Friday, October 11, 2013

The party that loses by winning

On July 4, 2011, when the Republicans were in the process of nailing Obama to the debt ceiling, David Brooks wrote:
If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases.
With about $4 trillion in deficit reduction over ten years the agreed target, Obama was ready to settle for just $800 billion in new revenue, a roughly 4-to-1 ratio of spending cuts to revenue . But the GOP passed up Brooks' 'deal of the century.' A four-fifths win for the no-new-taxes-ever crowd wasn't good enough for them.

They did "win," though, by forcing Obama to swallow, under threat of national default, the Budget Control Act, which purported to match every dollar of debt ceiling increase with a dollar of deficit reduction, with no concession on the Republicans' part that any of that reduction would come through tax increases. Nor has it, now that Republicans have learned to love the sequester, or professed to. The BCA imposed over $900+ billion in cuts to discretionary spending over ten years, and then another $1.2 trillion through sequestration if a Congressional supercommittee could not agree on a plan to replace that second tranche with a deficit reduction package of equal value. Since Republicans would not agree to any sequester replacement including new revenue, it is still with us, and the DBA's deficit reduction mix remains (approximately, counting interest savings), spending cuts $2.5 trillion, revenue 0.

The only thing Obama got out of the deal (other than preventing the GOP from imposing the catastrophe of national default) was a chance at reelection, and thus a chance renegotiate when the Bush tax cuts, worth some $4 trillion over ten years, expired in January 2012.  Since Obama had since 2007 locked himself into raising taxes only on individuals earning more than $200k and families over $250k, his revenue target never exceeded $1.6 trillion. By December 2012 it was down to $1.2 trillion.  But on Jan. 1, when the U.S. technically went over the fiscal cliff (massive tax hike plus sequestration kick-off), he settled for half that loaf, some $600 billion in new revenue over ten years, while only postponing the sequester for two months.

Republicans gnashed their teeth as if they had been run over roughshod. "The rout was complete, the retreat disorderly. President Obama got his tax hikes" lamented Charles Krauthammer. Republicans could not forgive themselves for staving off $4 trillion in automatic tax hikes with a $600 billion concession -- perhaps because that increase was targeted only at the top 1-2% of the population, the only constituency the party really cares about.  But the long-term route was Obama's. The deficit reduction score stood at spending cuts, $2.5 trillion-plus -- tax hikes, $600 billion-plus. And the GOP swore that Obama had "gotten his tax hike" and would get no more.  But they didn't act like -- or, it seems, feel like -- winners.

The sequester meat ax started swinging in April. Republicans got over their queasiness about the defense cuts and have so far managed not to notice that even they can't fill in a year's worth of specific appropriations under the sequester's caps -- the full-year 2014 cuts are too Draconian.  As the Sept. 30 end of FY 2013 approached, they focused so maniacally on demands extraneous to the FY 2014 budget that they scarcely seemed to notice when the Democrats unconditionally accepted the GOP's spending provisions in  a two-month continuing resolution (CR). What Republicans now call total surrender -- ending the government shutdown and their threats to push the nation into default and passing a "clean" CR -- is in fact a short-term fiscal victory -- and very possibly a long-term one, as it establishes the sequester as a new spending baseline.

In their moment of perceived route and angst and national opprobrium, Republicans could walk away from their maximalist, fantasist demands (defunding or variously hamstringing Obamacare, imposing new rounds of spending cuts without conceding any revenue) and still come away the victors in any rational long-term budget negotiation to replace the sequester. Grover Norquist gets it:
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.
I'm pretty sure that Obama would agree to a deal that replaced the $1.2 trillion/10 year sequester with about $300 billion in revenue plus the $900-odd billion in spending cuts proposed in his own 2014 budget -- which include cuts to Social Security, via chained-CPI, and Medicare, mainly by trimming benefits for wealthy seniors. Chained-CPI would also yield a purported $100 billion in new revenue over ten years, leaving Republicans to concede a relatively trivial amount of additional new revenue gained through tax loophole reduction. Such a deal would net out pretty close to the "deal of the century" at which Brooks shook his head in wonder -- after Obama won election.  No government by crisis, no further dramatic punishment for the nation or for the GOP is itself, is required. All Republicans have to do is take the win and move on.

But they won't.


  1. Why would Obama agree to such a deal?

  2. Hi Andrew: A very insightful post as usual (I have found you to be one of the two or three most valuable commentators on the Obama presidency anywhere on the web). I have a question, though - given that approximately half the sequester is Pentagon cuts that would have been unachievable under almost any other conditions, isn't it a little unfair to chalk all of that up as a Democratic/Obama defeat? Shifting about $600bn of the sequester from the Repub side to the Dem side makes the scoresheet more like 1.9tr to 1.2tr, rather than the 2.5tr to 0.6tr that you describe here. (Also, if I'm not mistaken, at the fiscal cliff deadline, Obama traded off the last ~200bn of tax revenue for continued unemployment benefits, which should count for something). To be clear, I firmly agree with you that Obama made a serious mistake in surrendering his leverage at the fiscal cliff -- after all, he could have had the sequester-induced Pentagon cuts AND a huge revenue increase as the budget baseline for all future negotiations. I'm just wondering whether you agree that the rout of the Dems might not be as total as one might conclude by only using a "cuts vs revenue increases" metric. Once again, love your stuff!