As the August 2 debt limit deadline approaches, President Obama seeks to hash out a deal with Republicans that will raise the debt ceiling. The negotiations have been stymied by Republican intransigence on revenue. “Washington doesn’t have a revenue problem, it has a spending problem” has been a major talking point for Republicans during these debt negotiations. As a result of the impasse, President Obama takes his case to the American people in an effort to portray himself as a moderate and pragmatic leader that is willing to do what is necessary to prevent the United States from defaulting on its debt. In fact, the President expressed his willingness to take “significant heat” from his Party in order to reach a deal. Regardless of the size of the debt deal, there will likely be some cuts in entitlement spending which will be politically unpopular for Democrats. However, the bigger the deal, the greater the political reward for President Obama in the long run. While cuts to entitlement programs may anger Democrats and senior citizens in the short-term, he can claim credit for putting entitlements on a more sound fiscal footing for future generations. In addition, a deficit-cutting Barack Obama will be more appealing to independent voters, many of whom deserted the Democratic Party in 2010 midterm elections.

            Meanwhile, Speaker Boehner recently announced that the best approach may be a smaller package of about $2 trillion that was discussed in the Biden-led talks as opposed to the $4 trillion in the Obama-led talks. It is worth noting that Speaker Boehner was initially in favor of a larger package of cuts but had to back-track due to the Democrats’ insistence on revenue increases if a large deal is to be made. More importantly, House Majority Leader Eric Cantor is emphatically opposed to any revenue increases regardless of how small in comparison to spending cuts. Therefore in an effort to prevent the Majority Leader from outflanking him from the right, and losing support from the tea-party wing in his caucus, Speaker Boehner had to scale back for a much smaller debt deal.

            It remains to be seen who will yield first in this game of chicken. Will Republicans accept the president’s call for a large debt deal that includes some revenue increases or will President Obama be forced to accept a smaller deal of about $2 trillion of only spending cuts. My guess is the latter is more likely.