Welcome to the debt ceiling debate‚??because in Washington, there are never enough potentially crushing economic showdowns to worry about.
Even before the fiscal cliff bill was signed by magical presidential autopen, before the bevy of spending increases and corporate goodies in the fiscal cliff deal were enacted, Barack Obama was girding for the next political fight. ‚??While I will negotiate over many things,‚?Ě he explained, ‚??I will not have another debate with this Congress over whether or not they should pay the bills that they‚??ve already racked up through the laws that they passed.‚?Ě
You will notice that Obama takes full credit for laws passed by the House when it suits him politically, but sticks the saps in Congress with the bill when it doesn‚??t. So it goes.
Well, another law that has been ‚??passed‚?Ě is the debt limit, established under the Second Liberty Bond Act of 1917 before evolving into the modern cap in 1939. It restricts the amount of public debt that can be outstanding. Despite his posturing, Obama has few choices but to negotiate with Republicans. Failing to increase the cap might mean defaulting on our obligations or cutting discretionary spending‚??nearly all of it. It has been raised dozens of times‚??and it will be raised again.
How we increase the cap, and why, though, matters. Republicans, who are in no mood to take another loss on principle, promise a more unified fight this round. The last time the White House and Congress tangled on the issue was in 2011. At that time, the United States‚?? credit rating was downgraded before we finally raised the limit from $14.3 trillion to $16.7 trillion and created three impending political showdowns: the fights over another debt limit, the continuing resolution and sequestration.
What has changed since the last face-off? Obama may have won a second-term, sure, but Republicans have already conceded the tax increases on the wealthy‚??the populist argument that anchored Obama‚??s entire economic policy over the past two years. How long can the president deflect attention from spending by blaming investors and the wealthy? Even folks such as Peter Orzag, Obama‚??s former budget director, noted that Democrats ‚??have somewhat less leverage than they did in the round that just completed.‚?Ě
In the House, Speaker John Boehner has reportedly told members that he‚??s no longer going to engage in one-on-one negotiations with president. That might be just as well, considering the fractured state of his caucus. As the fiscal cliff talks proved, you can do business in Washington working around conservative members by roping in all GOP moderates and most Democrats in the House.
This almost certainly means that any deal on the ceiling will be cooked up in the Senate. Senate Republican Leader Mitch McConnell has already framed his argument as such: ‚??The president claims to want a balanced approach to solve our problems. And now that he has the tax rates he wants, his calls for ‚??balance‚?? mean he must join us in our efforts to achieve meaningful spending and government reform.‚?Ě
Surely the president doesn‚??t believe he has ‚??the tax rates he wants.‚?Ě Obama will seek additional increases for the next four years‚??either by eliminating deductions, proposing investment taxes on top earners, or some other way‚??though it would do little (or nothing) to reduce the deficit. What he doesn‚??t want is any curbs on spending.
Secretary of the Treasury Timothy Geithner has long argued that debt ceiling should be eliminated altogether. Obama tried to include the effective elimination of the debt cap in the fiscal cliff negotiations. Republicans would be nuts to give it up. First, it offers them some leverage to negotiate for debt reduction. Second, it reminds the American people of an unfolding tragedy.
So, when it comes to debt, there may be only one way to extract concessions from the White House: Following through on your threats. That‚??s the argument Pennsylvania Sen. Pat Toomey has made, contending that Republicans ‚??need to be willing‚?Ě to dive into a ‚??temporary, partial government shutdown‚?Ě to win any spending reform. But there seems to be little appetite for that sort hard talk, yet.
Tennessee‚??s Bob Corker, for instance, recently insisted that ‚??the debt ceiling was the wrong place to pick a fight, as it related to trying to get our country‚??s house in order. Maybe that was the wrong place to do it.‚?Ě (He has since walked back his remarks.)
A GOP aide to a conservative member of the Senate tells Human Events that Republicans likely will attempt to coalesce around a broader, more tangible, policy idea which already enjoys a level of public support. The Senate, for instance, may bring back a version of a cap and balanced budget bill as a starting point‚??an idea that is popular among voters, according to polls. There is no real belief that a wide-ranging conservative legislation stands a chance of passing, only that it may push Obama on the defensive.
There is also some hope, though not very much, that there are enough Democrats like Sen. Michael Bennet from Colorado‚??who voted against the cliff deal‚??available to cobble together a palatable bipartisan deal that tackles entitlements.
The reality is, though many Republicans claim it would be unpalatable not to obtain spending cuts from the administration, the political dynamics of the debate haven‚??t changed much.
Despite Obama‚??s role in the deadlock, the GOP faces the perilous reality that it will be blamed by the media for any economic slowdown that ensues from the debate. Mark Zandi, the chief economist at Moody‚??s Analytics, an Obama booster, has already warned that the agency may be forced to lower the nation‚??s rating. ‚??I don‚??t think the economy can really find its footing and jump to a higher level of growth until we get to the other side of this,‚?Ě he warned. But what‚??s on the other side?
Lacking much leverage, some Republicans worry that the party will concede too much. As a GOP aide told Human Events, the allure of ‚??shiny objects‚?Ě like ‚??tax reform,‚?Ě ideas that sound productive to the electorate, might entice Republicans to surrender long-term change for short-term political gain (if you can call it that). Obama continues to push for a ‚??comprehensive‚?Ě deal because he believes he can get more now than later. If Republicans agree to a grand bargain that surrenders to expediency, when they will have the least amount of influence, they‚??ve effectively surrendered the reform issue for years.
So perhaps the most important political goal Republicans might keep in mind, is turning the debate from one that focuses on the politics of redistribution and keys in on unsustainable debt. As then-Sen. Obama said in 2006, ‚??The fact that we are here today to debate raising America‚??s debt limit is a sign of leadership failure. It is a sign that the U.S. government can‚??t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government‚??s reckless fiscal policies.‚?Ě
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