Debt Ceiling Negotiations Breakdown: Will There Be An Agreement and If So Will It Matter Much? (UPDATED)

Once again American politics has shown that it is (seemingly) hopelessly broken — mired in the demand of ideologically-firm partisans and prone to stalemate since the filthiest word in the English language to some is now “compromise.” And so the “Grand Bargain” dies. Will an agreement now emerge? Or will the U.S. slip into default? And if an agreement emerges will it simply avert the immediate problem but kick the issue down the pike for more ideologically stalemated and politically motivated economy-as-pawn battles in the future?

Here’s the new context. ABC News:

Even before President Obama could return for talks with Congressional leaders on the debt ceiling and deficit reduction, Speaker of the House John Boehner pulled the plug.

The talks are some of the biggest policy discussions in decades, but Speaker Boehner said Saturday night in a paper statement that he is now skeptical that an agreement can be reached in a $4 trillion deal.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes,” Boehner said.

Instead of a grand bargain as President Obama has been hoping for, Boehner now says he’s concentrating on producing a smaller measure that “still meets our call for spending reforms and cuts greater than the amount of any debt limit increase.”

Boehner said he wants to focus on a smaller $2 trillion deal, as Vice President Joe Biden was discussing with a bipartisan group prior to the president’s involvement, as opposed to the $4 trillion deficit cuts deal that was anticipated from today’s planned negotiations.

The White House — which had been under fire for the Democratic left due to reports that some cuts were on the table for Social Security and Medicare as a bargaining chip to entice GOPers — reacted with disappointment.

The White House issued a statement soon after Boehner’s, saying that while the president sees solving the country’s fiscal issues as imperative, the administration sees the Republicans’ demands as putting an unfair burden on the middle class and elderly.

“We cannot ask the middle-class and seniors to bear all the burden of higher costs and budget cuts,” White House Communications Director Dan Pfeiffer said in a statement Saturday night. “We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree.”

While Boehner has been receiving pressure from Tea Party members, who are unwilling to compromise on raising taxes, the White House was also receiving pushback from Democrats wary of potential cuts to programs such as Social Security and Medicare.

In past decades this would not be as pronounced: there would be a strong center that could try and get an agreement via some give and take on both sides on the no-starter issues. They would unstart the no-starter.

Now our political system is essentially in no-start mode where sacred cows are sacred prime rib.

Boehner’s Saturday night statement marked a major shift in the tone surrounding the debt negotiations, at a time when it seemed that a bipartisan agreement was imminent.

In contrast to his statement last night, Speaker Boehner expressed hope on Friday that a deal could be struck.

“We hope the Democrat counterparts will join us and seize this opportunity to do something big for our economy, and frankly, for our future, and to, hopefully, get Americans back to work,” Boehner said Friday.

Following Friday’s bad jobs report, which showed that the US economy gained only 18,000 jobs in June, Boehner was not alone in calling bipartisan cooperation in reaching a compromise. He was one among many leaders from both parties.

Why did Boehner change his political tune?

The Politico says, in effect, he caved to those on his party’s right which included not only Tea Party members but his own assistants.

House Speaker John Boehner, under pressure from the right and facing resistance from his own deputies, backed away Saturday from a bold $4 trillion deficit-reduction package that he once hoped would resolve the August debt ceiling crisis and give a shot in the arm to a lagging economy.

Tax policy disputes were at the center of the collapse, including differences with the White House over President Barack Obama’s demand that future tax reforms must maintain or increase the progressivity of the tax code. But for days Boehner has been under relentless pressure from conservatives to step away from the deal, which Saturday’s Wall Street Journal editorial writers dubbed “Boehner’s Obama Gamble.”

The White House signaled it will continue to make its case for the plan in a meeting Sunday evening with congressional leaders, including Boehner. But without the speaker’s support, it has no chance of being implemented, and the focus is expected to turn toward a smaller package more in the range of $2.4 trillion.

Boehner spoke with the president prior to making his announcement Saturday evening and continues to demand that the deficit reduction match dollar-for-dollar whatever debt ceiling is agreed to prior to the August 2 deadline set by Treasury.

That will not be an easy matter, given the Republican hard line against new tax revenues. Weeks of negotiations led by Vice President Joseph Biden have identified deficit-reduction savings in the range of $1.7 trillion to $2 trillion in savings. But that leaves a gap of $400 billion to $700 billion to be filled, and Democrats have argued strongly that revenues must be part of the mix.

…..The setback would appear a clear victory for conservatives in Boehner’s conference and in the Republican leadership.

Steve Clemmons writing in The Atlantic:

Obama offered a grand deal — huge cuts across the board, including substantial rollbacks of Medicare, Medicaid and Social Security benefits — but including the suspension of economically distorting tax benefits for the rich and highly profitable firms, particularly ethanol and oil, that were gorging themselves on public dollars.

David Brooks was right in stating the obvious in his provocative essay “The Mother of All No-Brainers” – that the Republicans had won but are so paralyzed by Tea Party ideologues that they can’t close the deal. Republicans have set the terms of debate, forced the Democrats to promise a sacrifice of holy commitments to their base, and would have been able to steal back the mantle of “fiscal conservatism” after Bill Clinton became the balanced budget guy and George W. Bush blew the hole out of the economy’s bottom.

Now, John Boehner is showing that he is trapped in an ideological bind with his own constituents and that Obama is too overwhelming for him. The big deal won’t work, Boehner says, because Boehner can’t get his caucus to do the deal of the era because it involves minor revenue increases. They’d rather default on the national debt and undermine global trust in the United States as a political stunt.

Boehner has now rejected the course of negotiations with the President and wants Biden back and the smaller scale, more pragmatic plan that Joe Biden had been working on with leaders of both parties before Eric Cantor decided to capsize the effort.

And expect the Democrats to now pick up the political ball and run with it in pointing to the rejection of the long-range deal and how now the GOP is unquestionably the party controlled by conservatives and Tea Party movement members — good news for conservatives and Tea Party members who have wanted that to be the case but not good news in terms of picking up independent voters who vary in which party they support, former moderate Republicans who are now independents, or former Democrats who are now independents.

You can see the battle lines now. New York Senator Chuck Schumer’s statement:

The President has called the Republicans’ bluff by offering them exactly the type of grand bargain they said they wanted, only to have it rejected. Speaker Boehner had shown in the last week that, if it were up to him alone to decide, the nation would not be risking default to protect the wealthiest two percent of Americans. But in the end, neither the olive branch extended by the President nor the pragmatic streak shown by Speaker Boehner was enough to overcome the far right’s obsession with defending tax breaks for millionaires and other special-interest tax loopholes. Some on the Republican side would like to confuse the issue by pretending it was tax hikes on the middle class that they were trying to prevent, but none were ever on the table. This decision to reject the President’s offer means as much as a trillion-dollar gulf remains between the two sides on a debt limit deal, and Republicans should be put on notice that no matter how hard they try, their plan to end Medicare as we know it will never fill in that gap.

New York Magazine’s Andre Tartar:

Already sensing the tides moving, several of the Republican presidential candidates have come out against voting for any deal that involves tax hikes or, in the case of Michele Bachmann, any deal period. That said, Washington observers had expected Boehner to seriously consider (behind closed doors, of course) the notion that boosting revenue might be necessary to plug the deficit hole and right the nation’s finances. But perhaps Republican leaders are under more pressure from their base than we realize. (Or perhaps they’re just feeling ballsy.) As for the Speaker, he is now in favor of a smaller $2 trillion deficit-reduction and debt deal being hashed out by Vice President Joe Biden and a bipartisan group of legislators.

The New Republic’s Jonathan Chait offers a big “I told you so” on what had become known as the “Grand Bargain” — which is now relegated to a seedy bargain basement in political history. And Chait makes a good point: this idea was not scuttled by the Democratic left but by the Republican right so in this case it is not quite a case of compromise being deep-sixed by both sides: the Grand Bargain vanished due to the GOP right which now has its political GPS set by by the Tea Party Movement and the talk radio political culture:

(Sorry for the obnoxious self-back-patting — I don’t really have any commentary on this other than to refer to my previous item explaining why the demise of the Grand Bargain was inevitable. If you want an explanation as to how the medium-sized bill could pass, read it here.)

The other thing to add is that this demonstrates a fact that media centrists have failed to grasp for months: the impediment to a balanced (or even heavily rightward-tilting) deficit plan isn’t “both parties.” It’s Republicans. Democrats may not like the idea of cutting entitlements, but their objections don’t come close to matching the GOP’s theological opposition to tax increases.

The likely outcome now? Not good — unless you advocate default. Time’s Mark Halperin:

Boehner’s move puts pressure on Hill Democrats to reject an all-cut deal. Before, a no-pact outcome seemed impossible; now it is easier to see default than not. It seems unlikely that Obama can get the group back to the grand bargain. But a $2 trillion package is going to have a lot in in for the bases of both parties to dislike, making it difficult to see how Senate passage occurs, let alone the House.,

And what are the bases? The Republican right and the Democratic left. Yet another sign that the country’s center has been weakened as compromise on both sides remains a dirty word when the moment of truth arrives.

But, then, anything can happen (even the United States defaulting for political reasons).

UPDATED: To confirm what I wrote above. MSNBC:

There had been growing pressure from rank-and-file lawmakers who must approve anything hammered out in closed-door White House talks. Critics on the left and the right had voiced unease at some options on the table, and they are now expected to dig in their heels even further.

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  • SteveinCH

    Joe,

    As I posted elsewhere, you and others are missing the subtlety in the negotiation. What was on the table on taxes was two things…elimination of small corporate breaks and a cap on deductions for people making more than $250K.

    This doesn’t make the tax code equally progressive but more so. It also (I’m sure just coincidentally) aligns with the President’s pledge not to raise taxes on people making less than $250K (although he’s broken that pledge a few times already).

    So the President’s deal was…you break your pledge on taxes but I’m keeping mine. And you and others want to blame Boehner. Seems a pretty one-sided view to me.

    One more thing…my money is still on a deal unless Dems who are mad a the tactics of Boehner and Cantor decide to blow it up out of spite.

    Oh yes, and I renew my point about the awfulness for our political discourse of the discussions occurring in secret. When that happens, both sides simply choose to believe what they want to believe, with no good consequences.

  • SteveinCH

    And of course, as I said above, press accounts are highly different.

    One could look at the WSJ account which is very different than the various left-leaning sources Joe quotes above. I’m not saying anyone is right or wrong, rather that the see what you want to see problem is because all of this is happening in the back room.

  • SteveinCH

    And somehow omitted from Joe’s context but in the Politico story is the following:

    “Given Friday’s bad unemployment report, the promise of tax reform — as a means to generate revenues for deficit reduction and to help the economy — increasingly helped drive the would-be deal. Boehner had effectively agreed to decouple the high-end tax rates of the Bush era from the middle and lower income rates favored by Democrats. But before anything changed in 2013, he was promised enactment of broad reform — covering personal and corporate taxes — with the goal of lowering rates by establishing a more efficient code.

    To help back up this promise, the deal proposed an enforcement mechanism that would have imposed a 1 percent income tax surcharge and a 1 percentage point increase in the payroll tax — divided between workers and their employers — if Congress failed to act.

    The speaker repeatedly has said he will oppose any increase in tax rates, and with the draconian trigger in place, he felt confident the reforms would be enacted before the high-end Bush tax breaks for the wealthy would end in 2013.

    The goal was a simplified personal income tax code with no more than three different rates and the promise to keep the top rate no higher than what it is today.”

    The whole Politico article is worth reading as it gives the lie to the spin that Boehner was unwilling to do anything about taxes. Indeed, it appears the WH was putting down markers about how taxes would be raised that fit the President’s pledge and don’t fit the historical data.

  • DaGoat

    @SteveinCH
    So the President’s deal was…you break your pledge on taxes but I’m keeping mine.

    I think that’s a decent point, but probably moot. If the GOP remains firm on their pledge not to raise taxes, it is impossible for Obama to break his pledge. Obama’s pledge is a subset of the GOP pledge.

    Still your point is well-taken. Part of the problem is not just just that the GOP won’t raise taxes, it’s that Obama will not raise taxes <250K. That takes away an option of “shared pain” and turns it into a class issue. It also forces Democrats to defend a position that tax hikes for people making 100-250K are bad for the economy while tax hikes >250K are good for the economy, a theoretical position that is quite weak.

    Bottom line though is that the GOP will probably lose politically either way. Either they anger their base by compromising, or anger the middle by not.

  • SteveinCH

    DaGoat,

    I agree with you on the politics of it although I think it still depends a bit on the outcome.

    My pox on both your houses view is the following. Rather than biting the bullet and means testing entitlement programs (something that simply has to happen), the entire deal is pandering to seniors at the expense of almost everyone else.

    In a country where transfers to seniors are something like 50% of the non interest budget, is there a moment in time where we could think about stopping the insanity?

  • Jim Satterfield

    The tax code isn’t the only thing that affects people. Shared sacrifice is also defined by those who will see cutbacks in programs that help them. Cuts that hurt the poor and lower middle class are far greater than the revenue increases from the closure of loopholes and reductions in subsidies in the deals that have been revealed so far. As far as what Joe wrote, you speak of a lie about what Boehner was willing to agree to. This is a misrepresentation for one basic reason. Boehner apparently was willing to put those things on the table. He backed off from that position, moving back to the “no deal on taxes” position. As far as the WSJ version of things, please don’t tell me that you are seriously claiming that the print version of Fox News is “fair amid balanced”.

  • SteveinCH

    Jim,

    Where did I say the tax code was the only thing that had an effect?

    I speak a lie? I speak of a proposal Boehner made on taxes…broad tax changes to raise revenue without rates going up by 1/1/2013 backed up by a mechanism that would raise taxes across the board if no deal was reached. This proposal was rejected by the White House. Once they rejected it, he backed off. And why did they reject it, well because it might have raised taxes on the 98% of the population that the President has said shouldn’t have their taxes go up…politics pure and simple, not a principle to be found.

    As to the WSJ, I laugh since the piece I quoted was from the same Politico story that Joe quoted. I just didn’t quote it quite as selectively.

    As for me speaking a lie, you are full of it. I’m simply speaking what Politico reported. Too bad it doesn’t fit your (or maybe Joe’s) preconceived Republicans will never allow tax receipts to go up story.

  • DLS

    What? Lefties not describing things accurately or correctly? [gasp]

    It remains to be seen if Obama and the other Dems will grow up, and end their quest for their morally defective (and economically silly) envy-appeal class-warfare tax position. There are so many serious and sensible things that they could do (have done) instead.

  • DLS

    Steve in CH[I] wrote:

    In a country where transfers to seniors are something like 50% of the non interest budget, is there a moment in time where we could think about stopping the insanity?

    The current assessment is: Sometime after 2012.

    This is subject to revision every two years, esp. every four years.

    Eventually, it nothing else happens, sanity will be forced.

  • Jim Satterfield

    Who said my post was solely in response to you, Steve? From DaGoat’s post:
    Part of the problem is not just just that the GOP won’t raise taxes, it’s that Obama will not raise taxes <250K. That takes away an option of “shared pain” and turns it into a class issue.

  • DLS

    What DaGoat said is correct, of course. “Shared sacrifice” is a lie.

  • Jim Satterfield

    Where is the proof that Obama rejected any proposal? It wasn’t mentioned anywhere in the Politico articles I read, including he one that you quote. Boehner walked because of pressure from his own party, not what you’re claiming.

  • Jim Satterfield

    True, it is a lie. Just not for the reason you believe.

  • DaGoat

    Jim, don’t you think it would be reasonable to raise taxes on everyone making over say, 100K?

  • SteveinCH

    Gee Jim, I don’t know. How about this?

    “Boehner’s camp argued that much of this could be accomplished through the extra revenues generated from new economic growth. But it would have been very difficult to cover the entire $1 trillion this way and some net increase in taxes — perhaps $400 billion — seemed almost certain, albeit much smaller than the spending cuts Obama was offering.

    In this context there was a fear that some tax breaks, such as favorable capital gains, could be jeopardized. And it appears the Boehner negotiators wanted a freer hand than the White House would accept given its insistence that middle- and lower-income tax payers be kept whole.

    Progressivity was to be measured by the percentage in after-tax income for each quintile as well as the top 2 percent, and that was a standard that apparently met objections from the speaker’s camp.”

    Same Politico article. Seems like the President’s people put conditions on the backup plan that were unacceptable. That sounds like turning down the proposal to me. And that’s without referring to a news source you don’t like.

  • DaGoat

    I’ll add something – normally I am a guy that preaches pragmatism, and from a pragmatic standpoint raising taxes on taxpayers <250K is a non-starter since neither Obama nor the GOP would consider it. However one reason neither would consider it is the same, namely that it is politically dangerous to do so.

    So while it is true the GOP has been backed into a corner by their allegiance to the Tea Party, Obama has also been backed into a corner by his own campaign promises. A reasonable way to narrow the deficit would be to let ALL Bush tax cuts expire, but neither party can do so due to political considerations.

  • DLS

    The lefties are so agitated they can’t even do a good job pretending to read my mind — and this, from those class warriors who don’t even notice the irony in their misuse of language and referring to “a class issue,” etc. Wow, what irony. Must be really agitating now.

    * * *

    Again DaGoat was onto something, even if some can’t or won’t understand it. The key is taxable income (especially given the envy-driven class warfare, trying to stick “the rich” with higher taxes), and the fact that the highest income levels host so few people it’s impossible to restrict serious tax increases to just them if liberals want to support the amount of spending they believe we “need” [sic], particularly if they’re not to be hypocritical once again about fiscal propriety.

    The key is taxable income — what’s the fiftieth, what’s the sixtieth, what’s the seventieth percentile? If we don’t have that easily at hand, what do we have?

    (Don’t forget to check corporations or other taxed “parties.”)

    http://www.irs.gov/taxstats/index.html

    (repeating the following story)

    The Wall Street Journal put out a graph on taxable income distribution whose greatest attribute is that it sparked criticism. It did show a peak (on its bar graph) of taxable income around $100,000. Note that that figure is a good round number Obama and the Congre-Dems can use if they don’t want to use the fiftieth percentile when they someday go after “the rich.”

    http://www.brendan-nyhan.com/blog/2011/05/the-use-and-abuse-of-bar-graphs.html

    It’s probably not worth repeating that tax increases coupled with entitlement reform could and should include raising the FICA tax rates and raising or abolishing the FICA income cap. (Also subject all forms of compensation to FICA taxes.) That would be the best example of real tax reform other than simplifying individual and business income taxes. I just repeated it.

  • EEllis

    “but including the suspension of economically distorting tax benefits for the rich and highly profitable firms, particularly ethanol and oil, that were gorging themselves on public dollars.”

    How is a tax break equal to “gorging” on public dollars? I get wanting to tax someone more, not that I agree but I get the idea, but this statement just seems like a distortion of reality. Come on though we wanted increased domestic production so the feds gave tax breaks to increase that production, and mind you companies still had to fork over cash for the rights and just got a break on the back end. We still made money on that exploration and got the companies to do what we wanted. Now those companies are “gorging themselves on public dollars”? Talk like that is intellectually dishonest and just adds to the distorted conflict in Washington.

  • DLS

    It was asked:

    How is a tax break equal to “gorging” on public dollars?

    Oh, we’ve encountered the same before, from Obama idiot campaign nomenclature, aimed at suckers proving Barnum correct:

    “Spending in the tax code”

    It’s the same greedy-government mentality that considers any kind of reduction in growth of expenditures as a “cut.” The craving for or obsession with and for taxes results in Orwellianisms.