This Game of Debt Chicken Is Getting Scary
Unless there’s a breakthrough soon, hyper-partisanship, political positioning and ideological rigidity could throw the U.S. economy over a cliff. It’s getting scary.
Or, to change the analogy, sometimes in a game of chicken the participants miscalculate and a fatal crash occurs. That only kills the drivers, however.
In the case of a failure by Congress and President Barack Obama to reach a debt limit agreement by early August, the whole country would suffer — indeed, perhaps the world, if the building Euro-crisis and a U.S. default trigger a new Great Recession.
You’d think, given the stakes, that each side might demonstrate statesmanship, bargaining hard but preparing to give for the sake of the country.
That may be happening out of public view — one can only hope.
In public, though, the sides are hardening. Obama is insisting on a $4 trillion “big deal.” He’s trying to look both leaderly and reasonable so that independent voters blame Republicans for a default disaster.
But Obama is demanding that Republicans agree to raise tax rates on the rich, which is anathema to them.
In fact, Republicans seem unwilling to contemplate revenue increases of any kind, even by closing tax loopholes. Leaders who might think about it — notably Speaker John Boehner (Ohio) —are getting repudiated for diverging from party dogma and pulled back into line.
Meanwhile, liberal Democrats — with House Minority Leader Nancy Pelosi (Calif.) in the lead — are threatening to vote against any agreement that “cuts” retiree benefits, even gradually.
Most Democrats oppose a deal that fails to include revenue hikes. Tea party Republicans say they won’t vote for any revenue increases at all, and their party leaders are toeing their line. Were a deal reached restraining future benefit growth and raising revenue, it might be torpedoed in either the House or Senate.
And, out on the hustings, at least three GOP presidential wannabes — former Minnesota Gov. Tim Pawlenty and Reps. Michele Bachmann (Minn.) and Ron Paul (Texas) — are publicly welcoming a debt default rather than tax raises. Others are on the edge of doing so.
Is there a way to avoid catastrophe?
Senate Minority Leader Mitch McConnell (R-Ky.) has proposed a Plan B, but it seems designed as much to embarrass Democrats as to solve the debt problem, forcing them to vote for debt limit increases three times before the 2012 election.
There are other ways out.
One is for Obama to shift from a $4 trillion “big deal” to a smaller package of, say, $2.4 trillion to get the country past the 2012 election, when a new Congress (and maybe a new president) would reshape the package anyhow.
That’s not ideal, of course. Between now and then, GOP candidates up and down the line will have locked themselves into a “no new taxes” stance that will make compromise even more difficult. AARP will demand that Democrats “protect” Social Security and Medicare.
Ideally, the two sides would have started work last December on the $3.9 trillion proposal of the president’s debt commission. The plan envisioned spending cuts of $2.2 trillion and revenue increases of $995 billion from 2012 to 2020 — a ratio of more than 2-to-1 spending cuts — with $785 billion of the revenues coming from tax reform. Obama could have embraced that proposal in his State of the Union and used it as the basis for his bid for a “big deal.” Instead, he ignored it and proposed a budget that would actually have enlarged the nation’s debt.
He proposed increasing spending on research, infrastructure and education — worthy investments in the country’s future — but no reductions in Medicare, Social Security or Medicaid benefits.
He is late arriving to the idea that those programs should be “on the table.” He’s saying he’s now for 2-to-1 spending cuts over tax increases, but he wants to hit Republicans squarely where they live by raising rates on couples making more than $250,000 in 2013 and offering few tax reform or spending specifics.
Obama has been saying he’d veto any short-term debt extension. Now Boehner and others are urging a renewed attempt to go for a $2.4 trillion package of the kind that was being negotiated by Vice President Joseph Biden until Republicans walked out of the talks.
The administration has put it out that the Biden group had agreed on $1.4 trillion in spending cuts and $300 billion in interest savings, leaving a $700 billion gap to be closed with revenues. Republicans dispute that Democrats actually came up with cuts that big — and they also balked at any tax increases.
And there are other options. Next week, former Comptroller General David Walker will be out with a few that he says will avoid the need for Republicans to vote for tax rate increases.
It could be done, he says, by changing the formula by which benefits are indexed for inflation — which will also increase tax revenues without hiking tax rates and by means-testing Medicare.
Walker also advocates imposing goals for future deficit reductions and triggers for automatically slicing spending and increasing revenue if the targets aren’t met.
Both Republicans and Democrats say they will vote to raise the debt limit and won’t let the country default. But how? Time is getting short and they are both roaring toward the cliff, not away from it.