U.S. Capitol (Andrew Harrer/Bloomberg)

Multiple reports this morning tell us that Dems and Republicans are close to a deal to replace the sequester with spending at slightly over $1 trillion in fiscal 2014 and 2015. Unfortunately, it looks increasingly like an extension of unemployment insurance will not be part of the compromise.

“The odds of it being in the budget deal are slipping away,” one senior Senate Democratic leadership aide told me, in reference to the extension of the Emergency Unemployment Compensation program, which is set to be cut off for 1.3 million people just after Christmas.

Democrats had pushed for the extension, but encountered GOP resistance, and after Dems initially threatened what looked like a real stand on the issue, multiple Dem leaders came out and said a budget deal is not contingent on a UI continuation. As Senator Dick Durbin put it yesterday: “I don’t think we’ve reached that point where we’ve said this is it, take it or leave it.”

The original idea was that since House conservatives are certain to oppose anything that raises spending levels, Republicans would need Dems to pass any final deal through the House. This should have theoretically given Dems leverage to insist on the extension. But according to the senior Senate aide, Dems are wary of killing a deal that lifts spending levels — a major progressive priority, given the sequester’s drag on the recovery and the impact of spending cuts on government — even if it means the fight over UI won’t be resolved in immediate budget talks.

“Of course we’d want to have the extension in the budget deal,” the aide says. “But we’re dealing with Paul Ryan here. We’ve negotiated with Ryan to increase spending for the next two years in exchange for savings over the next 10 years. Replacing as much of sequestration as possible will be far better for families and the economy than the alternative, another CR at sequester levels — and we can’t let the perfect be the enemy of the good.”

The aide stresses that Dems continue to push for the extension, and that Dems are trying to leverage the GOP need for Dem votes to push for other priorities, such as whittling down Ryan’s demand that federal workers pay more for retirement benefits.

The discussion, I’m told, is also focused on the possibility of renewing the push for a UI extension in another way. The emerging budget deal sets spending toplines, but appropriators still have to write spending bills before the January 15th deadline — so Dems could push for the extension to be written in then, with benefits being made retroactive by two weeks.

But right now, while it’s good news that the sequester may well be replaced, perhaps speeding the recovery, it’s looking increasingly likely that over a million people will lose benefits in just a few weeks. This, even though it may be unprecedented for Congress to cut off benefits with long-term unemployment at such high levels, and even though many of these people may drop out of the labor force entirely.

* WHY GOP OPPOSES EXTENDING UNEMPLOYMENT BENEFITS: Paul Krugman has a good column explaining that Republican reluctance to extend unemployment insurance is rooted in ideas — in faulty economics and a wrong-headed view that assistance encourages joblessness. He also doesn’t spare Dems from criticism:

The good news, such as it is, is that the White House and Senate Democrats are trying to make an issue of expiring unemployment benefits. The bad news is that they don’t sound willing to make extending benefits a precondition for a budget deal, which means that they aren’t really willing to make a stand. So the odds, I’m sorry to say, are that the long-term unemployed will be cut off, , thanks to a perfect marriage of callousness — a complete lack of empathy for the unfortunate — with bad economics. But then, hasn’t that been the story of just about everything lately?

* IN BUDGET TALKS, WATCH MITCH MCCONNELL: Michael Catalini poses an interesting question here: How will Mitch McConnell, who opposes anything that would raise spending levels higher than the sequester, react to the emerging budget deal?

As the piece suggests, McConnell faces a key test in whether he’ll be able to keep Senate Republicans united against any compromise. Also, McConnell’s continued opposition underscores that lifting spending levels would be a victory for Dems.

* SOUTHERN SENATE DEMS ON DEFENSIVE: The New York Times has an interesting piece noting that the three most vulnerable incumbent Dem Senators are all southerners, and are all on the defensive over Obamacare. This is key:

John Barrow of Georgia is the only white Democrat in the House of Representatives from one of the Deep South’s five states. If Republicans defeat Democratic incumbents in Arkansas, Louisiana and North Carolina and hold on to the seat of Senator Saxby Chambliss of Georgia, who is retiring, they will control every Senate seat in the old Confederacy except in Florida and Virginia, which have drifted culturally and politically from the rest of the South.

The question is whether the ultra-conservatism of GOP Senate candidates in these three states — and in Georgia, which is not a lock for Republicans — will cost them winnable races even in spite of this trend.

* DEMS ON DEFENSIVE OVER OBAMACARE: NBC News has a useful overview of how Obamacare is being used by Republicans in many key Senate races, and how each vulnerable Dem incumbent is seeking to respond.

Georgia bears watching, because one GOP candidate has committed the apostasy of suggesting parts of Obamacare should be accommodated, before furiously walking the idea back. Here we’ll see if the uncompromising GOP repeal stance can be made a liability even in an easy-win race for the GOP.

* BUT GOP POSITION NOT NECESSARILY A WINNER, EITHER: National Journal says what must never be said: The Republican position on Obamacare could prove a liability over time, too.

Although the law’s supporters clearly lost ground during the past two months, there are good reasons to think they’ll have an upper hand in the anecdote war. Some negative stories may become positive ones, as people who had their previous plans canceled find new coverage through the law’s exchanges. Without unity around a health care plan of their own, Republicans have no alternative to suggest to those sharing their negative experiences.

It’s obviously sinking in with many news orgs that Obamacare is not uniformly a loser for Dems and that things could be changing. The political-media narrative is slowly turning.

* DEMS HIT GOP OVER INEQUALITY: With a budget coming, the Dem-allied Bridge Project is out with a new report that details Tea Party lawmakers’ addiction to disparaging beneficiaries of unemployment benefits and other “free stuff,” and recaps how GOP policies would worsen inequality. Even if we get a deal, Dems will point to safety net cuts (such as a failure to extend unemployment insurance) as evidence the GOP remains hostage to the Tea Party “47 percent” worldview.

* AND DEMS WILL CAMPAIGN ON MINIMUM WAGE IN 2014: Beth Reinhard reports that Dems will make the push for a minimum wage hike front and central next year:

Democrats increasingly view championing the pay of hourly workers as a can’t-lose issue that revs up their base of liberal, black, and Hispanic voters. Perhaps more importantly, it also resonates with the white, blue-collar workers who overwhelmingly side with Republicans. Since minority participation tapers off in mid-term elections, assailing Republican opposition to hiking the minimum wage could be a more potent Democratic wedge than immigration reform, particularly in red states with competitive U.S. Senate campaigns, such as West Virginia, Kentucky, Arkansas, North Carolina, and Louisiana. 

Cue up the predictable cries of “class warfare”…

What else?