Republican leaders blinked this week in their standoff with President Obama over raising the nation's debt ceiling. That means we're unlikely to face a financial crisis next month, when the Treasury said it would run short of money to pay the federal government's bills. But it doesn't mean we've solved any of our fiscal problems.
Quite the contrary: The two parties are as far apart as ever, and it's going to take tough negotiating even to arrive at a short-term fix.
For months, Republican leaders in Congress tried to use the impending collision with the debt ceiling as leverage to force Obama to agree to major spending cuts. But Obama called their bluff. He agreed to cuts, but only with higher tax revenues as well — and that was a line the GOP wouldn't cross.
When it became clear that the danger of economic chaos was real — and that the business community wanted a deal, not a standoff — House Speaker John A. Boehner (R-Ohio) and Senate Republican leader Mitch McConnell (R-Ky.) backed off and said they'd settle for a short-term fix. As a fallback plan, McConnell even proposed walking away from the whole problem, allowing Obama to raise the debt ceiling virtually at will but preserving Republicans' right to complain about it.
The divisions are fundamental. Obama and the Democrats want to keep federal spending high in the short run because they believe the economy needs all the stimulus it can get. Republicans want to cut spending, now and always, because they believe it is a drag on the economy.
But spending isn't the biggest problem here. Spending is negotiable; Obama has agreed that it needs to come down to tame the federal deficit. The president even agreed to put cuts in future Medicare and Social Security benefits on the table, which drew a rebuke from former House Speaker Nancy Pelosi. Republicans said Obama's proposals for spending cuts were too small and too slow, and that his trims for Medicare and Social Security wouldn't come soon enough and weren't specific enough for them to take seriously. But still, spending is negotiable.
The biggest problem is taxes. Obama insisted that a plan to reduce the deficit had to include new revenues, which meant higher taxes from somebody — upper-income taxpayers, mostly. (The president, in a bit of naked populism, repeatedly says "millionaires and billionaires," although he's proposed higher taxes for sub-millionaires too.)
Boehner appeared to wobble briefly on the tax issue, because he likes the idea of a big tax reform bill that would eliminate loopholes. But he insisted that neither he nor his House Republicans would ever support a bargain that included a net increase in taxes. And that was the end of a "grand bargain" that might have reduced the federal deficit by as much as $4 trillion over 10 years.
The problem comes down to an asymmetry between the two sides. Obama wants a compromise for substantive reasons (he wants to begin bringing the deficit under control without killing his "investments" in energy and other programs) and political reasons (independent voters say they like a president who can mediate between the two parties).
Boehner and McConnell don't need a compromise as much. Ever since 1990, when President George H.W. Bush agreed to raise taxes in a deal with congressional Democrats, the Republican Party has
defined itself by opposition to tax increases; it's the main principle that holds Republicans together.
Boehner and other Republicans genuinely believe that low taxes spur economic growth and that higher taxes deter it. The evidence to support their faith is mixed at best; right now, federal tax revenues are at their lowest point (as a percentage of the economy) since 1950, so if low taxes were all that mattered, we'd be enjoying a boom.
But it's not just a matter of economic theory. Republican officeholders who support tax increases are virtually guaranteed a primary challenge from the right. And unlike Obama, Boehner's job as speaker doesn't depend on votes from swing voters; he needs a majority of Republican members of the House, a tougher audience.
One more asymmetry: Obama appears to relish the chance the crisis has given him to cast himself as the responsible adult in Washington's playground wars, admonishing congressional leaders to eat their peas. Boehner and McConnell would much rather turn the spotlight on unemployment and the apparent failure of Obama's stimulus plan, issues that helped them win seats in 2010. That's another reason they're willing to cut a deal.
So we're likely to get a short-term fix, whether it's McConnell's deliberately ugly thumb-in-your-eye solution or something a little more dignified. It would be nice if this bruising experience had a silver lining — if it could lead to a national debate and an election that clarified matters, for example.
Both sides agree that Medicare, Medicaid and Social Security need to be reined in. Both sides agree that tax reform is the best way to increase tax revenues. But they still disagree on how quickly spending should come down and on whether taxes on the wealthy should go up.
And there's no guarantee that the American electorate will offer a crisp, clear verdict. Most voters say they want low taxes and a smaller deficit, spending restraint but no cuts in Medicare or Social Security. Voters say they like divided government as a check on both parties.
Will this year's experience of fiscal gridlock and a near-miss on market chaos cure them of that ambivalence? Probably not.
If Obama wins reelection, he's likely to face Republican majorities in both the House and Senate. That could make this month's negotiations seem like a pleasant memory.Copyright © 2014, Los Angeles Times