Saturday, October 05, 2013

General Giap and the GOP

Responding to Republican calls for a broad fiscal "dialogue" under the double threat of government shutdown and looming debt ceiling, the Times editorial board reacts with commendable incredulity -- but salts in, I think, a misconception (my emphasis):
This is a moment for immediate action to reopen government’s doors, not the beginning of a conversation that Republicans spurned when they lacked the leverage of a shutdown. They have refused to negotiate over the Senate’s budget, they have refused to negotiate over the president’s budget, and they have refused to negotiate to make the health law more efficient, insisting only on its demise. 
 The shutdown does not increase Republican leverage -- it erodes it.  Grover Norquist understands this:

the leverage isn’t the debt ceiling. It’s not the CR. It’s the sequester. Democrats think this is desperate privation. It’s like the Kennedy kids with only one six-pack. They feel they’ve never been so mistreated. So there’s something they want. And there’s something Republicans want. So you could see a deal there. And the leverage was the sequester.
That was true before the funding deadline for FY 2014 passed on October 1 -- and it remains true. On the funding front, which is all that's substantively at issue, Republicans have already won through the remainder of this year, in that Democrats have accepted sequestration funding levels as the baseline in the continuing resolution that would fund the government short-term.  Going forward, that leverage remains, as the sequester's iron grip bites ever deeper into the discretionary spending woodwork. 

Insofar as Republicans can continue to embrace indiscriminate discretionary spending cuts, and forgo the entitlement reform about which they're at best indifferent (as their base is disproportionately old), the leverage in the funding battle is theirs.  The victory may be Pyrrhic, as even the GOP House proved unable to write a budget that adhered to sequestration caps, and as the sequester cuts deeply into defense, and as the ambivalent Republican soul does yearn in part to cut back retirement benefits. But once Obama let them off the mat without replacing the sequester in January 2013, when the Bush tax cuts were set to expire, a meat ax was placed in their hands for ten years.

Will they remain willing to wield it? The problem for Democrats may be something akin to the problem the American military faced while fighting Vietnamese General Vo Nguyen Giap, who drove first the French and then the U.S. out of Vietnam, and who died at age 102 yesterday. According to the Times obit, Giap was successful in large part because 
his victories had been rooted in a profligate disregard for the lives of his soldiers. Gen. William C. Westmoreland, who commanded American forces in Vietnam from 1964 until 1968, said, “Any American commander who took the same vast losses as General Giap would not have lasted three weeks.”
Similarly, in round after round of budget standoffs, it's always been Obama who's been professedly unwilling to risk substantive immediate harm to the economy. 

Substantively, too, Obama would prefer the entitlement cuts and other spending cuts in his budget, the total value of which approached that of the sequestration cuts, to the sequester. He loses face if he settles for no new revenue, having settled for half of an already-reduced loaf at the fiscal cliff;  doing so would concede having had his ass whipped in fiscal negotiations from early 2011 forward.  At the same time, he would prefer to shift spending to education and infrastructure and research, and he can't do that as long as the sequester is in place.  If healthcare inflation continues its downward trend, moreover, the U.S. might not even need the revenue from Obama's proposed tax deduction reductions if all the spending cuts in his 2014 budget were implemented.

Using chained-CPI to calculate federal benefits, as Obama proposed in his 2014 budget, would yield about $70-100 billion in new revenue over ten years, depending on whose estimate you use.  I've long thought that if Republicans would offer him a fig leaf of modest tax loophole closures worth, say, $200 billion over ten years, to go with the $900 billion he proposed in spending cuts (or some negotiated variant), Obama would settle quickly.  But as in the summer of 2011, Republicans won't take the victory on offer.

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