Someday people will look back and wonder, What were they thinking? Why, in the midst of a stalled recovery, with the economy fragile and job creation slowing to a trickle, did the nation’s leaders decide that the thing to do—in order to raise the debt limit, normally a routine matter—was to spend less money, making job creation all the more difficult? Many experts on the economy believe that the President has it backward: that focusing on growth and jobs is more urgent in the near term than cutting the deficit, even if such expenditures require borrowing. But that would go against Obama’s new self-portrait as a fiscally responsible centrist.
Lawrence Summers, Obama’s recently resigned chief economic adviser, said on The Charlie Rose Show in July that he found it “dispiriting” that “all of the energy is on the projected deficits…when the problem right now is that the economy is in danger of stagnating from lack of demand.” The Republicans had made it clear for months that they would use the need to raise the debt ceiling as an instrument for extracting concessions from the Democratic President in the form of more cuts in federal programs. And the President assented to their premise, but only if there should also be some additional revenues. Were they all insane? That’s not a far-fetched question.
The President argued that it’s critical to make cuts that will “get our fiscal house in order,” so that the American people and the politicians would accept the idea of new programs leading to growth and more jobs. But there are numerous indications that the public is ready for such programs now, and serious analysts see no reason why he should not also be taking such steps now, even if this increases the deficit in the short run. But that would be at odds with Obama’s current self-portrayal. People who are looking for work, or worried about their unemployment insurance, or getting their kids to college, may not be impressed with the argument that they must be patient while the President adjusts his fiscal image in time for the 2012 election.
Since the President wanted to cut spending but also increase taxes and the Republicans insisted on cuts with no new taxes, they were for months too far apart to find much agreement on a budget plan to be attached to the debt ceiling increase—which had to be enacted by August 2 to avoid a default. No one could quite believe that this would happen, because it was so unthinkable; it was assumed that the two parties would reach agreement. Each side actually expected the other to be more flexible. The Republicans assumed that the President would be pliable; the Democrats didn’t expect the Republicans to be so inflexible about raising taxes.
It didn’t turn out that way. The Republicans were actually divided—the older guard against the Tea Party. But this old guard was by nature further to the right than the former old guards, and the Tea Party drove it further right still. The Republicans adopted their partly ideological, partly fearful, position that none of the reductions in projected deficits could come from increased tax revenues. The President agreed that tax rates would not be raised—though they are at their lowest level in sixty years, since the presidency of Harry Truman. The administration and other Democrats had thought that it would be easier to remove some tax breaks from the tax code.
The Republicans, with Alice in Wonderland logic, termed any elimination of a tax break a tax increase. Moreover, the breaks included in the tax code were there because they had been sponsored by an important member of Congress, or supported by a powerful lobby on behalf of one interest or another. After the President, in a press conference in late June, inveighed against tax breaks for corporate jets, the industry quickly insisted that such a change would cost jobs.
The very basis of the negotiations was odd. A vote to raise the debt limit simply validates spending decisions that had already been approved by Congress, and it is usually automatic. It does nothing to curb spending. But there is nothing usual about the current Congress. The recent negotiations over raising the debt limit could have been seen as having an absurd, antic quality, if they hadn’t been so risky to most people living in this country and so unfair in their potential impact on the various income groups, with consequences, too, for the global economy. The negotiations were ridiculously contorted—when one side refused to discuss a major topic, such as taxes, were they actually negotiations at all? Similarly, Democrats balked at serious cuts in entitlement programs. So there was a standoff.
As August 2 approached, the possible effects of default should have become familiar to anyone paying the slightest attention. The particulars had been recited, and published, over and over again by the President and some officials in the hope of scaring the members of Congress or their constituents. They spoke of not enough money being available after interest on the debt was paid. There might not be enough for popular programs such as Social Security or Medicare or veterans’ benefits—of which just about everybody was either a beneficiary, or knew or was related to someone who was. As the possibility of default grew near, the President wasn’t above warning that he couldn’t guarantee that Social Security checks would go out. There were predictions of rising interest rates and Treasury Secretary Timothy Geithner spoke of a second recession.
These warnings did result in a shift of opinion in mid-July in favor of lifting the debt ceiling. Standing against them were the countless number of people who didn’t believe anything the federal government said, and their know-nothingism was reinforced by opportunistic political figures. The self-appointed head of the congressional Tea Party and presidential candidate Michele Bachmann made denial a major part of her campaign: “Don’t let them scare you by telling you that the country’s going to fall apart.”
Thus the year 2011 had come to be dominated by the Politics of Calamity. There was a pattern. In the spring, with the threat of a government shutdown for the rest of the fiscal year, the Republicans, with the Tea Party representatives in the lead, had set the terms of the debate over a continuing resolution. They backed the President—who in his eagerness to establish his credentials as fiscally responsible hadn’t engaged them in a fight—into a corner. Obama and House Speaker John Boehner engaged in frantic negotiations at the White House. What these two men had agreed on wasn’t known for days, as aides scrambled to figure out what they had decided. Finally a continuing resolution was passed.
Months later, with the threat of a government default if the debt ceiling was not raised by August 2, the Republicans once again seized the agenda and demanded that there be a ten-year budget with major spending cuts. The President had yet to put forward a serious long-term budget of his own. The regular legislative process was then superseded by policy being made, in a room out of sight of the press and the public, by negotiators facing the threat of the United States government going into default. It takes the threat of something awful happening to drive the politicians—fearful of the effect on their careers—to bring deliberations to a close.
The hitch was that Republicans chose to use the statutory increase in the debt limit—by about $2.2 trillion on top of a $14.2 trillion debt—as a lever to exact more cuts in spending, from funds that had already been authorized or even spent. In a speech on May 9 before the Economic Club in New York, John Boehner advanced the novel theory that every dollar by which the debt ceiling was increased had to be offset by cutting a dollar in spending.
The Tea Party’s strength was larger than its numbers—about eighty in the House and as few as four in the Senate—because the entire House Republican freshman class and some more senior members were sympathetic to its views, and because the ghost of Bob Bennett now haunts many Republicans. Bennett (still alive), a solid conservative three-term senator from Utah, was, astonishingly, rejected for reelection last year by the Utah Republican caucus for having been insufficiently pure in his conservatism. (His vote in 2006 against a constitutional amendment to ban flag-burning was seen as heresy.)
If Bob Bennett could be dumped, no one was safe. Boehner himself was facing a possible primary challenge. Some Tea Party members dug in on the debt ceiling because they, too, feared attacks or challenges, principally from people who would accuse them of not forcing sufficient cuts or of failing to keep their pledge not to raise the debt limit.
The Republicans embraced a philosophy of no new taxes or revenues that had little relation to reality—except for the fact that their long-standing goal has been to shrink the size of the federal government. This began with the major tax cut passed early in George W. Bush’s presidency, which purposely put serious pressure on domestic programs and which some saw at the time as folly—folly with grim implications for the future.* That tax cut, renewed in December with Obama’s assent (he didn’t have the votes to stop it, and he got some stimulus money in exchange), began the Republicans’ march from the $137 billion surplus Bill Clinton had bequeathed the country to the deficit of $1.2 trillion when Bush left office. It accounts for more than one quarter of the current deficit.
Obama’s proposal to end the Bush tax cuts for those making over $250,000 was of course not expected to go anywhere, especially in the House. That left tax expenditures—or “loopholes” permitting tax deductions. But when, on June 23, the Democrats offered their list of revenue-raising possibilities in the bipartisan talks presided over by Vice President Joe Biden, House Majority Leader Eric Cantor dramatically walked out. The bipartisan group had already agreed to over $1 trillion in spending cuts, but this was contingent on increasing revenues as well. Cantor’s abrupt exit was generally interpreted as an act intended to keep his fingerprints off any revenue increases. He would leave that to Boehner, whose position Cantor is understood to covet.
Moreover, Boehner was known to have met privately with the President just before the walk-out; if there were to be anything that could remotely be called a tax increase, a revenue increase, what have you—let Boehner do it. Meanwhile, Cantor would keep his much closer ties with the Tea Party intact. If Boehner stumbled, he’d be ready to take his place.
The politics of the debt ceiling were particularly tricky: Boehner—and the President—knew that perhaps all of the Tea Party members were, “on principle,” unlikely both to vote to raise the debt ceiling and to vote for any measure that had even a suggestion of an increase in revenues. The Speaker would therefore need a large number of Democrats to get a vote through the House. Boehner hadn’t realized at first that he’d have so many Republican defectors—fifty-four—who voted against the continuing resolution he’d negotiated with Obama in early April, on the ground that it didn’t cut spending enough, though Boehner had, in effect, taken Obama to the cleaners. This established in both Democrats’ and Republicans’ minds the thought that Obama was a weak negotiator—a “pushover.” He was more widely seen among Democrats and other close observers as having a strategy of starting near where he thinks the Republicans are—at the fifty-yard line—and then moving closer to their position.