Dont Believe What You Hear About the Budget Talks
Last week was the point in this year’s budget negotiations when everyone’s worst fears about what would happen seemed to be on the verge of being realized.
The combination of increasingly happy talk about the summit being led by Vice President Joseph Biden and President Barack Obama’s golf outing with Speaker John Boehner (R-Ohio) seemed to have every blogger, pundit and interest group convinced that what they least wanted either was on the verge of happening or had already been agreed to.
If you listened closely, the rumors indicated that everything — from significant tax changes to substantial Social Security cuts — not only was on the table but was coming together in a package that would soon be ready for political prime time and would fly through the legislative process.
This is a routine part of the federal budget debate and the fiscal equivalent of one of the five stages of grief.
I first noticed it during the Andrews Air Force Base budget summit in 1990, when I received a series of calls from people inside and outside the Beltway who could not possibly know what was actually happening.
They all said one side or another in the negotiations had already agreed to the particular spending cut or tax increase they were most worried about.
Although some of those calls were from people who wanted to see whether I could confirm or assuage their fears, most were genuinely convinced that what they had heard or imagined was true.
For the record, my phone started to ring just as the Andrews summit was beginning — that is, while some of the negotiators were making opening statements and others were still trying to find the bathroom. It’s also important to note that virtually none of these “my-budget-sky-is-falling” concerns turned out to be true.
This year’s negotiations have already produced the same type of premature and very likely inaccurate misgivings as typically occur whenever those involved with the federal budget get together to talk about what can, should and needs to be done.
And this year there may be more reason to think that what someone considers a budget nightmare is going to come true given the magnitude of the problem, the few relatively easy deficit reductions that are still available and the paucity of spending and revenue options that numerically and politically are possible. (Note to deficit hawk groups: The formal and ad hoc recommendations you so publicly support are not as novel as you want everyone to believe because they are really little more than what’s available.)
But as is also the case at this stage of the budget negotiations, there are still many reasons to think the fears about budget nightmares are far more imagined than real.
This year, for example, it’s not at all clear that those involved in the budget discussions actually have the authority to negotiate a deal that will be accepted by enough Representatives and Senators to enact the legislation.
The antipathy of the tea party wing of the Republican Party for Boehner and House Majority Leader Eric Cantor (R-Va.) on budget issues has been both stated and demonstrated many times this year.
It also seems to have gotten worse since April, when 59 House Republicans defied their leadership and voted against the final continuing resolution for fiscal 2011.
Given that a debt ceiling increase is even more politically toxic than the CR, it’s likely that anything Boehner might agree to while playing golf with the president or Cantor agrees to as part of the Biden-led summit won’t be acceptable to large numbers of the House GOP caucus.
The same is true on the other side of the aisle because it’s not clear that an administration-negotiated deal will be acceptable to all Democrats.
This is especially the case now because the president’s Osama bin Laden bump in the polls is over and his approval rating again is hovering between 46 percent and 49 percent.
In addition, it’s becoming increasingly obvious to many that the almost guaranteed opposition by a substantial number of Republicans to a debt ceiling increase means that no bill can pass the House without substantial Democratic support. That math will prevent the president from agreeing to the type of budget agreement the GOP says it must have.
On top of everything else, there are strong indications that, contrary to initial statements by some on Capitol Hill, Wall Street will react negatively and that what so far has been limited pressure on Members of Congress to raise the debt ceiling will be substantially different in the not-too-distant future.
In recent weeks two of the three agencies that Wall Street relies on for bond ratings — Moody’s and Fitch — both issued warnings about the implications of not increasing the government’s borrowing limit.
Last week, Federal Reserve Chairman Ben Bernanke used some of the strongest language he has ever used when talking about fiscal policy to say that the debt ceiling should not be tied to deficit reduction.
The continuing threat of a default by Greece has clearly concerned investors. If worry about a country whose gross domestic product is almost a rounding error compared to the U.S. economy can roil the markets, what will a growing hint of a similar problem by the United States do?
Finally, there is the growing recent concern about the U.S. economic recovery and the worry about the effect of short-term deficit reductions on the GDP and unemployment that is increasingly in vogue.
This is why, like the calls I received when the Andrews summit got under way, much of what’s being said about a possible budget deal needs to be heavily discounted.
The current discussions may have been going on for a while, but in many respects, it’s still way too early in the process to think that anything has been decided.
Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”