As President Obama gets involved in the debt limit talks today, the negotiations will probably be limited to whether and what kind of tax hikes should be included in the deal. It's an odd situation, considering the divide between the two sides: the Republican leadership is now united in opposition to tax revenue increases, while top Democrats and the White House are insisting on them. Yet there are good reasons why the final deal has to take the form of the cuts agreed on by the Biden-led group plus whatever Obama, John Boehner, and Mitch McConnell hammer out on taxes.
None of the alternatives are viable. For instance, the preferred outcome of Tea Partiers represented by Mark Mechler and some Republicans is that there is no debt ceiling increase at all, and the government either immediately balances its budget, or defaults. This is simply not a realistic possibility, for a number of reasons, one being that the vast majority of members of Congress of both parties have no desire to risk a default, no matter what they might say publicly.
The next most aggressive alternative to immediately balancing the budget would be the cut, cap, and balance plan favored by Sen. Jim DeMint and others. DeMint has issued stern threats to Republicans who vote for anything short of the plan, which would, as its name implies, cut spending, impose enforceable spending caps, and passing a balanced budget amendment in Congress. DeMint's maximalist demands make for a great bargaining chip for Republicans in the negotiations, but it's hard to consider them feasible when a balanced budget amendment couldn't clear Congress even if it had Obama's backing.
Meanwhile, the ideal scenario for Democrats would be to simply ignore the debt ceiling, thereby avoiding having to deal with Republicans. Doing so isn't impossible. Obama could raise the debt ceilling through the executive "nuclear option," namely, simply ordering the Treasury to ignore the law and resume issuing debt. The budget expert Bruce Bartlett explained this possibility:
...I believe that the president would be justified in taking extreme actions to protect against a debt default. In the event that congressional irresponsibility makes default impossible to avoid, I think he should order the secretary of the Treasury to simply disregard the debt limit and sell whatever securities are necessary to raise cash to pay the nation's debts. They are protected by the full faith and credit of the United States and preventing default is no less justified than using American military power to protect against an armed invasion without a congressional declaration of war. Furthermore, it's worth remembering that the debt limit is statutory law, which is trumped by the Constitution and there is a little known provision that relates to this issue. Section 4 of the 14th Amendment says, "The validity of the public debt of the United States...shall not be questioned." This could easily justify the sort of extraordinary presidential action to avoid default that I am suggesting.
Neverthless, this course of action would be extremely politically costly for Obama to pursue. Raising the debt ceilling is already an unpopular proposition, and doing so by riding roughshod over a Republican House would provoke widespread outrage. A more likely scenario would be that Republicans agree to a nearly clean ceiling increase, perhaps short-term, in return for vague but sizable spending cuts, in the case that the negiotations stalled out until the Treasury approached an event that really would spook investors. In other words, the end result of the bargaining would be similar to what happened with the 2011 continuing resolution.
Any of the preceding possibilities would create a clear winning team and a clear losing team. The most likely result, though, would be a compromise that both party wings found unpalatable. The Biden-led group already sketched out most of the terms: significant cuts to discretionary spending (much of it of it totally painless or even phony) along with significant but not structural cuts to entitlements. The sticking point is what kind of tax increases, if any, will be added to those spending reductions.
According to the AP, the administration wants $600 billion in new tax revenues, including through ending tax breaks for oil companies and taxing hedge fund and private equity managers at a higher rate. Meanwhile, the Washington Post reports that Republicans are considering including defense spending cuts as a substitute for tax hikes.
Such a compromise would be far off the promises of the Republican leadership, not to mention the demands of DeMint and co. But there may be no other way.
The options facing Republicans could be much worse, at least according to Dave Weigel. Weigel argues that the forms of the compromise taking shape are already a huge win for the Tea Party-wing of the GOP:
Look at [the] theoretical (and likely-sounding!) scenario, wherein the debt ceiling is raised only after $4 trillion in spending cuts over the next decade and an end to $1 trillion of tax breaks. That's just miles far to the right of where Republicans were two years ago. If all Tea Party activists are doing is creating a right flank that makes a deal like this look moderate, they're merely the most effective political movement in a generation.
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