http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-republicans-have-won-but-can-they-stop-there/2011/07/25/gIQAFHVIYI_blog.html\Poor Barry...quit now.
We don't yet know what the final deal to raise the debt ceiling will be. But now that Harry Reid is developing a proposal with $2.7 trillion in cuts and nothing in revenues, it's a safe bet that it won't include any tax increases. Which means that whether Republicans realize it or not, they've won. The question now is whether they can stop.
Originally, the Democratic position was that we should simply raise the debt ceiling. Republicans said "no." There would have to be a deal that reduced the deficit by at least $2.4 trillion -- which is the size of the debt ceiling increase needed to get us into 2013.
Then the Democratic position was that we should raise the debt ceiling through a deal that reduced the deficit by about $2.4 trillion, with $2 trillion of that coming from spending cuts and $400 billion coming from taxes. Republicans said "no." There would have to be a deal that disavowed taxes.
Then the Democratic position was that we should raise the debt ceiling through a deal brokered by Barack Obama that reduced the deficit by $4 trillion, with about $3 trillion of that coming from spending cuts and about $1 trillion coming from tax increases. Republicans said "no." There would have to be a deal that disavowed taxes, and it would have to be cut between the congressional leadership of the two parties. Obama couldn't have this as a win.
That brings us to where we are now. John Boehner is proposing a deal with about $1 trillion in spending cuts and a short-term increase in the debt ceiling and a bipartisan congressional committee charged with developing a large deficit reduction package that would be immune to amendments and filibusters and would be the price of the next increase in the debt ceiling. Harry Reid is developing a package of spending cuts that Democrats could accept and would reach Boehner's $2.4 trillion mark.
If you take the Republicans' goals as avoiding a deal in which they have to vote for tax increases and denying Obama a political victory, it looks like they have succeeded. That success has come with costs -- they've done themselves political damage, are risking a crisis that could do the economy tremendous harm, and have left the Bush tax cuts unresolved, which means they might end up watching taxes rise much higher than if they'd taken Obama's offer -- but it's still been a success.
The question is, what happens if they don't stop pushing?
Late last week, pollster Mark Blumenthal summarized the "consistent findings" from the polling on the debt ceiling. First, he said, "Americans prefer a deal featuring a mix of tax hikes and spending cuts to a deal featuring just spending cuts." Second, "most of the surveys find strong sentiment in favor of compromise, especially among Democrats and independents." Finally, "the surveys all show Americans expressing significantly more confidence and trust in President Obama's handling of the issue than of either the Republican or Democratic leadership in Congress."
Republicans have leverage because the debt ceiling needs to be raised and it can't be raised without their support. But they don't have popular support behind their position or their leadership. They can push this up to the brink and win, because Democrats really, really, really don't want a debt-ceiling crisis that could set back the economy. But if they push it over the brink, they're likely to lose, as the public really, really doesn't want Congress to create an economic crisis that will set back the economy, and they're primed to blame the GOP if one does in fact come to pass.
Five in the morning
1) The House and Senate are preparing rival debt deals, reports Lori Montgomery: "House and Senate leaders were preparing separate backup plans Sunday to raise the federal debt limit after another day of intense negotiations failed to break a partisan impasse that threatens to throw the government into default next week...Reid said he would turn instead to an entirely new approach 'that meets Republicans’ two major criteria,' which are spending cuts designed to meet or exceed the amount of the debt-limit increase and no new taxes. Under Boehner’s rules, Reid said, the $2.7 trillion debt-reduction package he plans to unveil Monday should buy the Treasury sufficient borrowing authority to pay the nation’s bills through the end of next year."
And the House plan: "[Boehner's] strategy calls for Congress to act first on a short-term extension of the debt limit that would give the Treasury about $900 billion in additional borrowing authority -- enough to pay the nation’s bills only through early next year. That would be paired with about $1.2 trillion in cuts to government agencies, including the Pentagon, over the next decade. Under the plan, Congress would also create a 12-member committee staffed with lawmakers from both the House and Senate and tasked with identifying at least $1.6 trillion in additional savings by a deadline set for later this year. Those savings would be paired with a second debt-limit increase, meeting Boehner’s dollar-for-dollar condition."
2) Asian markets are down -- but not dramatically -- in the absence of a debt deal, reports Cezary Podkul: "Asian financial markets slid in early trading Monday as investors watched closely to see whether the impasse in U.S. debt negotiations will prompt a dramatic sell-off on global exchanges. Japan’s Nikkei 225 index, which includes major Japanese companies, was down about 0.63 percent in early trading Monday. The Standard & Poor’s 500 /ASX 200 index, a measure of Australia’s blue-chip stocks, was down about 0.86 percent. South Korea’s benchmark KOSPI index was down about 0.7 percent. Hong Kong’s Hang Seng index slid about 0.63 percent in early trading, while Shanghai’s Stock Exchange Composite index was down about 0.73 percent."
3) Obama still wants a big deal, reports Zachary Goldfarb: "Obama’s political advisers have long believed that securing such an agreement would provide an enormous boost to his 2012 campaign, according to people familiar with White House thinking. In particular, they want to preserve and improve the president’s standing among political independents, who abandoned Democrats in the 2010 midterm elections and who say reining in the nation’s debt is a high priority. In many ways, it has been a remarkable transformation for a Democratic president who had made the centerpiece of his first year in office a massive spending bill to boost the economy and the expansion of health insurance. The risk for Obama now is that his pursuit of a far-reaching package could deeply disappoint his Democratic allies who believe he may be giving away too much."
4) Wall Street is getting ready for a downgrade in US debt, reports Zachary Goldfarb: "Wall Street’s top concern is no longer that the United States will fail to increase the federal limit on borrowing by Aug. 2 but that political leaders will fall short in their negotiations over an ambitious plan for taming the nation’s debt, according to financial analysts. If President Obama and Congress are unable to reach such an agreement for reducing the debt, credit-rating firms -- in particular, Standard & Poor’s -- could cut the top-notch U.S. debt rating, sending a shock across U.S. financial markets. S&P has said that raising the $14.3 trillion debt ceiling by the deadline, and thus avoiding a potential default, is not enough to avoid a downgrade...Wall Street bankers have begun discussing plans for responding to a downgrade of U.S. credit, according to people familiar with the talks."
5) Passing a bill in time is logistically difficult, report Rosalind Helderman, David Fahrenthold and Lori Montgomery: "After a difficult weekend of negotiations between the White House and top congressional leaders, legislators return Monday to Washington with no clear way forward to raise the $14.3 trillion debt limit before the Aug. 2 deadline...In the House, Republicans who took charge last year promising a new era of transparency have said they will not force votes on legislation that has been public for less than three days. Unless they reverse themselves on this new rule, the earliest the House could pass a bill would be Wednesday. A bill approved by the House that day would then take at least four to six days to make its way through the Senate. That timeline would conceivably allow a bill to reach Obama by the deadline -- but only if there were agreement in both chambers, and so far there is none."
Radio session interlude: Toro y Moi play "Still Sound" live on KEXP.
Got tips, additions, or comments? E-mail me.
Still to come: Wall Street is preparing for a downgrade in US debt; key elements of health care reform were on the chopping block in the debt talks; farm subsidies are fading without legislators doing anything; the House again considered a proposal targeting fluorescent light bulbs; and a dog tries, fails to move his swimming pool indoors.
Economy
John Boehner proposed a "revenue ceiling" during debt talks, reports John McKinnon: "Last week’s grand-bargain discussions between House Speaker John Boehner and President Barack Obama included a highly unusual feature, according to two people familiar with the situation: a ceiling on future federal revenues, in order to limit the size of any future tax increase...The revenue ceiling being advanced by the speaker’s side would have capped future federal revenues at $36.2 trillion over the next decade, according to one person familiar with the discussions. That’s about $800 billion more than the amount that’s expected to be produced by current tax policies, including the Bush-era rates for individuals. But it’s far less than the amount that would be produced by returning as scheduled to pre-Bush rates after 2012."
Tea Partiers in the House want to set Obama's payment priorities if the debt ceiling is reached, reports Alexander Bolton: "Tea Party conservatives hope to make a push on the House floor to force President Obama to avoid a national default if Congress fails to raise the debt limit. Members of the Senate Tea Party Caucus have met with House freshmen to discuss a plan to pressure House Speaker John Boehner (R-Ohio) to bring the Full Faith and Credit Act to the floor. The legislation would direct Obama to prioritize federal payments to the nation’s creditors, Social Security recipients and soldiers serving in Afghanistan and Iraq. The bill has been revised since it was introduced earlier this year. The previous version simply required the Treasury Department to pay the principal and interest on the debt held by the public over other obligations incurred by the federal government."
