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Beyond The Rhetoric, Debt Limit Deal May Be Doable

Filed by KOSU News in US News.
July 6, 2011

At the White House on Thursday, President Obama will sit down with the bipartisan leadership of Congress to discuss a deal to raise the debt ceiling and avoid a default on government-held debt.

If you listen to Republicans accuse the president of holding out for higher taxes, or Democrats accuse Republicans of slowing the recovery in order to win the next election, a deal seems out of reach. But on Wednesday, the president’s top political adviser, David Plouffe, said all the white-hot rhetoric is misleading.

“What we’re focused on is less sort of the external theatrics than the progress that’s getting made privately,” he said.

A Short-Term Deal?

Indeed, on Sunday night, Republican House Speaker John Boehner went to the White House — unannounced — to talk with the president.

The Republicans still insist that any deficit deal be completely free of tax increases, while the White House continues to insist on what it calls a balanced approach, with cuts in defense, domestic and entitlement spending, and some increases in revenues — which would involve at least some tax hikes.

“Our sense has been to make the numbers work, you’re going to have to have a revenue-positive situation,” Plouffe said.

But he’s talking about a long-term plan to cut the deficit over 10 or 20 years that the president hopes to negotiate with the Republicans.

In the short term, it’s possible the parties will reach a smaller deal — raising the debt ceiling and reducing the deficit by about $2 trillion.

For the Democrats, there would have to be some tax hikes in the form of closing loopholes; for oil and gas companies, for instance, or corporate jet owners.

And for Republicans — well, for their bottom line, we went to the GOP’s ultimate enforcer of tax orthodoxy, Grover Norquist, the nation’s most prominent anti-tax activist.

“As long as there’s no net tax increase, it’s not a violation of the pledge,” he says.

The Anti-Tax Pledge

The pledge, of course, is Norquist’s brainchild, an oath signed by the vast majority of Republican officeholders not to raise taxes — ever. But Norquist says there would there be no net tax increase if the debt ceiling deal also included tax cuts. And President Obama wants tax cuts in order to stimulate the economy. In particular, he wants to extend by one more year the Social Security payroll tax cut he negotiated with the Republicans in December.

“If the president is talking about faster depreciation schedules for corporate jets — if he wanted to eliminate those and cut the Social Security tax so that it was revenue neutral, that would not violate the pledge,” Norquist says. “It’s actually one of the easiest things to fix in the discussion going on now about the debt ceiling increase.”

Of course, without a net revenue increase, there would be less deficit reduction in the short term. But closing tax loopholes is something many Republicans are willing to consider, including Wyoming Sen. John Barrasso.

“I did vote to eliminate the ethanol subsidies, which I thought … was a waste of government money. And I also believe that this is not the time to raise taxes on anyone when we’re in an economic situation like this.”

So why raise taxes on ethanol producers?

“I did vote in favor of the ethanol ending of those subsidies,” he says. “I will also say that this is not a time to raise taxes.”

So there you have it. The trick in any deal is to allow Democrats to say they raised taxes on somebody, but for Republicans to say they didn’t raise tax revenues. It’s the kind of double talk that deals are made of under divided government.

That is, if there is a deal at all.

Who Will Get The Blame?

There is the possibility that the two sides won’t be able to come to an agreement, and then someone will get blamed if the government defaults and the markets react badly.

A recent Pew poll showed 42 percent would hold Republicans responsible; 33 percent said the president. Former Bush Treasury official Tony Fratto says that’s one reason Boehner has such a tough job.

“Because Republicans are driving the process right now, I don’t believe there’ll be much question as to who would take the brunt of the blame should that happen,” he says. “It would most likely be Republicans.”

Fratto says that’s because the deficit and spending cuts are Republican issues. But they could overplay their hand.

As for the president, Plouffe suggests, he has something to prove to the American people.

“And if their leaders can come together and bridge some of these tough divides,” he says,” it’s going to have some short-term and maybe long-term impact in people’s confidence.” In particular, people’s confidence in President Obama. [Copyright 2011 National Public Radio]

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