Republicans and Democrats alike need a significant deficit-reduction package. It is increasingly elusive. President Barack Obama and his congressional allies face a sputtering economic recovery that signals an inhospitable election environment next year, a bad situation getting worse.

They need an infusion of confidence that most analysts say a serious debt deal would achieve.

Republicans need to reverse the deterioration of their brand since they won a huge victory in last year’s congressional elections. Today, they are seen by many voters as the party that trades in negativity and protects the privileged at the expense of struggling senior citizens.

Few people believe the Washington politicians won’t raise the debt ceiling just as it is set to be breached in early August. That likely will be accompanied by a largely cosmetic deficit-reduction package.

In conversations with partisans of both parties over the past week, it is clear each side believes it has the upper hand in this struggle and feels less inclined to make concessions.

The Republican view goes something like this:

This battle is being fought on our terrain, spending; it’s a replay of the budget debate that we won earlier this year, with the only issue how much to cut.

Republican Allies

We have done a good job of appearing open while taking taxes off the table. We’ve had two good allies. The first is the anti-government activist Grover Norquist who’s keeping the heat on and may be more influential in this battle than our party’s leader in the Senate, Mitch McConnell of Kentucky, or House Speaker John Boehner of Ohio. Our second friend has been the White House, which has let us dominate the dialogue. Notice that Vice President Joe Biden boasted of $1 trillion in spending cuts, without a mention of fresh revenue.

It would be helpful if we Republicans could get even a slice of Medicare cutbacks to take a little heat off an issue where the Democrats have hurt us. Any deficit-reduction plan, however, will minimize the issue.

It doesn’t even hurt if a few of our more radical Tea Party types complain about any final deal not going far enough. True, the actual reductions, if focused only on discretionary spending, will be small; the spending cap and sequestration rules we’re writing will put teeth in curbing subsequent spending and will be a politically safer backdoor way to rein in entitlements. We’re indebted to Democratic Senator Claire McCaskill of Missouri, who has proposed spending limits that would result ultimately in budget levels close to our House-passed budget.

Bully Pulpit

We’re not worried about the president’s bully pulpit. The dirty little secret is that Obama, ideology notwithstanding, is likely to cave if the going gets tough; he clearly doesn’t relish confrontation.

He just backed off his choice for chairman of the Joint Chiefs of Staff, Marine Corps General James Cartwright -- after offering the guy the job -- when he got heat from the Pentagon. Then there was last December’s budget accord. Sure, we gave him temporary stimulus; in return, he backed off his pledge to veto any extension of President George W. Bush’s upper-income tax cuts and we got a sweeter deal than we hoped for on a more generous estate tax.

The White House’s threats to campaign next year on ending the Bush-era tax cuts for the wealthy are about as credible as Obama’s threats last year.

Democrats’ Strategy

By contrast, the Democratic view goes something like this:

These Republicans are in denial, focusing on the wrong date: last Nov. 3, when they captured control of the House. More relevant is May 24, when a Democrat won a huge upset in an overwhelmingly Republican New York state congressional district by campaigning against the plan to privatize Medicare drafted by their opposing party’s fiscal poster child, House Budget Committee Chairman Paul Ryan of Wisconsin.

This is killing them. If anyone doubts that, just look at the behavior of the usually cool Ryan, who is frantically accusing his critics of “lying” about his proposal. Then there’s the letter from 42 House Republicans imploring Obama to “stop the political rhetoric” and to “stand above partisanship.” on Medicare. A year ago, prominent Republicans were railing about the Medicare “death panels” they said were put in place by Obama’s health-care law.

The Republicans have forgotten the signs at the Tea Party rallies in 2009 that told government to “keep its hands off my Medicare.” No wonder Ryan is getting shrill; he just touched the third rail.

Retreat on Taxes

Moreover, there’s a chance we Democrats could even force them to retreat on taxes. By July, the picture will be clear; Republicans are pushing hard for deeper cuts in education, scientific research and Medicare, while refusing to even consider higher taxes on the wealthy and oil companies. Man, does this poll well for us.

If they don’t yield, we like our chances in a 2012 debate over the Bush-era tax cuts for the rich. Unlike last year, the Republicans now have initiated specific spending cuts and highlighted the deficit issue; we can contrast these postures with their no-new-revenue line in the sand and ask if they really want to hold middle-class tax cuts hostage.

What the Republican and Democratic talking points show is that both sides exaggerate their advantages and underestimate their vulnerabilities.

Gang of Six

That’s why it would have been better for all -- especially markets and the economy -- if the Senate’s so-called Gang of Six, a bipartisan effort to channel mainly the Bowles-Simpson deficit-reduction plan, which included both entitlement cutbacks and revenue increases -- had held together. The group fell apart when the conservative Republican Tom Coburn of Oklahoma backed away, claiming they were making little progress.

The Gang of Six used the Bowles-Simpson architecture and moved a bit to the right --- more spending cutbacks and fewer revenue increases to placate Republicans -- perhaps too far. Still, there were indications that group could have won the support of as many as 22 Senate Republicans for a coherent plan that was a serious down payment on the long-term deficit.

If such a bipartisan accord can’t be reconstructed, the current negotiating group led by Biden may offer a minor palliative. It isn’t likely to do much for the Republicans’ Medicare problem or the Democrats’ confidence quandary or make much of a dent in the deficit. It will be the politics of the moment, which, for now, seems to satisfy both parties.

(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net.

To contact the editor responsible for this column: Max Berley in Washington at mberley@bloomberg.net