5 Ways Obama Can Break the Debt Ceiling Impasse
Policy + Politics

5 Ways Obama Can Break the Debt Ceiling Impasse

AP Photo/Carolyn Kaster

Enough already: After months of political dithering, we are moving inexorably towards the first default on U.S. debt in history. Despite all the work of  debt commissions, congressional Gangs of Six, a vice presidential taskforce, and secret talks,   we're no  closer to a major deficit reduction plan, which is essential before Congress can raise the $14.3 trillion debt ceiling and avoid financial havoc.

In seeking an agreement, the Obama administration has been operating under the old rules of political engagement on Capitol Hill that for decades have produced major bipartisan budget deals dating back to the Reagan administration.  Under that approach, the White House and the opposing party in Congress lay down their demands, the two sides roll up their sleeves and engage in hard bargaining, the leaders periodically consult with their members, and the two sides ultimately reach agreement and then rush to the television cameras to take credit and offer their spin.

But that approach isn’t working this time, simply because there is not real bargaining and give and take – but instead political posturing and declaration of hard line, unbending positions. Instead of echoing President Lyndon B. Johnson’s familiar phrase, “Let us reason together,” Obama should consider taking bolder, more dramatic strokes.

President Obama gave it his all on Monday when he tried to cajole or shame Republican leaders into going along with a $4 trillion “grand bargain” by slashing government spending, reducing Social Security and Medicare benefits, cutting  more deeply into defense  and – yes  – raising taxes, but  to no avail. “We keep on talking about this stuff, and we have these high-minded pronouncements about how we’ve got to get control of the deficit and how we owe it to our children and our grand children,” Obama said at a news conference. “Well, let’s step up. Let’s do it.”

But after bucking under pressure from his conservative caucus over the weekend, House Speaker John Boehner, R-Ohio, now says that any plan that raises taxes is out of the question – it simply can’t pass the House -- and that Obama and the Democrats should be grateful Republican members are even willing to consider raising the $14.3 trillion debt ceiling.  In describing the impasse, the Speaker said, “This is a Rubik’s cube that we haven’t worked out yet.” But with Republicans inflexible on raising taxes and many Democrats unwilling to support cuts in domestic programs without some tax increases, the Rubik’s cube is more like a Gordian Knox that can only be broken with deft, bold strokes.

Here are five steps the president can take to break the impasse, avert a default on the debt, and demonstrate who’s really in charge:

  1. Take the spending cuts and run. The Republicans  absolutely refuse to go along with anything other than $2 trillion or so in spending cuts over the coming decade – largely reductions in government services, farm subsidies and health care costs already identified  by a small bipartisan group of House and Senate members chaired by  Vice President Joseph Biden.  Sure, that’s not the $4 trillion “grand bargain” of spending cuts, Social Security and Medicare reforms and tax increase the president and Boehner once discussed in secret meetings, but it’s still a healthy chunk of change that would help slow the rate of growth of the deficit and debt.
  2.  Drive up tax revenues on your own. While agreeing to the spending cuts, the president should simultaneously announce his intention to block a second extension of the Bush administration’s tax cuts, which are set to expire in 2013. If the Bush-era tax cuts were eliminated and tax rates reverted to their 2000 levels, it would generate enough revenue to trim the deficit by $3.7 trillion over the next decade, according to government projections. That’s nearly as much deficit reduction as the presidential Bowles-Simpson fiscal commission plan would achieve – and the amount that Obama and Boehner briefly discussed behind closed doors.

    By doing this, Obama will be  placating congressional Democrats who insist that wealthier Americans pay more in taxes as part of the overall  deficit-reduction equation – and without forcing Democrats and Republicans alike to cast a vote for tax increases. Democrats will also be relieved there will be no “grand bargain” of cuts in Social Security and Medicare benefits and other cuts in the social safety net.  For sure, Republicans will attack Obama in the 2012 presidential campaign for vowing to raise taxes in a fragile economy. But, let’s face it, if he is afraid of losing to Mitt Romney or Michele Bachmann, he probably should start making plans for his presidential library in Chicago’s Hyde Park neighborhood.

  3. Turn up the heat on the Republicans. In acquiescing to  the smaller deficit reduction plan, Obana instantly shifts responsibility to Boehner, House Majority Leader Eric Cantor and Senate Minority Leader Mitch McConnell to deliver the votes necessary to pass the compromise and raise the debt ceiling before the August 2 deadline. Failure to deliver sufficient votes in the two chambers – triggering an almost certain default on U.S. debt and financial chaos -- would be a huge political embarrassment for the GOP and would badly undercut their argument that Republicans should be in control of the White House and Congress.
  4. Ignore the Debt Ceiling law in the event of default. As my Fiscal Times colleague Bruce Bartlett has repeatedly argued, the president could invoke the 14th Amendment to the Constitution to circumvent the government’s debt ceiling law to protect the integrity of U.S. debt.  While such a move would be extreme and unprecedented – and certain to invite an historic legal challenge – it nonetheless would be one more important arrow in the president’s quiver heading into a final showdown with Republicans at the end of the month. Foolishly, the Treasury tossed away that leverage last week in a letter from Treasury General  Counsel George Madison to the New York Times, saying that “like every previous Secretary of the Treasury who has confronted the question, Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.” The president should repudiate that statement and keep open every conceivable option.
  5. Finally, hit the road. Once the deal is done and the Treasury’s borrowing authority has been extended, the president should take his case to the country. Boehner wowed Wall Street in April with a hard hitting speech before the Economic Club of New York demanding “trillions of dollars” in cuts and Cantor rang the bell in the New York Stock Exchange. Make similar appearances in New York, explaining how you delivered on those trillions in savings and saved the country from a potentially disastrous default – that experts say would have tanked the markets and driven up unemployment. And then take that same message to the nation’s heartland.

Read more from The Fiscal Times about the deficit negotiations
Boehner: No Large Scale Deficit Reduction Plan 
Debt Talks Unintended Consequences: Job Losses