democrats and not on another shutdown.
In addition, the GOP appears prepared to finally declare victory on the budget after a couple of years of huge cuts sliced the deficit in half. House Speaker John Boehner has now said if a deal is not made by budget negotiators to replace the blunt sequester cuts with smarter spending reductions (and such a deal remains possible) he will pass a stop-gap measure to fund the government at current spending levels mandated by the 2011 Budget Control Act.
This would then set up another deadline for a government funding bill and to raise the debt limit by Feb. 7. But the real debt limit deadline is probably closer to March 7 with Treasury's extraordinary measures. There is a chance some Republicans facing tea party primary challenges around that time will want to prove their fiscal credentials by demanding more spending cuts in return for a debt limit hike.
But their numbers should be small enough to allow them to vote against raising the debt limit while GOP leadership, fearful of taking blame for an economic crisis in an election year, engineers a deal to get a debt limit hike through the House with mostly Democratic votes.
The so-called "Hastert Rule," in which the Republicans are supposed to only pass legislation on the House floor with a majority of the majority, is the perhaps the most over-hyped phenomena in politics. GOP speakers, including Dennis Hastert himself, have regularly violated the rule when it was in their interest to do so.
So if the big storms are likely to stay away, what about any other pieces of possibly helpful legislation?
There remains at least some slim hopes that a budget deal could include some elements of tax reform. Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Chairman Dave Camp, R-Mich., keep working hard to crank out legislative product to be ready should the opportunity arise.
Baucus last week released a draft proposal to lower the top 35 percent rate while ending tax deferral for U.S. companies on foreign-earned profits. Camp has also issued various draft proposals. The chances that any of these things getting done remain fairly small but greater than zero.
And if budget negotiators appear close to agreeing on a spending number, and Republicans want a win on reducing corporate tax rates in exchange for some revenue-raising loophole closings, there will likely be legislative language ready for them to take off the shelf. That would be hugely bullish for the economy and the many big companies that have billions of dollars abroad that they could then bring home.
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The other big legislative item that still has some hope is immigration reform. There is no chance that the sweeping Senate bill passes the House. But Boehner has indicated a desire to continue working on piecemeal bills to reform the system. And the GOP needs to get something done on this front—despite cries of amnesty from the tea party—because its numbers with Latino voters are terrible and getting worse.
And in perhaps the least noticed and most important development last week, Obama told The Wall Street Journal CEO Council meeting that he would be fine with such a piecemeal approach if the GOP could move individual bills through the House. There probably isn't enough time left this year to do that. But that doesn't mean the issue is dead in 2014.
The bottom line is that there is no reason to expect Washington to be additive to growth in 2014, but there is much less reason to believe it will be a huge drag. And political incentives may align to get a couple of helpful things done. That would surely shock everyone.
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— By Ben White. White is POLITICO's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet POLITICO Morning Money [politico.com/morningmoney] Follow him on Twitter