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Posted by on Jul 10, 2011 in Economy, Politics | 19 comments

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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