The Magazine

Budget Gamesmanship

The Republicans are winning the deficit debate.

Apr 25, 2011, Vol. 16, No. 31 • By TOD LINDBERG
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There’s a truism of budgeting that goes: The player who makes the first move always loses. That’s because the player with the second move has the opportunity to focus on the drawbacks of what the first player proposed. It’s one reason why some Republicans were nervous about House GOP budget chairman Paul Ryan’s determination to release a detailed, long-range proposal to curb spending, including cost-cutting reforms to major entitlement programs. Here was an opening for Obama to counter—as he did last week, to the evident delight of his liberal base.

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In this case, however, budgetary game theory is being wrongly applied. The Ryan proposal was not, in fact, the first move. The first move was Obama’s February budget submission—the one that portrayed trillion-dollar deficits dancing toward an infinite horizon to the tune of “Don’t Worry, Be Happy.”

Obama ignored the fiscal predicament in which we find ourselves, and it was not just Republicans who called him on it (the Washington Post, for one, called him the “Punter-in-chief”). Meanwhile, on Capitol Hill, the GOP House was pressing for budget cuts as the price of a continuing resolution to fund the government through fiscal year 2011. Although the final result included a generous amount of the usual Washington budgetary flim-flam, when the dealing was done, just days after Ryan unveiled his proposal, Obama and Senate majority leader Harry Reid were busy praising themselves for the budget-cutters they had supposedly become. The joint statement between House speaker John Boehner and Reid announcing “an historic amount of cuts for the remainder of this fiscal year .  .  . $78.5 billion below the president’s 2011 budget proposal” is something you are more likely to find framed on Boehner’s office wall than on Reid’s or Obama’s.

What’s remarkable is how far the left pole of the Washington budget debate has moved to the right in the past few months. The president’s base may have been mollified when he came out swinging against Ryan, proffering a counterproposal short on spending cuts outside of defense and long on tax increases. But that was rhetoric, and its purpose was first and foremost to mollify a base grown very nervous, for good reason. The political reality Obama has to deal with is the budget-cutting demands not just of Republicans but of worried red-state Democrats contemplating their electoral chances in 2012.

The first indication of the rightward movement of the left pole came in December, with Obama’s acquiescence to the extension of all the Bush-era tax cuts for another two years. The GOP had just won big in the midterm elections, and there was no practical way to jam through Obama’s preferred policy—i.e., raising the rates for top earners. (Democrats had forfeited their chance to pass their druthers on a simple majority vote in the Senate when they failed to approve a 2011 budget resolution.)

Then again, cutting taxes, or not raising them, is fairly easy politically. It’s what Republicans do when they have sufficient power, and they always bring some centrist Democrats along with them. On the flip side, when Democrats have clout, they increase spending. When the two sides have to work together, the simplest path to “compromise” is for Democrats to let the GOP have tax cuts and Republicans to give in to Democrats on spending.

That is not the current environment, which has taken a turn for the worse for Democrats. Obama has proposed high-level negotiations aimed at a “balanced” grand bargain including tax increases and spending restraint. In his budget speech, he praised previous such deals, including the 1990 agreement between George H.W. Bush and the Democratic Congress. Republicans mainly remember that as the beginning of the end of Bush 41. Obama would have to be delusional to think he can get an agreement to increase taxes out of the current House of Representatives.

So the real purpose is other. Clearly, Obama envisions substantially higher overall taxation as the path to fiscal responsibility. That’s what he means by “balanced.” On this, we should take him at his word. And he has a path to get there, if he is willing to let all the Bush tax cuts expire at the end of 2012. He doesn’t even need to win reelection—though if he loses, presumably the first action of the new GOP president would be to sign legislation reinstating the Bush tax rates.

So perhaps the real purpose of the budget talks now is for them to fail, thereby allowing Obama to avoid cutting spending, or as he likes to say, to protect his investments in “winning the future.” In this scenario—which, interestingly, both the Democratic and GOP bases relish—what unfolds is a great debate over the fundamental purpose and scope of government. It’s a debate both sides think they can win.

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