The Fiscal Cliff X-Factor: The Debt Ceiling

The Fiscal Cliff X-Factor: The Debt Ceiling

The Fiscal Cliff X-Factor: The Debt Ceiling

If Republicans take the debt ceiling hostage again, it could hurt the administration’s leverage for the fiscal cliff. 

Copy Link
Facebook
X (Twitter)
Bluesky
Pocket
Email

Ezra Klein has an important piece this morning, detailing what he believes the administration’s strategy is for dealing with the fiscal cliff after the election (assuming, of course that President Obama is gearing up for a second term, not a new presidential library).

In short, according to Klein, the White House believes it has major leverage heading into this showdown with Republicans. Since inaction means automatic spending cuts that slash the defense and non-defense budgets equally, but exempt Medicare, Medicaid and Social Security (Republicans don’t like this) and also the full expiration of the Bush tax cuts (Republicans really don’t like this), Obama will use that leverage to get a big bipartisan deal that not only executes his tax and spending preferences but much more. Writes Klein:

The administration hopes this deal will include more than just deficit reduction. They also see it as a vehicle for infrastructure investment and tax reform. They think there’s some chance that parts of the American Jobs Act, like the hiring tax credits, could sneak through the door, too. There’s even talk of using it to address climate change, though everyone agrees that’s unlikely. Whatever ends up in the final deal, there’s little doubt that it will be a big deal, and it’s likely to come together fairly quickly in the first year. The White House—and the expiring tax and spending provisions—won’t give Republicans any other choice.

In a way, the Obama administration’s plan for a second term is much like their plan for the first term: make a deal with Republicans. Get a big bipartisan solution to our problems. But the means are almost precisely the opposite. Where in the first term, the hope was that they could reach out, talk through the issues and come to an agreement, the plan for the second is to push the Republican Party off the fiscal cliff, and then force them to reach out in order to get pulled back up.

This is basically a budget, as David Dayen points out. And one the White House thinks it can mold into something roughly in line with its preferences, given all the leverage the administration believes it has.

But there is one wrinkle here that Klein doesn’t mention: we’re going to hit that pesky debt ceiling again in either late December or early January. And if Republicans take it hostage again, the White House may be in for much stickier negotiations than it currently anticipates.

House Speaker John Boehner has already said this year, in a speech at the Peter G. Peterson Fiscal Summit, that he likes this course of action. “We shouldn’t dread the debt limit,” he said. “We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”

And just this week, Senators Orrin Hatch and Jeff Sessions fired off a letter to Treasury Secretary Timothy Geithner demanding to know when exactly the debt limit would be reached, and rather ominously, “asked Geithner to lay out what contingency plan, if any, exists for a situation in which the debt limit is not raised in time.”

Will Republicans, being squeezed by the White House into a fiscal cliff deal they don’t like, strap themselves with the debt-ceiling grenade and threaten once again to pull the pin unless they get better terms? They’ve done it before, and this is their only real leverage here—in this case, inaction means catastrophic default, which the White House naturally needs to avoid.

There are ways around this—the White House could exercise a constitutional reach-around of the debt ceiling. (Nancy Pelosi advocated that option this summer, should it be needed.) Or it could just bully the Republicans—who would potentially be politically weak, coming off a November loss—for trying to blow up the economy, and hope they backed off. (If we hit the fiscal cliff, the long-term debt outlook dramatically improves, taking away a crucial GOP talking point, as Klein has noted in the past. But we still hit the debt ceiling.)

Either way, this is going to be a really wild ride. And perhaps not as easy as the White House thinks.

Doug Henwood writes about Washington Democrats' "lack of spine" in the latest issue.

Support independent journalism that does not fall in line

Even before February 28, the reasons for Donald Trump’s imploding approval rating were abundantly clear: untrammeled corruption and personal enrichment to the tune of billions of dollars during an affordability crisis, a foreign policy guided only by his own derelict sense of morality, and the deployment of a murderous campaign of occupation, detention, and deportation on American streets. 

Now an undeclared, unauthorized, unpopular, and unconstitutional war of aggression against Iran has spread like wildfire through the region and into Europe. A new “forever war”—with an ever-increasing likelihood of American troops on the ground—may very well be upon us.  

As we’ve seen over and over, this administration uses lies, misdirection, and attempts to flood the zone to justify its abuses of power at home and abroad. Just as Trump, Marco Rubio, and Pete Hegseth offer erratic and contradictory rationales for the attacks on Iran, the administration is also spreading the lie that the upcoming midterm elections are under threat from noncitizens on voter rolls. When these lies go unchecked, they become the basis for further authoritarian encroachment and war. 

In these dark times, independent journalism is uniquely able to uncover the falsehoods that threaten our republic—and civilians around the world—and shine a bright light on the truth. 

The Nation’s experienced team of writers, editors, and fact-checkers understands the scale of what we’re up against and the urgency with which we have to act. That’s why we’re publishing critical reporting and analysis of the war on Iran, ICE violence at home, new forms of voter suppression emerging in the courts, and much more. 

But this journalism is possible only with your support.

This March, The Nation needs to raise $50,000 to ensure that we have the resources for reporting and analysis that sets the record straight and empowers people of conscience to organize. Will you donate today?

Ad Policy
x