Is Either Side Winning the Debt Ceiling Debate?
In late December of 2010, President Obama secured a deal with the lame duck Congress, and in particular with the 41 GOP senators who could filibuster any Democratic proposal, to extend all of the Bush tax cuts for two more years and provide some additional stimulus in the form of a 2% payroll tax cut for a year and some additional spending on unemployment insurance. The deal quickly lifted Obama’s approval ratings in the polls. He appeared to be a strong leader who got a deal done and achieved the necessary compromises from both sides.
In reality, the deal was easy -- neither side gave up anything other than its rhetoric. The GOP got the Bush tax cuts extended and some additional tax cuts, while the Democrats got some additional stimulus. This was business as usual in Washington -- Democrats got more spending, Republicans got more tax cuts. In total, the deal increased the projected government deficits by $700 billion for two years, almost as much as the 2009 stimulus package.
Of course, the extension of the Bush tax cuts was “scored” as adding to the deficit by over $400 billion, though rates did not change. This is similar to when federal spending on a program that is scheduled to increase by 7% is instead “cut” back to only increase by 5%. That is scored as a spending “cut” and a reduction in the deficit since spending did not go up by as much as it was supposed to.
The current debate is over a “grand bargain” to cut future annual deficits by up to $4 trillion over the next ten years to accompany an increase in the debt ceiling to carry the government through early 2013. An alternative, in the absence of a “grand bargain,” is some shorter term smaller increase in the debt ceiling accompanied by a smaller cut in the deficit. The debate between the parties has been ugly, full of recriminations and political posturing. Both sides are dug in, because unlike in the lame duck compromise, they are being asked to give up something, which is a lot harder than getting your goodies while the other side gets theirs, too.
In addition, compromise on a “grand bargain” requires each side to give up some of their weapons for the 2012 election. Democrats lose some of the force of their “Mediscare” campaign, if they agree to sizable cuts in Medicare or adjustments to Social Security. Republicans risk the wrath of their Tea Party supporters, if they appear to agree to tax increases during a weak economic period, instead of more in spending cuts. Every poll suggests that the president, the Congress, and both Democrats and Republicans have suffered from the debate, and the lack of resolution to this point.
If Obama benefited from appearing to rise above partisanship in the lame duck debate, that has failed him now. His angry, highly charged remarks on Friday, castigating Republicans and threatening the risk of default or a cutoff of some of the 70 million federal checks mailed out each month, are not the way to remake oneself as the adult in the room, the non-partisan grownup. Sunday's Rasmussen Presidential Tracking Poll shows the highest strongly net negative compared to net positive approval score for the president (44% versus 23%) than at any point since last November. The president’s approval ratings have sunk in every other poll as well, particularly in recent days.
It is unlikely that if a deal is reached, as it almost surely will be in the next day or days, the president will be able to bask in his statesmanship and see his approval ratings rebound.
The president has tried his best to spin a largely compliant media with these themes:
1. He wants a balance between new “revenues” from those who can afford to pay them, and spending cuts (draconian of course), which will wind up hurting the poor , seniors, and the middle class.
2. The GOP, on the other hand, is cold and selfish and risks the full faith and credit of the United States in pursuit of their radical agenda to harshly cut spending and protect tax breaks for the rich. They are accused of wanting to protect all the tax breaks for the corporate moguls and their jets, the oil and gas companies, and the Wall Street millionaires and billionaires. Every Obama pronouncement contains these “villainous” groups. Obama then adds that he himself is rich and can afford to pay more in taxes, showing how big a person he is. He could of course just write a check to the Treasury as others do, above and beyond what the law requires, if he feels so generous.
3. Obama wants the deficit issue solved in a big way, so he can get on to the job of “winning the future for America.” That can be done with more spending (sorry, I mean investments) on infrastructure, aid for college students, and energy independence (“creating green jobs” is no longer used, since it presumably does not test well in polls).
4. Obama could solve the problem himself if he had the power. Too bad we have a legislature and a Supreme Court to keep him from accomplishing all he wants to for America.
Both left and right have pointed to polls that appear to support their side of the argument. The president constantly refers to the fact that 80% of the population support his “balanced” approach. But the Gallup poll he refers to in making this case shows nothing of the sort. In fact, nearly five times as many of that poll’s respondents want a deficit reduction package to be all or mostly spending cuts, as opposed to those who want it to be all or mostly tax increases. The Rasmussen survey this week also indicates that there is fear that the compromise package will have too much in tax increases and too little in spending cuts.
On Friday, the president talked of the unfairness of a ratio of 3 to 1 or 4 to 1 for spending cuts to revenue increases. But the package the president was touting on Friday included just $1.65 trillion in spending cuts for $1.2 trillion in revenue increases, a ratio of barely 4 to 3.
The president and his agents (i.e., Tim Geithner on ABC) have condemned those House Republicans who have fought raising the debt ceiling. Many polls have shown that this is a widely held view, though many of the network and newspaper organizations which have conduced the polls have avoided mentioning that finding.
In fact, the president could get all of the borrowing room he needs to finance the projected deficits for the next 18 months covered without having any increase in the debt ceiling. This would involve taking internal or interagency debt (money owed by the government to itself, such as IOUs to the Social Security Trust Fund), now included in the total debt covered by the debt ceiling of just over $14 trillion, and selling these IOUs to the bond market over time. The Trust Fund is not a real fund, but the IOUs count against the debt ceiling.
While the media has tried to paint a picture of the “adult” Obama battling tax pledge zealots, the story is more complex. The president believes in more spending (investments or redistribution through entitlements, take your pick), and higher taxes to pay for it. He does not trust the results of what happens in the private market. Higher spending requires higher taxes (though he seemed comfortable with persistent high annual deficits until the GOP took the House back). Federal spending, now a quarter of GDP, is at a post World War II high, before the boomer entitlement binge and ObamaCare push it much higher. The GOP and Paul Ryan have laid out specific ways to bring both spending and taxes as a percentage of GDP back towards historical norms. That is the crux of the debate -- ride the entitlement wave higher, or put on the breaks.