A Way Out for Dems on Debt Ceiling Talks

A Way Out for Dems on Debt Ceiling Talks

Printer-friendly version
a a
Type Size: Small

Today’s decision by the two Republican participants to withdraw from negotiations led by Vice President Biden  to reach a deficit-reduction package, saying they won’t go for tax increases, would seem to put President Obama and congressional Democrats on the defensive.

It doesn’t have to.

At first blush, Republicans seem to have the upper hand. The Administration says policymakers must raise the nation’s debt limit by early August to avoid a federal default. Most Republicans say they won’t provide the votes unless debt limit legislation includes sizeable spending cuts and doesn’t include tax increases.

With Obama eyeing his 2012 re-election run, the White House wants not only to avoid a potentially catastrophic default, but also to reach a deal soon so investors don’t get spooked by all the controversy. By send interest rates higher and weaken an already fragile economy, it would hurt not only Obama but Democrats who face re-election next year – and are tied to Obama whether they like it or not.

So, it seems for now like Democrats have to accede to Republican demands to keep tax hikes off the table. But is that soo bad?  Democrats should look a bit further down the road – to the end of 2012 in particular.

That’s when President Bush’s tax cuts will expire under current law. Also expiring by then are the temporary easing of the alternative minimum tax and the temporary increase in physician payments under Medicare. They all die unless Obama and Congress take affirmative action to extend them.

Guess what happens if, as everyone expects, Obama and Congress extend those policies, according to long-term budget projections that the Congressional Budget Office released yesterday? The public debt would rise from today’s 69 percent of Gross Domestic Product to more than 100 percent of GDP by 2021 and to a frightening and unsustainable 190 percent by 2035.

But  if Obama and Congress let those policies expire, the debt rises only to 84 percent of GDP by 2035. That would essentially remove the risk of an economic meltdown and give policymakers more time to slow the relentless rise in health care costs.

So, here’s an idea:

Democrats should stop stressing about Republican intransigence on tax increases. For now, they could go along with GOP demands to cut deficits only by cutting spending. Then, in 2012, Democrats could cut deficits even more simply by sitting on their hands and letting the Bush tax cuts and the other temporary policies expire.

In that sense, Democrats are in the driver’s seat – whether they know it or not.

Lawrence Haas
is former senior White House official and award-winning journalist, writes widely on foreign and domestic affairs. His articles have appeared in The New York Times, USA Today, Los Angeles Times, Baltimore Sun, Miami Herald, San Diego Union-Tribune