If the debt deal passes:
1. The debt ceiling deal saves the country and the Obama administration from an immediate economic crisis.
2. The immediate provisions of the deal may not seem very large. The required spending cuts are in the range of 6 to7 percent of Congressional Budget Office’s (CBO) projected discretionary spending over the period from 2012-2021. But that is deceptive because the cuts are in addition to turning the CBO baseline into law. That baseline already assumes that discretionary spending will decline from 9.1 percent of GDP in 2011 to 6.7 percent in 2021. So, if enforced, the caps will require major reductions in federal government activity.
3. The special deficit reduction committee will either fail or be the way that President Obama completely sells out the Democratic party. There appears to be no prospect that it would report any revenue increases as part of a package. Even if there are reasons the Republicans should concede eventually, there is no reason for them to concede this year. So a report could only include more spending cuts, and that virtually would have to include cuts to Medicare and Medicaid.
The committee proposal is highly unlikely to do much about Social Security, which may greatly disappoint the deficit hawks who believe Social Security both "must be fixed" and "is easy." The targets for savings over ten years mean that very little could be gained from the kind of long-term Social Security cuts they are promoting (though they might push the Chained CPI anyway), and no revenues will be included. The latter ought to be a deal-breaker for Democrats but, with this administration, one never knows.
4. The deal is designed to create the real pressure for agreement not at the end of 2011 but during the campaign season of 2012. That is when the automatic sequesters at the beginning of 2013 will become a real prospect, and also when the issue of extending the Bush tax cuts will have to be addressed. The administration's best and brightest appear to believe that their bargaining position will be better in the fall of 2012. Perhaps they believe that President Obama will be able to make the case for a "balanced" package including letting the tax cuts for higher incomes expire as part of the campaign. But he has to convince not only voters but nervous conservative Democrats; and further convince some Republicans to deviate from the "no tax increase" position that not only is a religious faith but has served them very well so far. Obama totally failed to make the case before the 2010 election (when conservative Senate Democrats refused to vote on taxes), or during the lame duck session of 2010, or during the current argument over the debt ceiling. It is very hard to see why he will succeed in the fall of 2012.
5. The Obama administration was forced into this crisis not only by congressional Republicans but by the budget hawk community, epitomized by the Committee for a Responsible Federal Budget. The latter insisted that default this week was no worse than failing to do a big deficit reduction deal -- a position that, in economic terms, is sheer nonsense. There is no way that whatever effect on market confidence might (stress might) occur years in the future that it could be as important as failing to raise the debt ceiling immediately. The CRFB also called for enforcing budget caps by requiring 67 votes to exceed them in the Senate. Apparently they believe allowing the nation to be held hostage by 41 senators is unfair; it should be possible for 34 to hold the country at gunpoint. They must like how California has been budgeting in recent years.
The CRFB was just as eager as the Republicans to put the nation's credit at risk by holding the debt ceiling hostage. The CRFB will say it wants a "balanced" package, but looks for ways to strengthen enforcement of discretionary caps, while paying no attention to the effects of those caps in practice. Budgeting with no attention to what the budget actually does is not responsible. The CRFB objects to gridlock but wants to strengthen minorities' ability to tie up the system.
The debt ceiling mess gets blamed, in the press, on partisan intransigence. But the debt ceiling was an issue because centrists who are supposed to care about good governance did not support a clean increase. If they had, it would have been much easier for conservative Democrats to support a clean bill, and harder for the Republicans to justify taking the debt ceiling hostage, and maybe even President Obama would have had more backbone. The CRFB is misnamed: it is really the Committee for an Irresponsible Federal Budget.
Lawrence J. Haas is former Communications Director to Vice President Gore and, before that, to the White House Office of Management and Budget. He's now a public affairs consultant who writes widely about foreign and domestic affairs, including fiscal policy.
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