The debt ceiling agreement is a horrible piece of legislation. It ratchets down already too-low domestic discretionary spending caps and imposes painful sacrifice on the middle class with little asked of the rich. Obviously, though, you can’t assess any deal without asking “compared to what?” Did President Obama get a worse deal than he had to, given the circumstances? And the answer to that question, in turn, depends on when you start the clock, and more importantly, when you stop it. Let me explain.
Going back to December, the Democrats committed a massive blunder by failing to push for a debt ceiling increase. At the time, observers like Ezra Klein were noting how absurd it would be to let Republicans force through a deficit-increasing policy (extending the Bush tax cuts) and then let Republicans stick Democrats with the blame for the debt ceiling. A reporter even asked him about the Republican Party’s ability to use this vote as leverage, and Obama seemed not to grasp the point at all. Obama has implied that he couldn’t have received a debt ceiling hike, but I don’t think that’s correct.
Then, last spring, Obama committed blunder number two. Republicans began voicing opposition to raising the debt ceiling, or insisting on massive concessions in order to do so. The correct response here was to refuse to negotiate. Obama simply needed to say, we’re raising the debt ceiling the way we always have, because the alternative is catastrophe. We can negotiate any policy change you want, but not with a gun to the head of the American economy. Eventually, the business community would have pressured Republicans to relent. Instead, once Obama ascented to broadening the scope of the debate, business simply wanted a deal to get done, and it pressured both sides to compromise. (It is true that the complicity of the anti-deficit lobby in the Republican hostage gambit made it harder for Obama to insist on keeping the deficit and the debt ceiling separate.)
The third mistake lay in assuming Republicans would agree to raise tax revenue. I spoke several times with administration officials who asserted with total confidence that Republicans would simply have to acknowledge the need for more revenue. They betrayed a complete misunderstanding of the party they’re dealing with.
Once it had agreed to negotiate a ransom payment, the administration was left with a series of bad options. I think the current deal on offer is about as non-bad as it could have gotten. It managed to backload the timing of spending cuts to minimize damage to the recovery and protect programs for the most vulnerable beneficiaries (which also happen to be the most vulnerable programs.) I’ve argued that Obama should give up on trying to get Republicans to accept higher revenue and just sign an all-cuts agreement.
Furthermore, unlike many other liberals, I agree with a key element of the administration’s political calculation. The thinking is that Obama lost the support of a key centrist element of his coalition due to the perception that he’s an out-of-control spender who created big deficits. The perception is wrong, but that doesn’t really matter. Signing onto a major deficit reduction deal helps rebuild Obama’s image. That the deal consists entirely of spending cuts probably only helps. What’s more, recognizing that Democrats will never obtain a fiscal readjustment entirely on their own terms, I’m willing to swallow some cuts to Medicare and Social Security in the pursuit of deficit control.
My red line is revenue. It has become clear that Obama’s pledge not to raise taxes at all on anybody earning less than $250,000 a year is no longer compatible with even the minimal demands of government over the next decade. Just expiring that portion of the Bush tax cuts is not enough. The Bowles-Simpson commission required more revenue, and the Gang of Six required more revenue. Obama has tried repeatedly to lure Republicans to sign a deficit reduction deal, offering them a pact with lower revenue targets than either of those. How does Obama make that paltry revenue target work? By assuming he can get away with slashing domestic discretionary spending. The White House oddly boasts that it reduces domestic discretionary spending to the lowest level since the Eisenhower administration. That’s a plan that either will be broken or will result in shortchanging vital priorities.
Obama has one golden ticket out of the revenue dilemma. As I’ve written multiple times, the expiration of the Bush tax cuts gives him enormous leverage over the GOP. Republicans signaled last year they’d rather kill off the entire Bush tax cuts than sacrifice the portion that only benefits the rich. Holding firm on the Bush tax cuts would let Obama maneuver Republicans into the position of killing off all the Bush tax cuts. That would provide all the revenue he needs – some $4 trillion over a decade, as opposed to the $800 billion he’d raise merely by ending tax cuts for the rich.
What’s more, going to the mat over the Bush tax cuts would provide Obama with a strong political message for 2012. He can’t run on the economy. He needs a contrast election. Republicans will try to pass some version of the Paul Ryan budget, cutting taxes for the most affluent and laying waste to Medicare and Medicaid. Obama can run as the candidate insisting on shared sacrifice – and having already agreed to $3 trillion in spending cuts would give him credible to draw that line.
The problem, though, is that we can’t be sure Obama really intends to draw that line. There’s a limit to how much faith one can place in a man who has so badly misjudged his political opponents time and time again. The debt ceiling ransom may be a shrewd strategic retreat, or it may be the largest in a series of historic capitulations. We won’t know until the fight over the Bush tax cuts has been settled.