In theory, the win for Kathy Hochul in NY-26 should give Democrats tremendous leverage in the budget fight. Republicans have to be searching for an exit strategy, with their Medicare phase-out plan this unpopular and this resonant in elections. They alienated the biggest demographic portion of their base for no real reason, and politically this will haunt them for years.

But as I said earlier, just because Democrats have a good hand to play doesn’t mean they’ll play it. The White House badly wants a deal, both to avoid the near-term disaster of a debt default and to gain credibility on the deficit with moderates for re-election. Joe Biden keeps holding these bipartisan talks, and the numbers discussed keep going up. Yesterday he talked about $1 trillion in cuts already agreed to by both sides:

Lawmakers are weighing $1 trillion in deficit-cutting measures as part of a possible deal that would allow an increase in the country’s borrowing authority, Vice President Joe Biden said on Tuesday.

Biden’s comments were a sign that despite wide skepticism, Democrats and Republicans may be able to hash out a deal that would tame the national debt and give Congress enough political cover to lift the $14.3 trillion debt limit before an August 2 deadline.

“I think we’re in a position where we’ll be able to get well above $1 trillion pretty quick in terms of what would be a down payment on the process,” Biden said after a three-hour meeting on Capitol Hill with top lawmakers [...]

In their third round of talks, the group examined the Medicare and Medicaid government health plans for retirees and the poor, which represent nearly a quarter of all federal spending and are expected to eat up a growing portion of the budget in coming decades as the population ages and medical costs continue to outstrip inflation.

I don’t think Medicare will get phased out, obviously, in the context of a deal. But rather than Obama’s preferred option, empowering the IPAB, I could see some measure of cost-shifting to seniors, even if it’s small. And Medicaid is pretty clearly in trouble: nobody has forcefully come out against block-granting, the way that they did against the Medicare phase-out.

But even if the President agrees with this, even if he can get a deal with House Republicans, there’s still the matter of the Democratic Senate, right? If a healthy portion of the Democratic caucus is opposed, along with a handful of GOP hardliners who won’t vote for anything but the destruction of the state, it would be hard to break a filibuster and get a deal done, right? Not if they use the budget process and the method known as reconciliation, which would only need 50 votes. I mentioned this here last week, and I did some additional digging on it for a piece for The American Prospect:

Reconciliation, a provision of the 1974 Budget Act, allows Congress to change key elements of the budget as an adjunct to the normal legislative process. The process offers a fast track for spending or tax deals by avoiding procedural hurdles such as the filibuster in the Senate; debate is limited to 20 hours, and a reconciliation bill only needs a bare majority to pass. In both 1990 and 1997, Congress used reconciliation to pass deficit-reduction packages that reflected deals between Congresses and presidents of opposite parties. In the current impasse over federal spending, reconciliation could pave the way for the “grand bargain” that many in Washington have been hoping for: The House and Senate can pass separate bills that allocate and cut federal spending or revenues by a certain amount; then they can delegate the details of what gets cut and what revenues get raised to the reconciliation process [...]

As a political tool, though, the promise of reconciliation is a powerful one — and one that liberals should be worried about. House Republican leaders have insisted they will only agree to a budget deal if the vast majority of their caucus agrees with it, and any deal that would satisfy House Republicans would likely only squeak through the Senate with a bare majority. Senate liberals may wish to protect such safety-net programs as Medicare and Medicaid or want a more equitable ratio between spending cuts and tax increases. Through reconciliation, fewer of those liberals would be needed to sign on to the deal because that process requires only 50 votes (Biden would be the tiebreaker).

This doesn’t come out of thin air. Senate Budget Committee chair Kent Conrad said publicly that he was holding up his budget process in case reconciliation needed to be used in the context of a bipartisan deal. A couple Senate offices confirmed this to me as a plausible option. As I note, Senate liberals would still have a few cards to play to stop anything they found distasteful, but obviously reconciliation would make that more difficult for them. This could be how Medicaid gets converted into a block grant, or how Medicare cost-shifting increases. It’s definitely one of the possibilities for the endgame.