Spend Spend, Elect Elect, Tax Tax
The White House debt strategy.
Jul 25, 2011, Vol. 16, No. 42 • By STEPHEN F. HAYES
At a press conference early last week, Barack Obama used the first question posed to preempt another that he was certain to receive. In the summer of 2009, Obama had explained at some length that raising taxes in an economic downturn was “the last thing you want to do” because doing so would “put business further in a hole.” And yet two years later, with economic growth grinding to a near halt and unemployment once again climbing, negotiations over raising the debt limit were breaking down largely because of the White House’s insistence on tax hikes in any deal that cut spending.
The contradiction wasn’t quite as glaring as it seemed, Obama insisted last week, because the tax increases he was talking about now—more than $1 trillion worth—wouldn’t kick in until 2013. The president left two things unsaid, one on economics and one on politics. The unspoken economic assumption behind the president’s argument is that while times are tough now, things will be humming in 2013—with growth strong enough to withstand the new taxes he wants to levy. That’s optimistic. The International Monetary Fund projects U.S. growth of 2.5 percent in 2011, 2.7 percent in 2012, and 2.7 percent in 2013—not exactly robust. And those projections came before the recent “soft patch” started looking more like a longer downturn.
The greater significance of that date is political. The tax hikes he wants would hit two months after the 2012 elections, which is to say, after Obama had faced voters for the last time and, quite possibly, just as his successor takes over.
No. Everything the White House has done in the debt limit fight it has done with an eye toward the president’s reelection. As important as whether he eventually got a “grand bargain” was how the president positioned himself throughout the process in the eyes of the electorate. And while we do not know the details of a final deal, if there is to be one, we do know one thing: Obama won this round. And Republicans helped him.
The big question is whether he won a short-term victory or one with consequences that will last through the 2012 elections. Obama’s political team is doing everything possible to ensure that it’s the latter—trying desperately to link the fight over the debt ceiling to the flagging economy. Bill Burton, former deputy press secretary at the White House, left to run Obama’s SuperPAC for the 2012 campaign. On July 9, he wrote: “If our nation defaults, economists say there could be a double-dip recession—all because of Republican obstruction.” This is the key White House objective—to somehow pin blame for the sorry state of the economy on Republicans. It may not be plausible yet, but if the markets do grow unsettled by the debt limit debate, you can be sure the media will take up this White House talking point with a vengeance.
A month ago, Republicans were growing increasingly confident about their prospects for a good year in 2012. Obama’s approval ratings were below 50, his marks for handling the economy were abysmal, his numbers on debt and deficits even worse.
And beyond the president himself, the political environment was toxic for Democrats. Perceptions of the economy were overwhelmingly negative. Views about the prospects of enduring American economic strength were pessimistic. The all-important right-track/wrong-track number was awful for the incumbent president and his party.
Even worse for the White House, Obama had exacerbated his own problems. When the May jobs report showed the pace of hiring had slowed, Obama spoke with the detachment of an economics professor, not the compassion of a concerned leader (or even the phony empathy of a slick politician). He called the report a “bump in the road.” Later, at an event designed to highlight his administration’s work on job creation, Obama laughed about the lack of “shovel-ready jobs” in the stimulus.
Congressional Republicans, despite the ceaseless attacks on their embrace of real entitlement reform, were viewed more favorably than congressional Democrats. And in front of them lay an opportunity that would allow them to follow through on the mandate they’d been given in the 2010 elections: the battle over the debt ceiling.
Virtually every poll on the issue showed overwhelming opposition to raising the debt ceiling, and Republicans were entering the debate with what should have been a decided credibility advantage over the White House. Obama had done nothing on debt in his first two and a half years in office other than expand it—with a stimulus of nearly $1 trillion, a new middle class entitlement in Obamacare, a 2012 budget that would add $7.2 trillion in new debt, and a stubborn refusal to do anything at all to reform the entitlement programs that are the main drivers of our current crisis.
The president has never been serious about reining in spending because doing so fundamentally compromises his political philosophy. So even as he offered platitudes about debt, he spoke enthusiastically of new “investments” to “win the future.” His State of the Union, previewed by his advisers as a serious speech about Washington profligacy, also included his push for another “Sputnik Moment.” More spending.
In the face of a fiscal crisis, his budget in February contained billions in new spending on high-speed rail, solar shingles, and various pet agencies. His budget director, Jack Lew, defended the new spending and tried to argue that Obama’s lack of leadership on entitlement reform was really the essence of presidential statecraft—sort of the domestic policy equivalent of “leading from behind.” In an interview on NPR, Lew said: “History shows us that when presidents put proposals out that have been shot down, it slowed the process down, it didn’t speed it up.”
Adding to Republicans’ potential advantage, the administration had boxed itself in. Top officials had been saying for months that failing to raise the debt limit would be cataclysmic, an abdication of responsibility that would lead to economic ruin. These dire predictions carried with them an obvious implication: The Obama administration would do anything to prevent such an economic meltdown.
The Republican challenge was to come up with a plan to cut spending and reform entitlements—a proposal aggressive enough that it could get enough votes from conservatives in the House but still pass in the Senate and get a signature from the president. There were discussions for weeks about presenting such a plan. Some in the Republican leadership opposed offering anything at all, pointing to the complications that arose from doing so during the fight over the continuing resolution earlier this spring. In that debate, however, the White House was choosing between cuts and a short-term government shutdown that likely works to their benefit. In this one, the White House itself had portrayed the choice as one between austerity and calamity.
The plan with the most support from Republican freshmen and other conservatives, “Cut, Cap, and Balance,” would slow spending more aggressively than the Ryan budget passed by the House earlier this year. The “balance” component, a balanced budget amendment to the Constitution, would require a two-thirds vote in both the House and Senate—not easy. In the end, there was no plan and the president didn’t have to make that choice.
Stepping into the breach last week, Senator Mitch McConnell went public with what he called a “backup plan.” Through a series of complicated legislative maneuvers, the McConnell proposal would allow the White House to raise the debt limit in three increments between now and the election while simultaneously allowing congressional Republicans to formally disapprove each raise. The proposal would require the White House to submit spending cuts greater than the amount that the debt ceiling would be raised in each of the three requests. But those cuts would be suggestions rather than requirements. Thus, it would be possible for the president, with some support from congressional Democrats, to get his debt hikes without agreeing to any actual cuts.
The political upside of the plan, according to its supporters, is that it would assign responsibility for the growing debt to Obama and his party. That’s debatable, considering it was conceived and announced by the leader of Republicans in the Senate, later blessed by the Republican speaker of the House, and would require at least some Republican votes to pass.
Beyond that, there are two main problems with the McConnell plan, however noble its intentions: (1) It came too early, and (2) it’s unclear how it will pass the House. By releasing his last-resort plan three weeks before the August 2 deadline for the debt-limit increase, McConnell ensured that whatever tougher measure might emerge from the House Republicans, it would be less appealing to the White House than the McConnell plan. On Friday, July 15, with their leverage severely diminished, House Republicans finally announced that they would try to pass “Cut, Cap, and Balance” and a balanced budget amendment.
Others have urged Republicans to “call Obama’s bluff” and pass a short-term hike in the debt ceiling. The idea is that Republicans would present a short-term extension with spending cuts equal to the debt ceiling increase and dare the president to reject it, in effect trying to restore the leverage they had before the McConnell plan. But it’s still unclear such a measure could pass the House.
And if the time comes when the president is faced with either of these—a tough choice between the new Republican austerity plan and the default that his administration has said must be avoided at all costs—he now has a third option: the bipartisan McConnell plan. Republicans in effect changed the debate this week from “austerity or else” to “austerity or there’s this back-up plan that we’ve laid out for you.”
But there’s a more worrisome prospect for Republicans. The president and Democrats may fully embrace the McConnell plan (they quickly warmed up to it in the days after it was introduced), while the House refuses to pass it. Many House Republicans simply don’t believe there will be economic consequences if the debt ceiling is not raised by August 2. So they will vote against it.
Nobody knows exactly what would happen, but there will undoubtedly be consequences—some of them real and some of them contrived by an administration eager to change the story from “Obama’s abysmal economy” to “Republicans’ unconscionable irresponsibility.” And there is no question that Republicans will be blamed for any disruptions in the market—not only by Democrats, but by the media and, almost certainly, the American people.
In that event, Republicans will have not only lost the debt-ceiling debate and failed to slow the growth of government, they will have handed Democrats a life-preserver for the 2012 elections.
At his press conference Friday, the president made that clear:
In the same press conference, Obama made clear that his reelection would mean that the growth of government we’ve seen over the past two and a half years would continue unabated. It’s important for progressives to engage in the current debate about debt, he said, so that they can eventually spend more money:
If you are not a progressive, the last few weeks in Washington have probably made you want to throw up more than just your hands.
Stephen F. Hayes is a senior writer at The Weekly Standard.
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