How the debt deal could get even worse for the Democrats

The structure of the debt deal is as follows in this flowchart posted by Ezra Klein:

from Ezra Klein

Basically, there is an initial $900 billion in cuts (and a raise in the debt ceiling by that amount), followed by a vote on the balanced budget amendment (groan) and then once it fails, a “super committee” of Congressmen and Senators will be formed to recommend at least $1.2 trillion more in debt reduction. If that group either can’t agree on debt saving or Congress refuses to pass the debt cuts it recommends, then a “trigger” will kick in. This trigger will make automatic, huge cuts (to total $1.2 trillion) to both military spending and domestic spending in the absence of a deal. The trigger, then, is supposed to force Congress to come up with a good plan by threatening a consequence that both parties will find unacceptable. Presumably, Democrats will want to work out a deal because  they don’t want to see huge cuts to domestic spending and Republicans will be forced to work out a deal because they do not want to see huge cuts to the military. Presumably.

This is where I think the Democrats have been completely snookered. There are two reasons and they both have to do with the trigger. The trigger is the mechanism that is supposed to force the groups to come to a deal. If the trigger is weak, then it will not force the parties to make a deal, and if the trigger is  uneven (it hurts one party’s core interests but not the other’s) it will force one party to make a deal on the terms of the party that stands to be hurt less by the trigger.

The first reason is that I don’t believe today’s Republicans value military spending nearly as much as Democrats value domestic spending. The Tea Party has shown their willingness to voluntarily cut defense spending recently. The core interest of the Tea Party seems to be to shirk the government, no matter what the cost. The debt limit debate showed that the Tea Party was willing to cause a US financial collapse in order to shrink the size of the government. If the Tea Party was willing to cause another great recession in order to protect the rich’s tax breaks and shrink the size of government, do you think they will let some defense cuts stand in their way next time? On the other hand, the domestic spending cuts  included in the trigger will go after core Democratic priorities like Medicare, education, and assistance for the poor.

So when the Democrats in this “super committee” propose that we cut tax breaks for the rich in addition to cutting spending to fulfill this $1.2 trillion requirement, what will the Republicans do? They will refuse to pass the package. What do Republicans hate more? Military cuts or increased taxes? Taxes, obviously. So if the choice for them is a compromise with Democrats that gets rid of $600 billion in tax breaks and a trigger that cuts defense spending by $600 billion, what will Republicans choose? Republicans may not like defense cuts, but those cuts are better than the rich having to pay more in taxes, so what incentive do they have to strike a deal? The trigger does much less damage to their core interests than a deal would.

The second reason has to do with the trigger’s timing. The trigger is set to kick in at the exact same time as the Bush tax cuts are set to expire. This is important because the expiration of the Bush tax cuts was previously set up as a reverse debt ceiling scenario. When the Bush tax cuts expire, Democrats will have all the leverage and Republicans will have to negotiate on their terms. This likely won’t happen (can you actually see the Tea Party negotiating with commie, socialist, god-hating Democrats?) so the Bush tax cuts will all expire.

Well, no more. Having the trigger kick in on the same date as the Bush tax cuts expire makes December 2012 a sort of “super deadline” where big policy changes, harmful to both parties will happen unless there is action by Congress. We’ve established that the trigger will be harmful to Democrats, less so to Republicans. Likewise, there are many Democrats (including the President) who don’t want all the Bush tax cuts to expire, just the ones that only go to for the richest Americans. Those Democrats want to preserve the cuts that can go to both the rich and the middle class, even though those cuts also primarily benefit the rich (and are also where the bulk of the money is).

So, instead of December 2012 being an event where Democrats have all the leverage and are able to end the Bush tax cuts, raise revenues to put America back on a same fiscal path, and preserve the social safety net, its going to be an event where the parties have equal leverage. Democrats won’t want the trigger to kick in and Republicans won’t want the Bush tax cuts to expire. Great, finally there’s a chance for some Democratic payback for the debt ceiling hostage situation and Obama gives it away.

Of course, If Obama doesn’t win re-election, none of this matters. All the Bush tax cuts will be extended and the trigger will kill off both defense spending and domestic spending.

For a more hopeful take on the deal see this post.

  1. August 2nd, 2011

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