McCarthy’s Exit: Budget Deal Or Disaster?

Updated with Loren Thompson & Byron Callan comment WASHINGTON: Rep. Kevin McCarthy’s sudden exit from the House Speaker race raises the chance of a fiscal disaster — but it also raises the odds of a desperate budget deal. Both extremes just got more likely. Ironically, this deepening leadership void elevates the role of Rep. John Boehner, the outgoing speaker whose decision to step down sparked the crisis in the first place.

“Everything hinges on John Boehner,” said Mackenzie Eaglen, a pro-defense Republican with the American Enterprise Institute (and a member of the Breaking Defense board of contributors).

“Here’s the bottom line: it’s now or never,” she said. “If Boehner can do it, there will be a budget deal [to adjust the Budget Control Act spending caps]. If this is not cleaned up before his successor takes office, there will be a year-long CR” — a Continuing Resolution — and, probably, a government shutdown.

“We had been thinking that a worst case for defense was a full-year CR for FY16, to which we assigned a 30% probability,” wrote Capital Alpha analyst Byron Callan, “[but] the underlying tensions leading to McCarthy’s decision could suggest a worse scenario, which is one or more short shutdowns and then full-year CR.” (Emphasis added)

A full-year Continuing Resolution would set spending on autopilot at 2014 levels. That’s not only well below what the Pentagon and pro-defense Republicans want, but new programs could not legally start and failing ones could not be cancelled. Pro-defense observers widely consider it the worst case scenario. Unfortunately, said McKenzie, “a full-year CR is the best-case outcome for the far right” — because it cuts spending the most — “while also being the easiest default option for all of Congress” — because it requires no hard decisions.

So what kind of numbers are we looking at? “The lower boundary is a full-year CR at FY15 levels for base and OCO [overseas contingency operations funding], which is about $25 billion less than the Pentagon requested for FY16,” said budget guru Todd Harrison, of the Center for Strategic and International Studies. “The upper boundary is some sort of a mini-deal that raises the caps about $10 billion for defense (and $10 billion for non-defense) and raises OCO $10-15 billion above the requested level for FY16.  That would give the Pentagon about $10 billion less than the total requested for FY16.” Those best and worst plausible cases haven’t changed in a while, Harrison told me — but the probability of each outcome is now in flux beyond his capacity to calculate.

Ultimately, the outcome depends on Boehner, a Democratic Hill staffer said, echoing the Republican Eaglen. “If one assumes Speaker Boehner wants to make some kind of debt ceiling/short-term budget deal before he leaves, this delay might actually help,” the staffer said. “He would need Democratic support to pass it, but that is possible depending on what is in any such agreement….. On the other hand, if he is not going to try to make a deal before departing, this delay increases the chances of a debt ceiling fail of some kind and/or a government shutdown in December.”

Democratic votes are fine, said Eaglen. “Any government spending deal that is not a long-term CR was never going to pass with Freedom Caucus support anyway — not last month when they had to get through the short-term CR, and not in December when this CR expires,” she said. “Like the Medicare ‘doc fix,’ a budget deal is going to pass with Democratic support, period.”

“Knowing the pragmatist that Speaker Boehner has always been, and the desire by [Senate Majority Leader] McConnell to keep his own Senate majority and win back the White House,” she went on, “the chaos in the house GOP may actually increase the likelihood that these two will seek to cut a deal with Obama as quickly as possible and let Boehner fall on the sword.”

Why a sword? A deal would be political suicide for Boehner because of those Democratic votes. For a Republican leader to seek infidel Dem support for legislation when he can’t rally his own faithful is sacrilege to many in the GOP, not just Tea Partiers. But it’s hard to threaten Boehner when he’s already a dead man walking.

Of course, after a leadership fight this toxic, the next Speaker may be politically dead on arrival. “Whoever gets stuck with being Speaker may live to regret it, given the current Hill environment,” said one defense official, watching the mess unfold from across the Potomac. “That’s sad when we’re talking about the No. 3 political office in our government.”

In fact, the best candidate to succeed Boehner might be Boehner, if only for a little while. “It would appear the only two options for getting the majority back on track is to keep Mr. Boehner in place beyond his announced retirement date, or to convince Paul Ryan [who’s so far refused to run for Speaker] to come to the aid of his fractured conference,” said Loren Thompson, a defense analyst and consultant (and member of the Breaking D Board of Contributors). “But neither of those outcomes will prevent a potentially destructive impasse on the day the debt limit is reached (November 5) or the day the current CR expires (December 11).”

In the worst case, said Thompson, “a default due to delays in raising the debt limit is possible. The House majority is in utter disarray, with a handful of extremists in the Republican Conference driving the train.”

“One party sinking like a stone to the bottom is not healthy for democracy,” Eaglen lamented. “As Abraham Lincoln himself said, a house divided cannot stand. If this keeps up, the Republican Party will lose the House, not just the White House.”