Edited For Clarity

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Debt Ceiling Deal: The Devil Is In The Details

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  • Lenny

    Great piece Leo.  I have not payed much attention to the debt ceiling over the last couple of weeks because I got tired of hearing about it.  I heard about Paul Krugemans piece about President Obama caving, and lost hope.  You have given me some hope.  On the surface the Democrats look bad, but there is more in the details.

  • http://twitter.com/Art_Guy1 lloyd

    A masterpiece of analysis. The ‘devil is usually in the details,’ and most people don’t pay that much attention. You did. It’s disturbing to hear so many complaints about events that may occur in 3 – 5 years with the second half of a double dip recession staring us in the face. It seems everyone is an expert after reading a couple of twitter links. I don’t think people even read the links. Thanks for putting forth the effort and your thoughtful analysis.

  • http://twitter.com/HoosierJason Jason Miller

    No mention of the $50 billion dollar give away to the pentagon?

    http://www.rawstory.com/rs/2011/08/02/pentagon-lands-extra-50-billion-out-of-debt-deal/

  • http://www.leosoderman.com Leo Soderman

    Thank you for the kind comment. I think the first clue I had that this might not be as bad as people were making it out to be was that neither side really seemed happy about it. Usually, in a negotiation, if both sides feel like they’re getting shorted, it’s probably a good compromise.

    And yes, I mean compromise. Dems gave up short term for long term. Repubs are willing to gamble that they can beat this horse again. I say they lose, and I’m betting that’s POTUS’ calculation as well. And I think he’s right.

  • http://www.leosoderman.com Leo Soderman

    I never said this deal was perfect. Nor cause for celebration. But there seems to be this assumption that of the President told the Republicans that they could stick their deal where the sun doesn’t shine, the Tea Party would suddenly cave.

    And that’s the problem. As has been posited many times over, you can’t play chicken with people who don’t know how to swerve. The Tea Party faction of the Republican party wanted *no increase* in the debt ceiling whatsoever. They caved and voted for one that has few real restrictions. Had the President played “hard ball” as many on the left wanted him to, there would be no deal, and the Tea Party would have gotten their wish of default.

    Governance is not about winning every argument. It’s about moving forward in the overall discussion. What I have tried to point out us that what people have been screaming about isn’t really what’s in the deal. They are screaming more about how the President reached the deal.

    As for the RawStory/McClatchy article, it seems to miss one key point – It is based on a budget proposal from the President that hasn’t been passed. The 2012 budget isn’t in place, hasn’t been voted on. So it is a $50B increase from a budget that is on paper only. So it’s smoke and mirrors either way. But more importantly, it ignores the $4T Bush-era tax cut problem the Republicans face. As I mention in the post, when those expire, the only way to keep.restore them is with offsetting cuts in spending, and that would have to come with 50% of it in defense.

  • http://www.leosoderman.com Leo Soderman

    Thanks Lenny!

    Krugman’s economic theories are solid, but he doesn’t have to negotiate them. If folks on the left wanted to be able to get those kind of policies in place, they shouldn’t have stayed home in November of 2009 and allowed Republicans to take the House.

  • http://twitter.com/roughly22over7 Adam Burch

    My problem with this is that it assumes the Republican’s are good to their word, that they will actually hold to their agreement to not touch social programs.

    But then, we assumed that they were good to their word, and would never gamble the full faith and credit of the United States.

    But then, we assumed that they were good to their word, and would vote for the DREAM Act, in return for stepping up enforcement.

  • http://twitter.com/roughly22over7 Adam Burch

    DOUBLEPOSTINGISBADSORRY

  • http://www.leosoderman.com Leo Soderman

    Adam, thanks for the comment…

    The difference here is that this is not about their word. This is legislated. While there has been a lot of talk about the “Super Congress”, that proposition actually makes things MORE difficult for the Republicans, as it virtually guarantees a stand off. Which means, if they make no deals, defense gets cut automatically. They don’t want that. 

    They truly have been painted into a corner that will get smaller the farther down the line we go.

  • http://pulse.yahoo.com/_TMNLQEFW4DLIBS5V6CFU6DOVW4 bmull

    I was told I should read this post to learn how the president has craftted a win. I’m not seeing it. First some corrections: Obama didn’t say he would veto the Bush tax cuts, he said he would veto the Bush tax cuts for the rich–the cost of which is under $1T. Moreover in the BCA he effectively delegated authority to extend those tax cuts for the rich to the super-committee. It is a virtual certainty that Obama will end his first term with a less progressive tax structure than when he started. That is a major fail for a Democrat.

    Regarding education, it is incorrect that the BCA increases Pell grants. Those grants were already cut earlier this year via elimination of summer school. What the BCA does over the next 2-3 years is to pay back money the Pell program owes the general fund. The money to do this comes from eliminating Stafford subsidies for graduate students. (This was actually Obama’s idea, not a compromise of any kind.) The elimination of subsidies saves the government $4.6 billion more than shoring up the Pell program and that difference leaves education and goes toward the national debt.

    So what we’re left with a successful hostage-taking, which loyalists must defend by claiming up is down, it’s a brilliant plan because the extremists are mad, we should have voted twice in the last election, or it doesn’t matter how many battles we lose as long as we win the war.

    At least this fight is over and the we can move on to jobs. (Like that’s going to happen.)

  • http://www.leosoderman.com Leo Soderman

    You are semantically correct when it comes to what the President said about the tax cuts, but he’s bound by the same problem – he can’t extend the cuts *to anyone* without an offsetting reduction in spending. So unless he’s willing to push for more cuts to defense (50/50 ratio), he can’t extend them. But that really isn’t the point. Republicans don’t care about the middle class cuts. That was obvious the last time the cuts were extended. They’re willing to let them expire. They will be on the hook, however, for those higher level tax cuts, and they have no intention of extending one without the other. The President doesn’t have to make the case for extending any of the cuts. And he won’t have to veto because it is highly unlikely it will ever get to his desk. The military doesn’t want their budgets cut – and that’s where the fight will come.

    As to the Pell re-funding: It actually is a compromise, as the right was furious about the Pell grants being included: 

    http://thehill.com/homenews/house/174253-house-conservatives-angry-over-pell-grant-funding-in-boehner-debt-bill

    They didn’t want any spending – period. But Boehner included it in his. Funding was restored to Pell Grants, yes, at some expense. But it is a compromise. 

    I am by no means a loyalist. I don’t claim up is down. I don’t want extremists mad, I want them to go away. I don’t believe we should have voted twice, I believe people who didn’t get the pony they thought they were promised decided they would teach this President a lesson by not showing up to the polls and shooting themselves in the foot instead.

    And when it comes to battles, yes, you will lose some on the way. But it’s the end game that we should look at, and build to that.

  • http://twitter.com/cleggy Shawn Cleghorn

    Agreeing to cut spending and actually making the individual cuts are a reality that republicans won’t want to see.  Obama may have used the urgency of this contrived crisis to put the pressure on republicans to actually govern.

  • http://www.leosoderman.com Leo Soderman

    That’s my take on it. It’s a reversal on the party of no. Now, they have no way to just say no, as the result – due to the trigger – is bad for them. But saying yes will require them to go against their biggest supporters/financiers. 

    Think of it as a divide and conquer. The wedge here isn’t abortion, gay rights, or immigration. It’s who is going to take the hit when it comes time to cut. The stuff the Democrats want protected are already sequestered. So where are they going to cut. Dems won’t have nearly as hard a time as the Republicans, who will be stick between the military that doesn’t want to be cut, the Draconian cuts that will need to be made to meet the trigger requirements, and the Tea Party that wants it all cut mo matter what. Good luck with that, I say…

  • Anonymous

    It’s so NOT a win: as Krugman and other economists (the ones with a good track record) have noted, without another stimulus the economy is a replay of Japan 1990s.  Obama can’t do another spending stimulus, but immediate tax cuts weighted progressively towards middle and working class (see Gang of Six) was possible. I keep reading (like here) that eventual cuts in defense are such a big deal — guess what folks, the *immediate* impact of that is to going to drag the economy as well.  The alleged saving grace is that now there’s no way, no possible way, the Bush tax cuts won’t expire.  Ha!  First, there’s the chance the GOP keeps Congress and wins the presidency in 2012.  Second, THAT’S the point that the GOP will agree to push back social security ages and the like, not for boomers but for young uns, in exchange for paying off their rich backers.  No possibility Obama won’t go for that?  Anyone betting the farm on that?

  • http://twitter.com/CitizenWhy Jon Mack

    Big Problem: This is not a normal recession, it is a banking/debt recession. Historically it has taken 10-15 years to revover from this type of recession. Meanwhile Wall St is quite capable of delivering another bubble/crash well within that time period.

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  • Ben Schiller

    Good analysis. Question for Obama is why he was so keen for tax increases as explicit part of the deal, rather than relying on the Bush tax cuts to expire. The latter brings in more money, and would seem to be much easier to achieve (he doesn’t have to do anything, as you say). The answer is either that he wanted the Republicans to be on record as having raised taxes (breaking many promises). Or that he knew they would never agree to tax increases, and that this would be the likely fall-back option. By pushing them hard on explicit increases, he made it more likely that they would cave on the other taxes. Though of course we’ll have to see what happens.. The GOP is so wedded to tax cuts that you could see them gutting defense, social security, medicare, and everything else to keep them. To Republicans, tax cuts are the elixir that solves everything…

  • http://winthemarket.com/the-spontaneous-healing-plan/ woody45

    I think it may also have set Boehner on the path to cutting these folks loose. If he wants to even have a remote chance of returning to the Speakership in 2013 than he has to dump the teaparty and that means governing and compromise. Otherwise he’s going to see a huge chunk of his caucus get swept away,

  • Dorothy Rissman

    Wow!  I just saw this article on The only adult in the room. My first time here. Great read.  I  have  sent it to many of my skeptical friends.  I will put this on my favorites list.

  • http://www.leosoderman.com Leo Soderman

    As I pointed out – the GOP taking Congress and the presidency isn’t relevant. The cuts expire *before* they can take office. They can’t pass anything before that, as they haven’t got the votes. Look at it realistically. The chance of them passing an extension before the election is slim to none. That’s a fight neither side wants to have. If the Dems lose in the elections, they have *zero* incentive to vote with Repubs – they’re leaving anyway. They’re not worried about reelection, so they vote down any extension, and the cuts expire.

    GOP may want to push back SS – but Dems have no desire to do so and no incentive to do so. And with cuts to SS sequestered legislatively, they’d have to jump through serious hoops to do so.

    I keep hearing people say that cuts “like the Gang of Six” were possible. Except they weren’t. The Tea Party wouldn’t have voted for them. They came right out and said so. Boehner couldn’t get his first deal voted on because of their intransigence. So saying those cuts would have worked is a fantasy. They would have been a good plan, if it had any chance of passing. It didn’t.

    This is not an economic win, nor have I said so. It is not, however, a political disaster, and in fact, has quite a number of positive elements in terms of how things play out legislatively.

  • http://www.leosoderman.com Leo Soderman

    Both valid points. But there is nothing that would pass that would change that. And the alternative – default – certainly would not have changed it for the better.

  • http://www.leosoderman.com Leo Soderman

    Third possibility: Repubs needed a point to gloat on, to show they got the President to cave. My belief is that the expiration of the tax cuts was always counted on, and that by giving them the “cave” of revenue increases, R’s can say they “held the line”.

  • http://www.leosoderman.com Leo Soderman

    Unfortunately, I think the chances of the Tea Party going away are nil. Case in point – how many R candidates are positioning themselves as friends of the Tea Party. R’s are so determined to win that they can’t give up those votes. But those votes may just be what keeps them from achieving that goal. That will be up to who shows up to vote in November 2012.

  • Anonymous

    Outstanding analysis Leo!
    Glad that someone is able to see beyond the headlines to how this actual negotiation was a political win for POTUS.The President seems more about winning on substance than style. Folks seem not to get that. He allows them to throw all the mud they want, posture holler and wail, while he patiently waits for them to finish their temper tantrum, like a parent in the ToysRUs.  Many customers look at the parent and wonder how they can allow such awful behavior and other parents keep on walking without even a glance, knowing that temper tantrum is futile and the parent has won.The public gets all caught up in the pony shoe and horse race to the point they actually do not see how the President prevails time and time again!Anyone who doesn’t think the devil is in the details need only ask HRC, Boehner, Ryan and OBL.They all learned the hard way too.

    Thanks for this post.

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  • Anonymous

    Instead of doing my usual and waiting for details to come out, I reacted. I hate when I do this, because I always end up with egg on my face. Uhmmm…..egg is dripping off my face right now. It seems our President is a bit more savvy than we give him credit for being.  I for my part, will turn off the MSM and not allow them to manipulate me into anger. I apologize, to President Barack Obama, for my being a hot head!

  • Alice

    Clarification, please.  I thought Medical, Social Security, and Medicaid were “on the table” for the new gang of 12.  Are you suggesting they aren’t?  Thanks in advance

  • http://www.leosoderman.com Leo Soderman

    From the fact sheet on the deal (http://www.whitehouse.gov/the-press-office/2011/07/31/fact-sheet-bipartisan-debt-deal-win-economy-and-budget-discipline):

    “Consistent With Past Practice, Sequester Would Be Divided Equally Between Defense and Non-Defense Programs and Exempt Social Security, Medicaid, and Low-Income Programs: Consistent with the bipartisan precedents established in the 1980s and 1990s, the sequester would be divided equally between defense and non-defense program, and it would exempt Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side.”

  • JojoRaze

    As a black woman, I want to know why some white true progressives are insistent that PBO raise taxes on middle class people when that was his central campaign promise to not do so in 2008.  And that selective amnesia by true progressives about that being the president’s central promise is the reason why most white working class and middle class people DO NOT trust Democrats, who they see as using their tax money to support shiftless, and undeserving black and brown people, on taxes.  PBO has always said the cuts should  expire on $250K and above; and that is why he sent Tim Geithner (I know he’s the true progressive beit noir) and Axelrod on every station last year telling pundits that was the case and that idea polled extremely well.  Yet Democrats like Saint Feingold and Saint Barbara Boxer and Harry Reid and Steny Hoyer insisted on NOT voting for middle-class only tax cuts until after the 2010 election, and that vote failed in the Democratic Senate–see how the Dem Senators hamstring the President when he’s being liberal–because they didn’t want to be seen as tax-raisers. I thought it was a progressive ideal to get those earning more to pay more; now, you’re telling me you and the aforementioned progressive saints are more conservative that the President. 

    If you don’t like the deals the President makes with the crazy people who Americans ELECTED, why aren’t you and your friends at Mitch McConnell and Eric Cantor’s door screaming at them?  That would actually be productive since they think anytime the president acts like a liberal he’s some Kenyan usurper.  It would help if you, Hamsher, Greenwald and 100K other people were on the Washington Mall telling the Tea Party people that the president isn’t some socialist usurper when he suggests these things.  But then again, it’s easier to attack your own quarterback, instead of set up plays to defend him.  Either you make Mitch McConnell and co’s life hell or shut up.  Screaming at the President and calling him a sell-out, does nothing.  It hasn’t worked for two and a half years, and it will not work.  It’s only good for depressing Democratic turnout and usher in a Republican president. That why we got Reagan after Carter and W after Clinton. 

  • mrsgoo

    That will be up to who shows up to vote in November 2012. – Isn’t that the truth. It won’t get just GOTV in 2012, it will be GOTR – Get Out The Registrations. As we are seeing in WI, the R party is already trying to make it more difficult for Democrats to vote. It will not get any better. And if what we are about to see in WI occurs, a massive repudiation of the R brand, they will double down in other states.

  • http://www.leosoderman.com Leo Soderman

    An important thing to remember is that ideas like “primarying” the President are foolish at best, disastrous at worst. There are far too many people who feel they should teach the “establishment” a lesson by not voting. All that does is reward those who push hardest, and the folks with the money are the winners. Given the Citizens United decision, anyone who thinks that money won’t change an election is deluding themselves.

    Protests are also no longer as effective, as the media covers whomever gets them the best ratings. Unless you want to go into violent protest, it won’t matter.

    So, how do we change things? We vote. We get our friends to vote. And we help them get their friends to vote.

    Many years ago, a management mentor leaned in my ear and gave me some very good advice: If you have the opportunity to make a change for the better, and you don’t take it, quit complaining. You deserve what you get. Don’t *ever* pass up the opportunity to act.

  • Guest – deeptruths

    Leo, you and Steve Benen (Washington Monthly) are two clever by half.  First timer and you are faved.

    The debt debacle just made this country look dysfunctional.  I just wanted the debt ceiling passed, but I had a feeling that something good happened in spite of the ‘president looked weak’ instant analyses.  The president and the democratic leadership have jujitsued the republicans and the Tea Party Terrorists.

    Your analysis proved the point, I just didn’t know which point.

    It may take a couple of weeks before all sides really know who one.  Much like a battle field
    shortly after intense combat – can’t really tell who won until the smoke clears.

    Thanks for scouting this out for me.  Keep up the good work!

  • http://www.leosoderman.com Leo Soderman

    Thanks for the kind words…

    To be sure – this whole thing made us, as a country, look silly. To the rest of the world, we look like school kids fighting over who gets to go down the slide first.

    I think the real test will come in about 3 months, when the committee has to come up with $1.3T more in cuts. Then we’ll see where the rubber meets the road.

  • aartimus

    I don’t get it. As I read it the sequester only kicks in if there is no agreement on budget cuts and revenue increases. In that case Social Security, Medicare, and Medicaid are protected. But the bipartisan congressional committee doesn’t have that constraint. Admittedly, Democrats will be reluctant to cut these programs, but as Democrats are known to be surrender monkeys they might end up doing it anyway. What am I missing?

  • http://www.leosoderman.com Leo Soderman

    The sequester returns some bargaining power to the Democrats. If deals cannot be reached – and with a 50/50 split between the parties on the committee, that’s very likely – the sequester kicks in. 

    There has already been plenty of talk from Republicans that they do not intend to budge on anything. Democrats don’t have to give anything up, because the burden will be on defense budgets, and Republicans don’t want to lose that battle.

    Now, as I mentioned today in reviewing Ezra Klein’s post about the deal - http://www.editedforclarity.com/2011/08/03/ezra-kleins-right-dems-have-their-chance/ – the Dems have all the chance they need. While this deal is far from perfect – or even good in many aspects – it puts the Republicans on a time clock. They can’t just say “no” anymore. But if they choose to, as they have stated publicly that they will, even the committee is restrained from touching the items that are sequestered. Dems need only let the Republicans block all deals to get to a point where everything they want to protect is protected, and the Repubs are forced to make cuts to defense.

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  • http://twitter.com/Kirkenjerk Ryeley Kuykendall

    I had no idea the specifics of the debt ceiling legislature, but this made it pretty damn clear. Many thanks.

    Care to comment on the atrocious idea of the $2T dollar pair of Platinum coins? Found that to be rather funny, the article can be found on the Washington Post. 

  • http://twitter.com/BitmapMedia Bitmap Media

    Suddenly, Obama is brilliant!

  • http://www.leosoderman.com Leo Soderman

    Platinum coins – hate to be the guy that left those in his pocket on laundry day…

  • aartimus

    I hear you, but I haven’t seen anything that states that the super committee is restrained by the rules of the sequester to exclude Social Security, Medicare, and Medicaid from budget cuts. In fact, the White House summary mentions these exclusions only in the context of the sequester, and not the super committee.

  • http://profiles.google.com/avon.st.cyr Phillip Avon St. Cyr

    Thanks for writing this, but I have a request: Verify, please, that the CBO considers tax cuts as spending.

    This entire missive, great as it is, hinges on that, but I have to question why we’ve never heard about the CBO’s definition before. Someone reassure me that that is accurate, please, because this is great news — or at least I WANT it to be!

  • James Nimocks

    If this was such a brilliant negotiating strategy on the part of the Democrats why has Mitch McConnell stated that this “will be the paradigm for future negotiations, the hostage needn’t be shot but can certainly be ransomed.” He is a crafty old Kentucky politician, I can’t believe he didn’t see the dynamics at play here. Somebody came out on the short end of this negotiation, I’m just not sure whom. To quote another crafty negotiator, Warren Buffett, “There is always a fool in the room, if you don’t know who the fool is, it’s probably you!”

  • Anonymous

    Ugg like. Thanks for this.

  • Anonymous

    It used to be that both Democratic and Republican legislators wanted to do what was best for the country, they just had different ways to go about it.  That’s not true anymore; the Republicans want the economy to go down in flames and cause as much pain as possible just to destroy Obama’s presidency.  Pretty damned difficult to negotiate with an opponent like that, but Obama did a masterful job.  By repeatedly publicly stating his willingness to compromise, Obama maneuvered so that the Republicans could not escape blame for a default.  Boehner still complained in sound bites about how unyielding Obama was, but it didn’t wash with the public.  The Republicans are scared to death of an Obama second term, and they’re going to keep holding America hostage to try to avert that.  I doubt that anyone could have done as good a job of negotiating with these Rs.

  • http://www.leosoderman.com Leo Soderman

    When scoring plans for their effectiveness, the CBO uses current law for their baselines. This refers to the fact that they must score the plans based on what happens if the current laws do not change. Current law includes the expiration of the Bush-era cuts. Any additional cuts to taxes, including the extension of the current cuts, adds to the deficit, and is considered spending.

    In fact, the Republicans have used this fact to sell their version of the deal. Because of the use of the current law baseline, additional revenue generated by the expiration of the cuts cannot be used to estimate deficit reductions (if it did, those expirations would reduce the deficit by another $4T). Deficit reduction must come on top of that. Of course, that;s a double edged sword for them. Since they are expected to be cut, any extension falls outside of the debt ceiling deal and has to be negotiated separately, and is subject to the rules of having to be paid for with spending cuts elsewhere.

  • http://www.leosoderman.com Leo Soderman

    McConnell is right in that once a strategy is introduced that appears to give leverage to one side or the other, it will return again and again. Note how the filibuster was rarely used before the last 20 years, yet now, it’s used almost as a default (by both sides of the aisle). It doesn’t matter whether it’s effective or not – it’s just another blunt weapon.

    Of course he sees the dynamic at play. But remember, the game here is perception *right now*. The folks in Washington – again, both sides – always know they can try to change the rules of the game later.

    How they will try to do that with this legislation remains to be seen.

  • Anonymous

    Spot on, JojoRaze.  Depressing Democratic turnout is the only thing that will be accomplished by online whining.  And that is exactly why the  RNC and Heritage and Karl’s Crossroads have so many interns and paid trolls working progressive sites, posing as disgruntled liberals, calling Obama a sellout and a DINO and the same as Bush.  They know that through peer suggestibility they can dissuade a lot of Democrats from voting or volunteering or donating.   http://readersupportednews.org/pm-section/78-78/5872-right-wing-sock-puppets-pretending-to-be-liberals-assault-progressive-websites

  • Anonymous

    Yes, Obama knows that a crucial part of negotiating is giving your opponents a fig leaf, a way for them to save face and claim victory.

  • Anonymous

    I agree, Dorothy, spot on analysis indeed.  Apparently all the Rovian moles haven’t discovered EFC yet.  http://readersupportednews.org/pm-section/78-78/5872-right-wing-sock-puppets-pretending-to-be-liberals-assault-progressive-websites

  • Anonymous

    I really wish you people would stop spreading that lie about “the left” staying home. WE DID NOT, and no analysis by actual qualified people beyond the ones pulled out of people’s bellybuttons shows that. The Tea Party Republicans came out in droves, and independents broke for the Republicans.