JANUARY 18, 2013
When President Obama walks down the steps of the Capitol on Monday, preparing to take the Oath of Office, don’t be surprised if he does a little happy dance along the way.
House Republican leaders announced on Friday that they have agreed to increase the nation’s debt ceiling. And while their proposal would extend the government's borrowing authority for only another three months, two other fiscal policy deadlines would come first—March 1, when the automatic spending cuts of the budget sequester are set to take effect, and March 27, when the Continuing Resolution that funds the government expires. Not everybody agrees on the implications, and the agreement would come with a few conditions attached, but the emerging consensus is that Republicans would probably add another, longer extension to whatever deal those debates produce. In other words, it looks like "Republicans have all but taken the threat of default off the table completely," as Greg Sargent and many others observed on Friday.
To be sure, Republicans are still determined to fight for their priorities—namely, massive spending cuts and, where possible, new tax breaks for the rich. They might even shut down the government if they don't get their way. The expiration of the Continuing Resolution offers an opportunity for that.
But refusing to give the government new borrowing authority, so that it defaults? Wreaking all sorts of havoc on the economy? Republicans seem to have lost enthusiasm for that tactic. And while Demorats are rightly pushing for a longer term extension now, it's not clear how much the distinction ultimately matters. As Jonathan Chait wrote on Friday, "Once [Republicans have] recognized that the debt ceiling isn’t leverage, they have no reason to keep taking painful votes that expose their members to attack ads."
Of course, the full House hasn't voted on the proposal yet. That is sure to be an adventure. It always is. Who knows, within a few days, the leadership might have changed its mind—or added some new conditions. And while a government shutdown would not produce a catastrophe, as hitting the debt ceiling would, it would cause real hardship.
But, for the moment, the Republican announcement would seem to validate Obama's aggressive, unyielding strategy of the last few weeks. Over and over again, in private and in public, Obama said that he would not negotiate on the debt ceiling—that a country with responsible leadership pays its blils rather than defaulting upon them. Obama also refused to consider options, such as minting a $1 trillion coin, which would have allowed him to increase the government’s cash unilaterally.
At the time of that decision, one week ago, White House advisors told supporters and reporters the president made the decision, in part, because he wanted to force the Republicans to act. In other words, he didn't want to give them an easy out. It would appear that strategy worked, precisely as the president and his advisers hoped.
The debt ceiling development also vindicates, in part, the agreement on taxes Obama signed in January, when the government went over the "fiscal cliff." At the time, the deal provoked lots of disappointment, and even some anger, among Obama’s supporters in Congress—in no small part because it failed to deal with the debt ceiling. Many of us (including yours truly!) worried that Obama would end up negotiating on the debt ceiling, notwithstanding his vows, and accept deep cuts to discretionary programs or the big entitlements. He didn’t do that.
Still, the debate over fiscal policy isn’t over yet. If you want to think of it as a war—and, yes, war is the right metaphor here—then Obama has won the first two battles but a third one, over the sequester and continued government funding, remains. And, as always, the two sides have very different priorities.
Obama has said he wants to reduce the deficit, but through a mix of spending cuts and tax increases. Republicans have said they want to reduce the deficit, but only through spending cuts. Obama has said he wants to provide the economy with short-term help, even if it means a little extra spending now; Republicans have said they don’t want to provide the economy with short-term help, at least of that kind.
The stakes remain huge. If Republicans prevail in their demands for deep cuts to discretionary spending, it will mean further cuts to a wide variety of public services—everything from air traffic control to Head Start—at a time when spending on those types of programs, as a whole, are at postwar lows. If Republicans prevail in the demands to changes in Medicare or Social Security, it will mean benefit reductions that could cause real harm and that, as Paul Krugman has rightly noted, may not be necessary right now. Only when the debates over the sequester and continuing resolution is done will we know which party has won and lost—and what it means, now and in the future, for the American people.
But Obama and the Democrats would seem to be in a strong position politically. And that should provide the president with some good cheer as he prepares for his big day. To be sure, the president had hoped that he'd be done with the fiscal debate by the time his second term began. That obviously hasn't happened. But the Republicans are on the run, the public is behind him, and the economy remains intact. All things considered, that's not such a bad alternative.