Backing Down, House G.O.P. Offers 3-Month Debt Extension

Backing down from their hard-line stance, House Republicans said Friday that they would agree to lift the federal government’s statutory borrowing limit for three months, with a requirement that both chambers of Congress pass a budget in that time to clear the way for negotiations on long-term deficit reduction.

 The agreement, reached in closed-door negotiations at a party retreat in Williamsburg, Va., was a tactical retreat for House Republicans, who were increasingly isolated in their refusal to lift the debt ceiling. Speaker John A. Boehner of Ohio had previously said he would raise it only if paired with immediate spending cuts of equivalent value.

The decision by Republicans seemed to significantly reduce the threat of a federal government default in coming weeks and was welcomed by Senate Democrats. The House will consider the plan next week. 

 

   The decision represents a victory — at least for now — for Mr. Obama, who has said for months that he will not negotiate budget cuts under the threat of a debt default. By punting that threat into the spring, budget negotiations instead will center on two other points of leverage: March 1, when $1 trillion in across-the-board military and domestic cuts are set to begin, and March 27, when a stopgap law financing the government will expire.   

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DEBT DECREASES AS ECONOMY IMPROVES

PAUL KRUGMAN NEW YORK TIMES

It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows.

This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)

 

Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.

 

Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?

Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?

Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh?

O.K., you can argue that the adjustment to an aging population would be smoother if we commit to a glide path of benefit cuts now. On the other hand, by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.

The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect. And, no, it’s nothing like the case for urgent action on climate change.

So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.

The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.

But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

ON OBAMA'S NEGOTIATING SKILLS

THE DAILY BEAST MICHAEL TOMASKY

The standard liberal position in the run-up to the cliff deal, or at least a position taken by a number of prominent liberals, was that Obama should have let the country go over the cliff, because he’d immediately have more leverage after Jan. 1. Taxes would go up, the argument went, most of the country would blame the Republicans, and boomity-boomity-boom, they’d come crawling to Obama ready to sign a deal on his terms.

I will readily confess that the logic is, if not impeccable, only mildly peccable. The Republicans would have been over a barrel. Of course predicting what those people will do and how they’ll respond to any given situation is risky business, but presumably they would not have wanted to be blamed for middle-class tax rates going up, so they’d have done something vaguely rational.

I get it. But here’s what I think proponents of that argument don’t get. Obama isn’t some co-speaker. He’s the effing president. People want the president to lead. They may blame Republicans more than Democrats for obstruction, and that’s a good thing. But they still want the president to Get Things Done, and, however naively, they still think he ought to be able to just assert his will and Get Things Done.

There is, in other words, a responsibility that comes along with being the president. It may be unfair, but the leaders of the House and Senate can play all the silly games they want to. Half the country or more doesn’t even know who they are. But the president—he’s supposed to do stuff. Obama really and deeply understands this—perhaps to a fault, but better that than believe he only has to represent the third of the country that loves him.

Sometimes acting out the jobs of Captain Liberal and Mister President can be done in harmony. But sometimes not; in fact, I’d say most often not, given that this is not an especially liberal country. So Mister President Obama was absolutely right to make every effort to hit the deadline. To your average person, failing to hit it would have been a terrible reflection on him, and an explanation from him about his increased leverage would have just sounded like more game-playing.

Relatedly, I’ve been amazed to read, sometimes from people I’ve considered quite knowledgeable, that Obama held “all the cards” here. He didn’t, by a long shot. This was a negotiation. Negotiations are hard. The other side wants exactly what you don’t want. Like it or not, liberals, the other side legitimately represents 47 percent of the country, so they had every right to get something out of this. And as it happens the other side also had the ability to block anything from happening. And they would have, too, if Obama had given them half an excuse.

As a matter of fact, think of this. If Obama had done what these liberals wanted and sent any signals as the New Year approached that he was ready to go over the cliff, the House Republicans would have publicized that, and then, if we had gone over the cliff, Obama would have shared the blame. It was Obama’s strict, good-faith adherence to the deadline that helped shift all the blame to the Republicans, and that is what made them play ball.

Now let’s talk a few of the specifics in the deal. First, how much does it really matter whether the revenue level for the higher tax rate is $250,000 or $450,000? I’d have much preferred the former, but the important thing is the principle. If he had to give a little ground on the amount in order to get the Senate Republicans to shake hands, so be it. It’s a shame the temporary payroll-tax relief will come to an end. This is the item liberals are most upset about, because it was a form of stimulus, and about the only stimulus Obama is going to get. But even Hill Democrats didn’t want that extended. What was Obama supposed to do?

The biggest complaint, given voice by Paul Krugman and Noam Scheiber among others, is that the recent negotiation basically showed that Obama is weak and too anxious to get a deal and will thus be steamrolled by the GOP in March into accepting steep budget cuts because he wants to avoid default.

I have tremendous regard for Krugman and Scheiber, but I don’t agree. Obama has negotiated with the Republicans four times now—the December 2010 extension of the Bush tax cuts, the spring 2011 government-shutdown threat, the summer 2011 debt-ceiling talks, and these recent cliff negotiations. On three—all but the summer 2011 talks, which were a fiasco—he came out looking pretty good. Now, it’s unfortunate that the one on which he didn’t do well involved the debt ceiling, the locus of the upcoming talks. But he vows that he’ll be tougher this time, and I take him at his word. He’s gotten a lot done, he got himself reelected when lots of people thought he couldn’t, and I say he’s earned a little bit of my trust. We’ll see.

I also think that “Obama is going to sell us out” columns somehow help make that eventuality come true. At the very least, they establish a tone and mindset that rank-and-file liberals imbibe and accept. Liberals should certainly pressure Obama to do as many liberal things as he can, but we should also recognize that he’s not the leader of a movement—he’s the head of a country. And he’s actually helped change the country pretty dramatically.

NY TIMES PAUL KRUGMAN

...the reality is that our two major political parties are engaged in a fierce struggle over the future shape of American society. Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy. Yes, it’s essentially a class war.

 The fight over the fiscal cliff was just one battle in that war. It ended, arguably, in a tactical victory for Democrats. The question is whether it was a Pyrrhic victory that set the stage for a larger defeat.

Why do I say that it was a tactical victory? Mainly because of what didn’t happen: There were no benefit cuts.

 

This was by no means a foregone conclusion. In 2011, the Obama administration was reportedly willing to raise the age of Medicare eligibility, a terrible and cruel policy idea. This time around, it was willing to cut Social Security benefits by changing the formula for cost-of-living adjustments, a less terrible idea that would nonetheless have imposed a lot of hardship — and probably have been politically disastrous as well. In the end, however, it didn’t happen. And progressives, always worried that President Obama seems much too willing to compromise about fundamentals, breathed a sigh of relief.

 

There were also some actual positives from a progressive point of view. Expanded unemployment benefits were given another year to run, a huge benefit to many families and a significant boost to our economic prospects (because this is money that will be spent, and hence help preserve jobs). Other benefits to lower-income families were given another five years — although, unfortunately, the payroll tax break was allowed to expire, which will hurt both working families and job creation.

The biggest progressive gripe about the legislation is that Mr. Obama extracted less revenue from the affluent than expected — about $600 billion versus $800 billion over the next decade. In perspective, however, this isn’t that big a deal. Put it this way: A reasonable estimate is that gross domestic product over the next 10 years will be around $200 trillion. So if the revenue take had matched expectations, it would still have amounted to only 0.4 percent of G.D.P.; as it turned out, this was reduced to 0.3 percent. Either way, it wouldn’t make much difference in the fights over revenue versus spending still to come.

Oh, and not only did Republicans vote for a tax increase for the first time in decades, the overall result of the tax changes now taking effect — which include new taxes associated with Obamacare as well as the new legislation — will be a significant reduction in income inequality, with the top 1 percent and even more so the top 0.1 percent taking a much bigger hit than middle-income families.

So why are many progressives — myself included — feeling very apprehensive? Because we’re worried about the confrontations to come.

According to the normal rules of politics, Republicans should have very little bargaining power at this point. With Democrats holding the White House and the Senate, the G.O.P. can’t pass legislation; and since the biggest progressive policy priority of recent years, health reform, is already law, Republicans wouldn’t seem to have many bargaining chips.

But the G.O.P. retains the power to destroy, in particular by refusing to raise the debt limit — which could cause a financial crisis. And Republicans have made it clear that they plan to use their destructive power to extract major policy concessions.

Now, the president has said that he won’t negotiate on that basis, and rightly so. Threatening to hurt tens of millions of innocent victims unless you get your way — which is what the G.O.P. strategy boils down to — shouldn’t be treated as a legitimate political tactic.

But will Mr. Obama stick to his anti-blackmail position as the moment of truth approaches? He blinked during the 2011 debt limit confrontation. And the last few days of the fiscal cliff negotiations were also marked by a clear unwillingness on his part to let the deadline expire. Since the consequences of a missed deadline on the debt limit would potentially be much worse, this bodes ill for administration resolve in the clinch.

So, as I said, in a tactical sense the fiscal cliff ended in a modest victory for the White House. But that victory could all too easily turn into defeat in just a few weeks.