Tag Archives: debt negotiations

I go out for a run and a swim, and the debt negotiations break down. That will teach me.

I can’t be sure, but based on the dueling press announcements as well as some of my own contacts, here’s what I suspect – and I stress that this is largely speculation – happened between the time of my last post and the dueling announcements from Boehner and Obama that a debt deal was off – at least until 11 a.m. tomorrow (Saturday).  First, let’s hear both sides of the story, beginning with the President. Here is what Obama said he was offering when Boehner called him to say he was walking away from the talks: “What we said was give us $1.2 trillion in additional revenues, which could be accomplished without hiking taxes — tax rates, but could simply be accomplished by eliminating loopholes, eliminating some deductions and engaging in a tax reform process that could have lowered rates generally while broadening the base.”

Now, here is Boehner’s version: “[A]n agreement had been reached” earlier in the week that included about $800 billion in new revenue (but not through increases in tax rates). However, the White House on Thursday “moved the goal post” by insisting on an additional $400 billion in tax increases, which Boehner refused to accept. “I take the same oath of office as the president…to do what is in the best interest of our country,” Boehner said. “And it’s not in the best interest of our country to raise taxes in this economy.”

Translation: As I suggested in several posts, the framework of a deal that included additional revenue (of about $800 billion it seems), by closing tax loopholes, eliminating exemptions but not based on raising tax rates, had been negotiated between Obama and Boehner, but when Obama went back to Reid and the Senate Democrats with the plan, they balked and demanded more revenues before they would sign on.  When Obama came back with the request for an additional $400 billion, Boehner walked away.

So, is the U.S. going to default on its debts?  Nonsense.  At this point it is clear that Boehner has decided to cut out the middleman – that would be the President – and deal directly with the people who actually wield power in this negotiation – that would be Senate Democrats.  Obama will sit on the sidelines and accept what he can get to avoid a debt default.  As he stated a few hours ago: “So they will come down here at 11:00 a.m. tomorrow.  I expect them to have an answer in terms of how they intend to get this thing done over the course of the next week.  The American people expect action.”

And they will get it, almost certainly in the form of a short-term agreement that avoids default but puts off any “grand bargain” for the time being.  One possibility is some version of the McConnell plan which essentially gives Obama the power to raise the debt limit, but allows Republicans to go on record opposing it.  I don’t think that’s going to fly with the Tea Party caucus, however.  It’s far more likely that we will get a short-term agreement to raise the debt ceiling that Obama will reluctantly sign, with some indications suggesting long-term negotiations are in the works (which may even be true).

A couple of things to keep in mind here.  First, the media will play up the impending catastrophe of a debt default – it’s in their interest to do so.  But don’t mistake that for an accurate assessment of the possibility that this will happen.  Second, when parties declare they are walking away from the endgame of negotiations, that’s often when agreement is most likely to happen.  These negotiations aren’t over by a long shot.

More in the morning.

If as the LA Times is reporting, Speaker Boehner and President Obama are working on a plan that would link a raise in the debt ceiling to some $3 trillion in spending cuts – and without any revenue offsets – it would represent still another concession by Obama to the Republicans in these ongoing negotiations.  After pledging not to support another short-term extension in the nation’s borrowing limit, Obama reversed course this week and signaled that he would accept still another extension if there was progress on a broader deal and it was necessary to prevent an immediate default.  Now, if reports are accurate, he appears willing to cut a deal on spending as part of a “grand bargain”‘ that includes entitlement reform, but without any provisions for tax increases.

When word leaked that Obama was considering a deal to cut spending without any firm revenue offsets, liberal Democrats were reportedly outraged. “Many of us were volcanic,” said Sen. Barbara Mikulski (D-Md.).  If Obama does sign on to such a deal, pundits on the Left will undoubtedly excoriate him for folding like a cheap suit in these negotiations.

But that would be unfair to Obama. No one should be surprised that he is apparently willing to make the concessions necessary to secure a deal. As I have said repeatedly, he is a process-oriented pragmatist – not a principled ideologue. To Obama, effective leadership means mediating differences to achieve an outcome that has the broadest possible support.  He is not wedded to any particular set of principles or numbers here so much as he is cutting a deal to avoid default.  If, in addition to cutting spending it addresses entitlement programs as well, what’s not to like?  This is a major accomplishment for the President – one that eluded Bush.

In contrast, Boehner is dealing with a group of Tea Party-backed ideologues who are driven by principle, not pragmatism. They were elected to cut spending, not raise taxes.  And they are not going to budge from that. Critics like Ross Douthat and David Brooks who can’t understand why Republicans didn’t take a deal that involved spending cuts that were three times bigger than tax raises are missing the dynamic driving these negotiations – a dynamic that Obama recognizes all too well.

In short, when an irresistible force – the Tea Party-backed fiscal ideologues – meets a moveable object – a President guided by political pragmatism more than principle – the moveable object moves.  Purists will howl, but Obama is not a party purist.  He came to Washington to get things done.

Moreover, keep in mind that Obama has another card to play.  If he can get spending cuts now in the context of a major budget deal that addresses entitlements, he is gambling that will be enough to get him elected in 2012, at which point he can make his principled stand on revenue by refusing to renew the Bush tax cuts for upper income earners.  In short, political pragmatism dictates deal making now – even deal making on Republican terms, for the moment.

It is premature, of course, to assume a deal will get cut on the terms discussed in this article. Liberal Democrats in the Senate may scuttle any plan that doesn’t include tax hikes or  revenue  increases as part of entitlement reform.  But at this point the negotiations have already moved solidly into Republican turf, with the emphasis on spending cuts, not tax hikes.

Where do negotiations go from here?  I expect that, Obama’s stated objections notwithstanding, a short-term extension of the debt limit will be agreed to shortly, while negotiations continue on a plan that entails deep spending cuts coupled with entitlement reform and with minimal, if any, tax increases.  By minimal, I mean closing of deductions, eliminating subsidies, and curtailing exemptions – but not a hike in tax rates.  This is still a long way from a done deal, of course.  But if the deal is struck, it will be largely on Republican terms.  Pundits on the Left will howl.  And that will be fine with Obama.