I guess I’ve been following this for so long that I knew where the deal on the debt limit was heading, so I may not be as dismayed as the rest of the progressive world today. This was my expectation for the past several weeks – an all-cuts deal that gives away the rhetorical game on the economy and deficits to boot. But let me step back and tell you why it falls on the low end of the intolerable for me – but only if a lot of things happen that are very unlikely.

• First of all, this is the classic “medium-term” deal of the three options originally put to Congressional leaders by the White House. It is not a grand bargain, it does not reduce the deficit in anywhere close to the numbers of the grand bargain. Deficit reduction in this deal will be anywhere from $2.1-$2.4 trillion, barely more than half of the $4 trillion target. In fact, unless S&P was bluffing, this deal should not meet their stated demands of the amount of deficit reduction needed to avoid a downgrade. Bill Gross of PIMCO thinks a deal won’t prevent the downgrade. I don’t really know and I don’t put much faith in S&P anyway.

• As far as Medicare, Medicaid and Social Security go, only one – Medicare, and only provider cuts according to the White House fact sheet – has to be touched by this deal. As you may know, the deal cuts $917 billion now, and then sets up a Catfood Commission II to reduce up to $1.5 trillion more in the future. The trigger for the Catfood Commission, the enforcing mechanism for a deal, is $1.2 trillion in automatic sequestrations to the Pentagon budget and domestic spending, with a portion of the domestic spending reserved for Medicare provider cuts. I’m tempted to believe that this will wind up better than anything that Catfood Commission comes up with, though we’ll have to wait and see. The cuts to the Pentagon budget, added to $350 billion in security spending cuts (defense but also homeland security and intelligence) would not be draconian; they would be in line with what Bowles-Simpson recommended, around $800 billion over 10 years. Medicare provider cuts may lead to reduced access, but allowing price negotiations for prescription drugs is a provider cut. There are not-horrible ways of lowering rates to providers that would provide incentives against over-utilization or nudge the health care industry into being more efficient.

• Importantly, neither the Catfood Commission recommendations nor the trigger would take effect until January 2013. The only up-front hits to the economy come from the first round of discretionary spending cuts. The $917 billion number mirrors what House Speaker John Boehner got as a score for his revised bill. If we move to the bottom of the CBO analysis, we will see the total effect on the deficit:

FY2012: $22 billion
FY2013: $42 billion

So from now until next October, you’re talking about $22 billion in cuts. That’s about 1/4 of the $100 billion in cuts sought by House Republicans in the 2011 budget. That original House Republican budget for FY2011 was analyzed by Mark Zandi and Goldman Sachs, and they said it would cost anywhere between 700,000-1 million jobs. So if this deal cuts $25B in FY2012, I think it’s somewhat imperfect, but also somewhat reasonable, to assume that it’s a deal costing 175,000-200,000 jobs.

• There’s this interesting line in the White House fact sheet which intimates that they view the Bush tax cuts as a forcing mechanism for a deal as well.

The Enforcement Mechanism Complements the Forcing Event Already In Law – the Expiration of the Bush Tax Cuts – To Create Pressure for a Balanced Deal: The Bush tax cuts expire as of 1/1/2013, the same date that the spending sequester would go into effect. These two events together will force balanced deficit reduction. Absent a balanced deal, it would enable the President to use his veto pen to ensure nearly $1 trillion in additional deficit reduction by not extending the high-income tax cuts.

First of all, it’s impossible for the President to “use his veto pen to ensure nearly $1 trillion in additional deficit reduction by not extending the high-income tax cuts.” The Bush tax rates have not been severed between the “high-income” and the “low-income” ones, and Presidents don’t have a line-item veto. If the President vetoes the Bush tax cuts, they would all expire. That would bring back between $3.6-$4 trillion.

If you were going to make a positive case for this deal, you would say everything I said above. Here’s why I don’t really put stock in any of it.

• The deal sets discretionary spending caps to achieve deficit reduction. Those are ceilings; they’re not floors. When we get to the end of the fiscal year on September 30, House Republicans are going to want to go below the cap. They will have another hostage-taking event on the FY2012 budget. I don’t see why they won’t take it.

• The notion that the President will take a hard line on the Bush tax cuts just seems fanciful to me. By the time they expire, he’ll never have to face another election again, one way or the other. But he has stated clearly that he doesn’t want to see the regressive, “low-end” rates (which affect the wealthy more than people at the low end) rise. This is debilitating to progressive governance, which needs more revenue.

• The discretionary budget takes almost all the hits here. The idea that the President uses “lowest level of discretionary spending since Eisenhower” as an applause line is abhorrent. As Jared Bernstein writes, “Why is that a good thing?  Why are 1950s levels (relative to GDP) of investment, infrastructure, and research in medicine and innovation so damn optimal?”

• Every one of the major players involved on the Democratic side wants the Catfood Commission II to succeed. They want a deal that cuts entitlements and does a few things on the tax side. They aren’t likely to allow the trigger to happen – the President said in a recent press conference that the one thing he didn’t like about Bowles-Simpson were the defense cuts.

• Rhetorically, the playing field has utterly shifted away from a sober, factual telling of our economic problems and toward a fantasyland scenario, where deficits are the big problem the economy faces and business confidence will bring it back. Once that rhetorical ground is given, there’s not going to be any way to turn the ship around and argue that the economy needs more fiscal stimulus. This means that $160 billion in payroll tax cuts and unemployment insurance is exceedingly likely to go away at the end of 2011. It means that unemployment, which is now at 9%, isn’t going to go any lower. It means that we’ll shave GDP growth down significantly from trend. It means that deficit hawkery will grind us into the dirt.