Veto! - 3d Illustration

Veto! - 3d Illustration by DonkeyHotey

Because we have a governing elite that doesn’t understand basic economic theory, the horrific jobs report will probably not change the mindset of the next 72 hours, which is to cement a deal to massively reduce the deficit, mostly through cutting spending. The White House has convinced themselves that this would increase confidence from the business community and lead to hiring. In fact, the President is so convinced this is a good idea that he, not the Republicans, is using the debt limit as a hostage. He threatened to veto any solution that didn’t equal at least $2 trillion-plus in deficit reduction.

In his meeting with congressional leaders today, President Obama said he would veto any deficit reduction bill that doesn’t raise the debt ceiling until after the November 2012 election, sources tell ABC News.

The president argued that this was a time to think big, sources said, and House Speaker John Boehner, R-Ohio, agreed. Though how to get there is another matter.

Obama presented three solutions to Congressional leaders yesterday, and then said he’d veto one of them. The other two were a medium-term solution of $2 trillion, along the lines of the Biden talks, and a “think big” solution of $4 trillion. There’s no reason that the increase in the debt limit has to be tied to deficit reduction – you can hardly think of an example of that from the past – but that was the clear message from the President. “Think big,” he told the assembled. And most of the Congressional leaders agreed with him; the only dissenters, apparently, were Eric Cantor and Jon Kyl, who worked on the medium-sized solution in the Biden talks.

There’s been no real difference in the solutions floated. You have major cuts in discretionary spending, including defense, which could get whacked up to $700 billion; a change in the COLA calculator by moving to chained CPI, which acts as both a benefit cut to Social Security and a regressive tax increase (more on that later); “an end to Medicare’s status as a program available in full to all Americans, regardless of income,” as Paul Krugman puts it, referring to means testing (although Medicare is actually means-tested a bit already); cuts to mandatory spending like Ag subsidies; an overhaul of the corporate tax code (or at least a promise to do so); and the elimination of tax expenditures, possibly offset with a permanent patch to the alternative minimum tax.

Any one of those possibilities would face formidable political opposition, but White House aides and some congressional staff believe the ideas might fare better as a package than any would individually. Already, however, as word of some of the options spread around Washington, Obama was coming under fire from congressional Democrats and interest groups who feared he was likely to agree to too many cuts and from Republicans insisting they could not support any new tax revenues.

The talks are being pushed forward by the prospect that the federal government will soon run out of authority to borrow money. If Congress does not raise the debt ceiling by Aug. 2, Treasury Department officials say, the government would no longer be able to pay all of its bills, raising the prospect of a default for the first time in U.S. history. Obama, other officials and many experts warn that would cause economic chaos.

This is exactly the right way to put it. Congress is being pushed into a proposal nobody very much likes by the President, who is using the debt limit to get this done. That’s really the dynamic.

And we’re now hearing that the tax changes, the “sweetener” for Democrats to sign onto the deal, may be theoretical.

Symbolic gestures and agreements in principle, but not substantive reforms, are likely to be the main tax policy result of urgent talks about raising the U.S. debt ceiling.

President Ronald Reagan and congressional Democrats took two years to get the last comprehensive tax reform to the finish line in 1986.

“We haven’t even started the car yet, let alone get it out of the garage,” said a top congressional aide on the tax reform project, which most aides and analysts expect will have to wait until late 2012 and into 2013, after presidential and congressional elections in November next year.

The Obama administration is drafting a proposal for tax code changes expected to be released later this year.

A business lobbyist said that a debt-ceiling deal might sketch out “broad parameters” for tax cuts, with details to be filled in later by tax-writing committees of Congress.

In other words, cut $3 trillion in spending now, including to cherished safety net programs, in exchange for… a promise of getting to tax reform later. And to let the committees sort that out.

I don’t know that you could try to come up with a worse deal from the liberal perspective.

Now I do agree with Nate Silver that liberal Democrats have some leverage in this fight. There are a non-trivial number of Republicans who won’t vote for any increase in the debt limit whatsoever, so Democratic votes will need to be added to the total for this to pass the House. Of course, the President will be whipping the vote hard as well. Nancy Pelosi has a private meeting with the President today, showing that Obama knows exactly how he’ll have to win this in the House. Going back to Krugman for this one:

Watching Mr. Obama and listening to his recent statements, it’s hard not to get the impression that he is now turning for advice to people who really believe that the deficit, not unemployment, is the top issue facing America right now, and who also believe that the great bulk of deficit reduction should come from spending cuts. It’s worth noting that even Republicans weren’t suggesting cuts to Social Security; this is something Mr. Obama and those he listens to apparently want for its own sake.

Which raises the big question: If a debt deal does emerge, and it overwhelmingly reflects conservative priorities and ideology, should Democrats in Congress vote for it?

Mr. Obama’s people will no doubt argue that their fellow party members should trust him, that whatever deal emerges was the best he could get. But it’s hard to see why a president who has gone out of his way to echo Republican rhetoric and endorse false conservative views deserves that kind of trust.

Barack Obama will only have one more re-election in his life. The rest of the Democrats have their futures to think about. At least you would hope.