Obama’s and Boehner’s Deficit Reduction Dream Collapses

For a moment, there was a Grand Design, a proposal hatched by a President and the House Speaker to make history by slashing the national debt by some $4 trillion across 10 years while necessarily raising revenues by a reported $1 trillion.

But when John Boehner took the package back to the House, he was mugged by reality. A toxic mix of Tea Party members who refuse any form of tax increases, even those that close loopholes, as well as members from both parties fearful of the fallout from cutting programs, said they would not go along. The result is no progress in resolving differences, with the nation ever closer to August 2, the date after which it may no longer borrow to pay its debts. Closer even than that, because time is needed to draft and pass a bill before that date.

Yet all were saying that an agreement would be reached to raise the debt limit to avert massive disruption, suggesting there might be a back pocket agreement, a temporary fix to postpone the problem, just the sort of Band-Aid President Obama has all along refused.

Treasury Secretary Timothy Geithner evidently didn’t get that memo. On CBS’s “Face the Nation” July 10th, he showed no confidence in an agreement, speaking instead of the “catastrophic damage” we can expect. He made the consequences vivid when he said that the government issues 80 million checks a month to 55 million Americans.

It was startling a week earlier when word came that Messrs. Obama and Boehner were reaching for a paragraph in history by doubling down from $2 to $4 trillion the amount they sought to cut from government spending. Everything was on the table: Medicare, Social Security, defense. The result would have had an enormous effect in bolstering confidence in the dollar as the international currency as well as the credit worthiness of the United States. Instead, Mr. Boehner appears only to be able to sell something much more timid. The $1 trillion of revenue increases was an impossibility. The rigid, absolutist elements in Congress are still stonewalling even the symbolic revenue items the President had been seeking – the mere $130 billion is hardly a quid pro quo for the $2 trillion in cuts Republicans want.

Which leaves the question of whether Obama will again cave in. He might not stand his ground because now he has gained a strategic win from the standpoint of pure politics. By giving the Republicans what columnist Paul Krugman calls “an anti-Corleone…an offer they can’t accept”, Obama can point to the huge deficit cuts he was willing to make, defusing the charges of his own deficit budgets. He can now paint the Republicans as the party of profligate spending when he hits the campaign trail for re-election in 2012.

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