The Debt Impasse: What They Say and What They Mean

As we near the endgame – perhaps – in the debt negotiations, both sides have ratcheted up their public rhetoric.  Today all 53 Senate Democrats signed a letter informing House Speaker Boehner that they would not accept his most recent debt reduction plan.  Boehner’s latest proposal, revised in light of the CBO scoring of the original bill showing it would fall short of its deficit  reduction target, would cut spending by $917 billion over 10 years, including $22 billion in cuts in 2012.  However, Senate Democrats are opposed because the amount of spending reduction in Boehner’s bill would mean the debt ceiling would need to be raised again in 2012, before the next election.  Meanwhile, Republican Study Committee Chairman and prominent Tea Partier Jim Jordan (Ohio) said yesterday that Boehner’s bill did not have the votes to pass the House.  Finally, White House aides released a statement shortly after Obama’s prime time address that they would recommend that the President veto Boehner’s bill.

Collectively, these public statements suggest there is no room for compromise before the August 2.deadline, at which point the U.S. will begin defaulting on its loan payments. (Senator Reid’s alternative budget plan has almost no chance of passing the Senate.) In this game of debt ceiling chicken, it appears both parties would rather drive the budget vehicle off the cliff than compromise.

Or would they? Public rhetoric can be intentionally deceiving.  It’s often the case that what is not said – or how something is said – tells us more about the speaker’s motivations.  Let’s start with President Obama’s nationwide address on Monday.  As I noted during his speech, although he expressed a preference for Reid’s bill over Boehner’s, he did not promise to veto Boehner’s legislation.  After his address, White House aides indicated they would recommend a veto.  That is perhaps the most tepid veto threat I can recall, and it clearly signals that Obama is leaving his options open.  If Boehner’s bill is all that is on the table, Obama may be amenable to another short-term extension or even, gulp! – be willing to accept a modified version of the Boehner bill.  Note that Obama called for a “balanced” approach to debt reduction, by which he means legislation that includes additional revenue.  That’s fine, but there is currently no bill on the table that does that – unless he is signaling a willingness to return to the “grand bargain” that Boehner rejected last Friday.

What about House Republicans?  Jordan’s comments would suggest Boehner’s plan doesn’t have the votes to pass.  But again, if you are holding out for deeper spending cuts – which almost all Tea Partiers in the House are – it makes no sense to publicly sign on to Boehner’s bill now.  Far better to threaten to defect in hopes of leveraging greater spending cuts.  A similar logic is likely driving Senate Democrats.  If Reid is negotiating behind the scenes with Boehner right now – and I suspect that is the case – Reid’s hand is strengthened by a unanimous show of strength by the Democratic Senate caucus.  But keep in mind that there is even less chance that Reid’s debt reduction proposal will pass the Senate, never mind the House.

My point is that public statements are part of the negotiating game.  Although they feed the media’s need for sensationalism and controversy, you should not take them at face value.  Instead, it often makes more sense to pay attention to what is not said, or how something is said, rather than what is said  – and why. Both sides realize they are in the end game, and each is hoping to convince the other that they will not yield.  That’s part of the process – but it’s not the important part. The important part  is what the media is not reporting – the details of negotiations between Boehner, the Republican caucus in the House, Reid, and the Senate Democrats.

If they are close to an agreement, don’t be surprised if Obama signs on to a very short extension in the debt ceiling.  But much depends on tomorrow’s House vote on Boehner’s revised bill (assuming he brings it to the floor).  If it passes, the ball is in Reid’s court and it will be tough for him and Senate Democrats  to resist compromise.  If it fails – and I don’t think this will happen – it will put more pressure on Boehner to craft legislation that either moves toward the Tea Party – or that abandons them in favor of crafting a deal more favorable to Reid and the Senate Democrats.

Stay tuned.

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