Still No Deal

Less than two weeks ago, President Obama held a press conference where he expressed his willingness to put entitlement programs on the negotiating table, called Speaker Boehner “a good man who wants to do right by the country,” and reminded voters that he’s “bent over backwards” to bring both political parties together on a debt deal. These remarks were designed to position him in the political center as a pragmatist that is above the finger-pointing and partisan bickering on Capitol Hill. In this primetime address however, President Obama struck a stylistically presidential and yet partisan tone. He scolded President Bush for squandering the budget surplus left by the Clinton administration on tax-cuts, two wars and a prescription drug program. In his last press conference, he was willing to take “significant heat” from his party. This time he aligned himself with his Party by characterizing the Senate Majority Leader Harry Reid’s plan as a “much better approach” to avoid default as opposed to Speaker Boehner’s plan that extends the debt ceiling for only six months. Finally, he urged the American people to put pressure on their Representatives to agree to a more balanced approach to debt reduction and not a cuts-only package. This “going public” approach at the eleventh hour is a low reward strategy given that the debt limit deadline is only eight days away.

House Speaker John Boehner also delivered a partisan speech that featured more blistering political jabs at President Obama. He accused the president of going on a “large spending binge.” He stated that the president’s stimulus bill was “more effective in producing material for late night comedians than it was in producing jobs.” These two speeches are an indication of the lack of progress in the debt negotiations. In just a week before the United States defaults on its debt, it is disconcerting to watch the inability of our political leaders to reach a deal on an issue of such great importance. The prospect of a large debt deal that is needed to tackle the country's fiscal challenges is largely unattainable at this point due to lack of political will. What we may end up with is yet another piecemeal, kick-the-can down the road deal. Lets hope that members of both parties still have at least an ounce of bold leadership and bipartisan cooperation left in the tank.

President Obama the Triangulator

          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.