Get Ready For Another Debt Ceiling Showdown
The battle lines are being drawn for another showdown over the debt ceiling.
It was just a year ago when the nation was taken to the bring over negotiations between the President Congress — as well as between John Boehner and the Tea Party Caucus in the House — over raising the debt ceiling. There were, as you will recall, those among the House GOP who harbored the idea that we didn’t have to raise the debt ceiling at all, and they clung to that belief despite the warnings from financiers and bond rating agencies and they evidence that failing to raise the debt limit would lead to serious economic problems. More than once throughout the months of June and July, it had seemed like a deal was close, perhaps even a comprehensive deal that would do more than just put a band-aid on our fiscal problem, only to have the rug pulled away at the last minute with each side blaming the other. In the end, a deal was reached, but it was so weak that it failed to prevent a downgrade of the nation’s credit rating. Congress even went through the charade of creating a “Super-Committee” that would put together a bigger deal. That super-Committee failed in the end, of course, and now Republicans are talking about undoing the package of cuts on which the whole 2011 deal was based.
As if all that weren’t bad enough, we’re quickly approaching the time when we’ll have to do it all over again. The National Debt is continuing to grow, approaching the limit that Congress had past last August. Fortunately, it looks like we’ll be able to get past the November elections without having to worry about hitting the debt limit, but it will have to be dealt with soon afterwards. Which is why you’re already starting to see the partisan bickering begin:
Washington braced Tuesday for a replay of last summer’s tense battle over the burgeoning national debt as House Speaker John A. Boehner threatened again to block an increase in the federal debt ceiling without significant new cuts in spending.
Treasury Secretary Timothy F. Geithner and other senior Democrats quickly blasted the Ohio Republican, arguing that his ultimatum could put the nation’s credit rating — and the broader economy — at risk early next year, when the debt is expected to hit its $16.4 trillion limit.
“This commitment to meet the obligations of the nation, this commitment to protect the creditworthiness of the country, is a fundamental commitment you can never call into question or violate,” Geithner said. “We hope they do it this time without the drama and the pain and the damage they caused the country last July.”
Others noted that Boehner’s call for fresh spending cuts comes as many Republicans are trying to amend cuts adopted to satisfy GOP demands last summer, arguing that they fall too heavily on defense.
“It is pretty galling for Speaker Boehner to be laying down demands for another debt ceiling agreement when he won’t even abide by the last one,” Sen. Charles E. Schumer (D-N.Y.) said. “The last thing the country needs is a rerun of last summer’s debacle that nearly brought down our economy.”
The dust-up followed the release early Tuesday of prepared remarks that Boehner later delivered at Washington’s Mellon Auditorium, where longtime deficit hawk Peter G. Peterson was staging a summit to encourage policymakers to take action to tame the debt. Participants, including senior lawmakers from both parties, agreed that that is unlikely to happen before the Nov. 6 election.
But once the election is over, they said, the issue of the debt will quickly rise to the top of the agenda — and not just because of the debt limit. In January, policymakers also will be facing the first round of harsh, across-the-board spending cuts adopted last summer, as well as the expiration of a host of tax cuts that benefit every American household. Unless Congress agrees on an alternative deficit-reduction strategy, the policies threaten to deliver a fiscal shock that could throw the nation back into recession.
House Budget Committee Chairman Paul Ryan (R-Wis.), predicted Tuesday that lawmakers would somehow avoid a year-end “train wreck.” The senior Democrat on the panel, Rep. Chris Van Hollen (Md.), said he foresees an effort to “structure a framework” to make the big decisions on taxes and spending in the first part of 2013.
Boehner, meanwhile, made it clear that he is ready to use the debt limit as a cudgel to force Democrats to compromise, particularly on a strategy for restraining spending on Medicare and other federal health programs, which are the biggest drivers of future borrowing.
“Yes, allowing America to default would be irresponsible,” Boehner said. “But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending.
Ezra Klein isn’t surprised we’re hearing this from the Speaker of the House:
For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.
For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.
So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.
In some sense, it is worth keeping in mind that much of what you’re hearing right now is the same kind of posturing that we saw in the months leading up to the summer showdown over the debt ceiling. At the time, I was among those who thought that we were indeed looking at posturing and that we’d end up seeing a deal in the end, although I will admit that I never quite thought it would go the way that it did. We’re seeing the same thing now, but it’s likely to be amplified by the fact that we’re in an election year and that, for both sides of the argument in Congress, the issues surrounding raising the debt ceiling also happen to be the issues that they are campaigning on. For Democrats, it’s the idea of a fiscal deal that’s “fair,” in that it includes tax increases on high income earners. For Republicans, there’s the entire idea of fiscal responsibility that is epitomized in the debt ceiling itself along with the frequent appeals to a “balanced budget.” Ordinarily I’d say that the GOP has the electoral advantage on this issue only because of the long-standing public disdain for the National Debt and opposition to raising the debt ceiling, but last year’s showdown worked out so badly for them that the old rules may no longer apply.
The important thing to remember, though, is that there isn’t likely to be an serious negotiation on this issue between now and the election. Not only because it’s traditionally next-to-impossible for Congress to get anything major done in an election year, but also because neither party is going to want to surrender too much on the issues that are going to be the central part of the Presidential election. To the extent you see anything that claims to be negotiation, all it’s really going to be is a proxy for the battles taking place in the Presidential election and the battles for control of the Senate and the House. The real deal-making, if it happens, will happen after the election.
The problem with trying to get a deal done after the election, though, is two-fold. First of all, dealing with the debt ceiling will be just another thing added to the agenda of an expected lame-duck Congress that we already know will have to deal with the expiration of the Bush tax cuts, the probable need to extend yet again the so-called Medicare “Doc Fix,” and the expiration of unemployment benefits. That’s a lot of work to get done in a short period of time, and it would become even more so if we’re dealing with a Presidential transition on top of all that. Second, as we saw in 2010, it’s not always as easy for a lame duck Congress to get things done as it might first appear, and the fact that many of the members of the Senate that will be dealing with this issue will be leaving office on December 31st makes it likely that outside pressure will make it difficult for them to get their work done. Finally, there’s the possibility that this year’s election may not resolve much of anything. It could end with Barack Obama re-elected, the GOP still in control of the House, and the Senate either narrowly Republican or narrowly Democratic but still requiring 60 votes to get anything done. If that’s the case, then we’ll be right back where we started, and our representatives will either have to make that comprehensive deal or continue faking it. Don’t be too optimistic about the prospects of a deal in that case.