Monday, August 1, 2011

What will come of the debt ceiling deal

I've done a lot of reading and thinking about the deal and while I maintain that Obama has embraced governing to the right of most liberal's preferences and I don't trust him to deliver many more good liberal policies, I do think this deal isn't terrible when you consider all of the circumstances. I mentioned the fact that the spending cuts come a little later down the road, thus not hurting the economy too much right now. The other big thing is that defense spending is part of the automatic trigger that gets cut if the plan that comes out of the committee isn't agreed upon.

I also said earlier that my money is on Obama and Dems agreeing to a bad deal. I should expand on this because there is a lot of context and I'm not so sure they will be as eager to embrace a bad deal as they were this time. This thing with having to agree on whatever plan the committee comes up with or else spending cuts are automatically triggered is important. Both parties wouldn't have agreed on putting this in the deal if they didn't think it was an acceptable outcome. So that tells me that at some point they are willing to let it happen. The defense cuts would be great. But the domestic cuts would be bad. But given how crazy Republicans are and the fact that they control the House, overall this isn't a bad option.

How likely that happens depends on what comes out of the committee. I'm not sure how it will be much different than the Simpson-Bowels committee. Basically, since at least a few level headed people from both sides will be on the committee, it will probably entail small tax increases (probably through closing loopsholes), fairly small cuts to defense spending, and fairly big cuts to entitlements like SS and Medicare. Given the consensus in DC, those cuts to entitlements will probably come in the form of raising the retirement age for SS and raising the eligibility age for Medicare (which is what Obama was proposing for the debt ceiling deal).

 If that is basically what the plan looks like, I think it has a very tough time passing. Republicans won't like the tax increases. And I think enough Democrats in the Senate will not like the entitlement cuts. Surely enough will not like it to make it really difficult to get 60 votes. And I don't think Obama will be able to get those votes. So that would leave us with the automatic spending trigger.

But if the committee comes up with a way to cut entitlements that doesn't completely screw over poor and middle class people I think it becomes nearly as likely as not passing that Obama can get enough Democratic votes in the House and Senate to get a deal signed. The problem then becomes Republicans in the House and their willingness to agree to some sort of tax increases. Again, it all depends on the details. But if the committee finds a way to disguise tax increases as not simply a hike in individual's rates then Republicans might swallow it just to get entitlement cuts. But that would test just how dedicated Republicans are to low taxes.

So the more I think through this the more inclined I am to agree with Kevin Drum (who I cited in my previous post) that its unlikely whatever comes out of the committee will be agreed upon. The interests competing against each other are strong and have leverage within this divided gov't. Given that and an already agreed upon solution if they don't sign off on the committee's plan, I think it will be very difficult to avoid the trigger. And because Obama and Democrats didn't do too bad of a job in the debt ceiling deal, that trigger will actually cut stuff that needs to be cut.

No comments:

Post a Comment