I caught a good deal of the Obama press conference, and it was a familiar posture. The President urged the need for a balanced debt limit deal that included spending cuts, a few revenue increases, and entitlement cuts. He definitely put the latter on the table, while trying to stress that beneficiaries wouldn’t be affected. Of course, I don’t think Republicans will agree next year when they accuse Obama and the Democrats of cutting benefits for seniors. The deal that he laid out would be entitlement cuts for revenue increases, as has been reported previously.
Speaking at a news conference, Obama targeted Republicans in Congress to be receptive to “tackl[ing] spending in the tax code,” such as tax credits and loopholes for big businesses. Republican leaders have balked at such a proposal, saying they won’t pass a plan that raises revenue.
Before the government asks for cuts to entitlement programs or education, Obama said, “I think it’s only fair to ask an oil company or a corporate jet owner that’s doing so well to give up that tax break … I don’t think that’s real radical.” […]
“I think we can actually bridge our differences. I think there’s a conceptual framework,” Obama said, cautioning that “we need to look at the whole budget,” not just cuts to discretionary spending. He said that defense spending should be on the table for cuts as well.
Obama also said that Democrats would have to accept “painful spending cuts” to programs they favor, underscoring his point that both sides will need to compromise to reach a deal.
It’s important that Obama did say that this must be accomplished “Not by shifting costs on to seniors, as some have proposed, but rather by actually reducing those costs.” But changing to chained CPI, said to be on the table, would reduce benefits to seniors in Social Security. And even if the Medicare changes don’t cost-shift, Republicans will act like they do, as they did to great effect in 2010.
From his press conference today, it would appear that the president’s negotiating strategy really is to give Republicans huge cuts in spending (and “make his base give him a hard time”) and then shame them into “meeting him halfway” by agreeing to mildly raise taxes on some luxury items like corporate jet travel. (Luckily, he reassured the nervous CEOs by saying “you’ll still be able to ride on your corporate jet, you’ll just have to pay a little more” so hopefully they won’t have a fit.)That’s what constitutes shared sacrifice and fiscal responsibility. Good to know.
Now, I have no idea if the Republicans will “blink” and pretend that despite their deeply principled opposition to any kind of tax increase (because it will cost jobs, dontcha know) and eventually agree to this measly demand. But if they do, be sure to look closely because I don’t think it will be a blink at all — it will be a wink. Somehow, I just have a feeling that at the end of the day John Boehner will be able to get just enough Republicans on board with this “deal” to raise the debt ceiling. (Or maybe not, in which case the president will have to find some other face-saving item to call a win.)
What’s important here is that the tax issues Republicans would have to swallow are trivial. We’re talking about a 5:1 ratio of spending to taxes or worse. Heck, because deficit reduction should not be a priority now, even a 1:1 ratio, seen as some kind of big liberal tentpole, is disreputable. It’s actually a net tax cut from the current baseline; $2 trillion in revenue increases versus $4 trillion in increases if the Bush tax cuts simply expire. What Republicans will have to “accept” is petty compared to what they would get.
Worse than all this, because we don’t know the details yet, is that the President stated a clear belief in the confidence fairy, the idea that if businesses are confident in the fiscal matters of the United States, they will invest in the country and create jobs. This is a completely ahistorical statement that’s impervious to logic. But there we are. Obama said that deficit reduction is part of an overall strategy of job growth. He mentioned a couple job-creating strategies as well, but mainly that was just extending the current payroll tax cut (not a net stimulus if it extends current law) and some mumbling about infrastructure. The infrastructure mumbling was actually one of the better moments, but if that’s offset by deficit reduction, it doesn’t really amount to much.
I’ll just bring Marshall McLuhan out from behind the wall – in this case in the form of 235 economists:
We, the undersigned economists, urge Congress to raise the federal debt limit immediately and without attaching drastic and potentially dangerous reductions in federal spending. Not doing so promptly could have a substantial negative impact on economic growth at a time when the economy looks a bit shaky. In a worst case, it could push the United States back into recession.
The U.S. economy looks fragile at present. Economic growth has been too weak to generate sufficient new job creation. Reaching the limit on total outstanding debt could force a dramatic and sudden cut in federal spending that would destroy jobs and threaten the recovery. To remove spending from the economy at such a pivotal moment would be irresponsible.
Failure to increase the debt limit sufficiently to accommodate existing U.S. laws and obligations also could undermine trust in the full faith and credit of the United States government, with potentially grave long-term consequences. This loss of trust could translate into higher interest rates not only for the federal government, but also for U.S. businesses and consumers, causing all to pay higher prices for credit. Economic growth and jobs would suffer as a result.
The important part of this is up top, where the economists say, almost nonchalantly, that reductions in federal spending would be “drastic and potentially dangerous.” I guess the political class has to learn this lesson again. Of course, it won’t be drastic or dangerous for them; they might lose their job in office, but I’m sure they’ll rebound on Wall Street or K Street without too much trouble. The rest of the country, not so much.