Tuesday, July 05, 2011

Obama is two years early on deficit reduction negotiations

To listen to Obama's statement about budget negotiations this afternoon, you would think that he has willingly embraced the debt ceiling deathline as a means to force a deficit reduction deal quickly: the current negotiations under threat of default are, he said, "a unique opportunity to do something big."  Refusing to entertain the possibility that a comprehensive 10- or 12-year deal won't be struck before the August 2 debt ceiling deadline, Obama said that lawmakers should not "kick the can down the road" with a short-term fix.

I hope Obama proves me wrong, but it seems to be that there is something fundamentally wrong with this "opportunity." He should not be trying to negotiate a multi-year $4 trillion deal in this short time frame, under threat of default, with a GOP that continues to swear, as Boehner did today in response to Obama's speech, that it will not raise taxes at all. It's either madness or some kind of feint.

Bill Clinton negotiated a comprehensive multi-year deficit reduction act that reflected his priorities in August 1997, two and a half years after the Gingrich Congress was sworn in swearing to radically cut both spending and taxes.  For the first 11 months of 1995 the GOP essentially refused to compromise, maintaining throughout the bill-drafting process and in the omnibus budget bill they finally sent to Clinton all the provisions he had pledged to veto -- $245 billion in tax cuts, nearly $300 billion in Medicare cuts, nearly $200 billion in Medicaid cuts. And veto he did -- the omnibus bill, as well as  emergency debt ceiling and short-term spending bills with onerous provisions. It was only after the Republicans had broken their heads against multiple vetoes, two government shutdowns, a slow drip of partial appropriations and a short-term deal in April 1996 for the fiscal year ending that October that thy were ripe for a comprehensive deal -- mainly on Clinton's terms.

Today's GOP is far more arrogant, extremist and intransigent than the party of 1995-96. For Obama to conclude that he can negotiate enough revenue increases to appropriately limit the spending cuts the GOP is demanding strikes me as almost as insane as the Republican negotiating terms.  In his rush to get a deal done, he seems to be "holding out" for $300-400 billion in new revenue over 10-12 years when he should be demanding $1-2 trillion (admittedly, it's harder to fight like hell for tax hikes than for preserving spending on entitlements, as Clinton was).

In my nightmares, Obama shapes up as the General McClellan of the deficit wars -- wondrous in his ability to inspire the troops, baffling in his unwillingness to fight.

I hope he pulls a rabbit out of a very shallow hat. But I don't see how he can.

Update 7/6: Jonathan Cohn is as worried as all progressives about the extent to which Obama has let this negotiation shift right. While voicing his misgivings, though, he usefully lists the reasons for reserving judgment:
Could the endgame turn out better than the skeptics realize? Sure. The spending cuts could be smaller or less worrisome than they seem now. The deal could include another payroll tax holiday or investment in public works, to boost the economy. The leaks could be part of a clever political strategy to showcase Republicans for the extremists that they are. (David Brooks certainly seems to have noticed.) And this whole drama could be mere prelude to the debate over extension of the Bush tax cuts in late 2012, when they are set (again) to expire. As my colleague Jonathan Chait has been pointing out for some time, a stalemate in that fight would mean the end of the tax cuts  – producing precisely the sort of revenue folks like me want to see in the deal now.

1 comment:

  1. You're right. I'm afraid Obama might have let himself get trapped here. He's accepted the premise that resolving the deficit is the top issue. It's not- he should never talk about anything besides the economy and jobs. He's being goaded by Congress, but he's not going to be running against Congress in 2012. Last week Mitt Romney visited a factory where Obama heralded the stimulus package, and which has since been closed down.

    Something tells me that Obama's trying to move up this D-Day so there's more wiggle room for the Treasury Dept if the deadline comes and goes. I think the idea may be "a small market crash would help us, a big one would not."