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If we look at recent rhetoric from both the Democrats and Republicans, it seems that an agreement on the 2011 budget is not close.  In fact, according to Michael Steele, Speaker of the House John Boehner’s spokesperson, “the Speaker repeated to the president that there is no ‘deal,’ and he will continue to push for the largest possible spending cuts.”  This was in response to a summary briefing from the White House Press Office that stated:

“The President made clear that we all understand the need to cut spending and highlighted the progress that has been made to agree to all work off the same number — $73 billion in spending cuts in this year alone.”

Like any good political battle or negotiation, neither side is, at least publically, going to shift their position.  In this battle, the deadline is Friday to pass the budget to fund the government though this fiscal year, which ends in September 2011.

Both sides agree that cuts are needed, but the issue is both the size and location of cuts.   Currently, the Republicans are looking for $61BN in discretionary budget cuts, while the Democrats have proposed $33BN in budget cuts.  Further, some Democrats actually believe they have already agreed on the $33BN in cuts.   As Nevada Senator Harry Reid said over the weekend, “We’ve agreed on a number.”  Republicans, as emphasized by the comments from Speaker Boehner’s office above, do not concur that a number has been agreed upon.  A larger issue could be the nature of the cuts, as the Republican-proposed cuts focus on a number of areas of popular left-leaning spending, such National Public Radio, Planned Parenthood, and the Environmental Protection Agency.

Interestingly, and not surprising given the dire fiscal outlook of the United States, cutting the budget is becoming increasingly popular amongst the electorate.  In fact, according to a recent poll from Rasmussen, not only do the majority of voters support spending cuts, but 53% actually believe that the cuts proposed by the Republicans are too small.    This poll coincides with a number of polls that have shown President Obama’s approval rating on decline from its highs earlier in the year.

According to the Real Clear Politics poll aggregate, President Obama’s approval hit 12-month high on January 24th and has since been in steady decline since.  As of today, Obama’s approval rating was 46.4.  The rapid decline in approval rating in the Real Clear Politics aggregate is underscored by certain polls as well.  Specifically, the most recent poll from Quinnipiac University showed  that U.S. voters disapprove of President Obama’s performance by a margin of 48 to 42 percent and oppose his election by a margin of 50 to 41 percent.  According to the poll, the most negative areas for Obama were his handling of the economy, the budget deficit, and foreign policy.

In the budget decision that must be made by Friday, it is unlikely that President Obama wins many political points.  Regardless if a resolution is reached, it will not do much to cut the overall budget and will likely be less than the proposed Republican cuts, which, if we believe the Rasmussen poll, is a smaller budget cut than would lead to approval from the broad electorate.  In the longer term, though, coming out strongly in support of budget cuts, even if this means going along with Republican proposals, could help Obama's approval rating.

As it relates to the Republicans and the Tea Party component in particular, they likely won’t be satisfied with any reasonable outcome this week.   For many of the first term Republicans in Congress, the debt and deficit are indeed personal.  As Republican Congressman Blake Farenhold from Texas’s 27th District put it:

“The people who seem to be afraid of a government shutdown are worried about getting elected in two more years. I’m worried about having to go home and tell the folks I grew up with, and intend to spend the rest of my life with, that I’m a liar.”

Ultimately, though, it will be a political decision for the Republicans, and in particular the Tea Party wing, about winning the larger fiscal battles that loom in front of them.  While the 2011 budget is important, and even personal, the 2012 budget debate begins in earnest this week and the need to extend the debt ceiling begins shortly thereafter. Given this, it is likely that a compromise is reached this week, but, really, the battle is just beginning. Stay tuned.

Daryl G. Jones
Managing Director