Wednesday, July 13, 2011

Who's Got an Endgame on the Debt Ceiling?

There has been some strong rhetoric this week on the debt ceiling talks.

For the Democrats:

President Barack Obama - "I cannot guarantee that those [Social Security] checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it."

House Minority Leader Nancy Pelosi (D-CA) - "We continue to oppose benefit cuts in Social Security and Medicare. These pillars of economic and health security should not be used as a piggybank to subsidize tax cuts for the wealthy."

Senate Majority Leader Harry Reid (D-NV) - "I will not touch Medicare and Medicaid for some simple little deal. I'm only willing to take a look at Medicare and Medicaid if there is a grand bargain."

For the Republicans:

House Speaker John Boehner (R-OH) "Let me be crystal clear on this -- at no time, ever, during this discussion did I agree to let taxes go up. I haven't spent 20 years here fighting tax increases just to throw it all away in one moment."

House Minority Leader Mitch McConnell (R-KY) - "After years of discussions and months of negotiations, I have little question that as long as this president is in the Oval Office, a real solution is unattainable. I was one of those who had hoped we could do something big for the country. But in my view the president has presented us with three choices: smoke and mirrors, tax hikes or default."

The Democrats endgame is simple, dangle trillions in budget cuts in return for comparatively modest tax increases. The striking thing is that the Republicans don't seem to have a viable endgame.

McConnell, who by all rules of personal honor should feel compelled to run for President himself after his statement about a real solution being unattainable under the current President, has put forth a proposal to push the problem over to the President. In response, he has been eviscerated by many on the Republican side.

Today McConnell opened a new front, "The time has come for a Balanced Budget Amendment that forces Washington to balance its books." Constitutional amendments for tax hikes is a good endgame. However, balanced budget is only a start, I would also be asking for line item veto and spending overrides only by popular vote.

Update: In an interview on the Laura Ingraham Show today, McConnell laid down his hand:

"The reason default is no better idea today than when Newt Gingrich tried it in 1995 is it destroys your brand and gives the President a reason to blame Republicans for a bad economy."
"I refuse to help Barack Obama get re-elected by marching Republicans into a position where we have co-ownership of a bad economy."
"If we go into default, he will say that Republicans are making the economy worse and try to convince the public -- maybe with some merit, if people stop getting their Social Security checks and military families start getting letters saying service people overseas don’t get paid. It's an argument he could have a good chance of winning, and all of the sudden we have co-ownership of a bad economy. That is very bad positioning going into an election."
Those phrases "destroys your brand," "maybe with some merit" and "an argument he could have a good chance of winning" are an interesting choice of words.

The problem: McConnell and Boehner have already marched Republicans into a position where they have co-ownership of the bad economy. With the Paulson bailout that became necessary under President Bush's watch, they've always had ownership. A tactical retreat does not necessarily march them out. The Tea Party knows this, Boehner and other Republicans know this, even if McConnell does not.

Update from Ann Coulter: "McConnell's deal cleanly takes the debt ceiling issue off the Republicans' back and puts it on the president's back. Either the Democrats tell us what they'll cut or they'll have to admit: 'We will never cut anything. Everything Ann Coulter says about us is true!'"

Update: On Friday, House Republicans John Boehner and Eric Cantor laid down their cards by introducing legislation for a $2.4 trillion debt ceiling increase matched with $2.4 trillion in cuts. They will also hold a vote on a balanced budget amendment.

We know Nancy Pelosi has nothing. Harry Reid has signaled he may sign on to the McConnell plan. The President hasn't shown his hand. Instead he is playing Monty Hall on let's make a deal:

Door #1: $3 trillion in budget cuts coupled with $1 trillion in tax increases.

Door #2: $2 trillion in budget cuts coupled with $400 billion in tax increases.

Door #3: $1.5 trillion in budget cuts with no tax increases.

Personally I'd take the $3 trillion in budget cuts behind Door #1 with the $400 billion in tax increases behind Door #2. Because $3 trillion in budget cuts should not be passed up and 13 cents on the dollar is a good deal.

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