Thursday :: Jan 3, 2013

Playing the Long Game

by Steve

There might be some degree of backslapping over the outcome of the fiscal curb crisis among Democrats, me included. But after a day or two to digest what actually happened, the truth is that Obama may have won the battle but lost the war. And the seeds for this potential loss were sown in his failure of nerve back in 2009 on the stimulus bill.

Obama made it clear from the reeelection onward that he wanted a deal to avoid the sequestration and the elimination of the Bush tax cuts for 98% of taxpayers, and the possibility of a new recession that could come from that. The Beltway assumed all along that the economy was too weak at this time to absorb the double-whammy of higher taxes and significant spending cuts, even though there were dissenting voices who argued that any recession would be short-lived and justified if we could eliminate over $4 trillion of our long-term debt problem overnight by allowing the sequestration and tax increases. And why was the economy too weak to finally begin unwinding the long-term damage of the Bush years? Because Barack Obama didn't have the guts to fight for a larger and more successful stimulus back in 2009 when he had the political capital to do so.

As a result of Joe Biden's deal, the administration cemented in place 82% of Bush's tax cuts and revenue losses, tossing away $2.8 trillion in revenue base-building for the years ahead. Any deal cut later this spring to avoid most or all of the sequestration will toss aside perhaps nearly a trillion more in savings, all because Obama wanted to avoid a recession that could have been avoided back in 2009.

Having said that, and despite the GOP chest-thumping about spending cuts and hostage-taking over the debt ceiling vote at the end of February, the GOP doesn't have the strong hand they think they do. Recent polling shows there is no public support for serious cuts to Medicare, Social Security, and Medicaid. In fact, recent Gallup polling shows that eighty-eight percent want Social Security and Medicare strengthened, not cut.

And even after a flawed deal over the holiday, the immediate need to stabilize the debt over the next decade is only $1.2 trillion in policy savings (tax and spending changes). Since the country currently is burdened by over $1 trillion annually in tax expenditures (loopholes, tax breaks and havens, and other special treatments), there is no reason why Obama cannot put together a strong case for $600 billion in domestic spending cuts and even more in tax expenditure eliminations over the next decade. The work of the bipartisan commissions can serve as guideposts for these changes. But the administration will need to wage a campaign over the next 60 days to sell the country on their balanced ideas and the need to reject the GOP's major cuts to entitlement programs, whose sole aim is not to reform them but to redirect sacrifice from the 2% to the 98%.

As for the reforms themselves, Democrats need to see the Stage Two battle over the debt ceiling as simply the second stage of a multi-stage war. Yes, because it is unlikely that tax and entitlement reform can be deliberated effectively in less than 60 days in this environment, Stage Two will be a battle royale over getting $1.2 trillion in savings split between revenues and cuts, and then forcing the GOP to take the country into default because Obama refused to gut government to their liking. If the GOP wants to run on that platform with their largely corporate and senior base in 2014, good luck to them. But Democrats should ready themselves now for Stage Three after this, which will be the long-sought "grand bargain" consisting of entitlement "reforms" to strengthen Social Security and Medicare, and tax reforms to broaden the revenue base, envisioned by the bipartisan commissions. I'll be writing more later on what those reforms may look like.

Steve :: 1:42 PM :: Comments (0) :: TrackBack (0) :: Digg It!