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Government: Adding a dimension to debt-ceiling game of chicken

July 12, 2011 |  1:58 pm
Debt
 

Despite assurances to the contrary from top lawmakers in both parties, the chances of the U.S. defaulting on its debts are growing by the day. The three emerging camps -- President Obama, congressional Democrats and congressional Republicans -- don't appear to be closing in on a deal to raise the debt ceiling. Obama says he still wants a "big" deal  to trim future deficits with spending cuts and tax increases, but Republicans are rejecting any form of new revenue and Democrats are bristling at Obama's proposed cuts in Medicare and Social Security.

There's clearly a game of chicken going on, as often happens under capitol domes. As negotiators draw closer to the Aug. 2 deadline set by the Treasury Department, each side appears to be waiting for the other to fold in the interests of avoiding a catastrophic default. (I know, some lawmakers and readers fervently believe that Washington could avoid defaulting  by continuing to pay interest on its debt but stiffing other creditors -- like, say, air-traffic controllers or bridge-repair contractors. I suggest that these folks stop paying 40% of their bills, then see what happens to their credit rating and the interest on their Visa cards.)

But like a 3-D chessboard, there's a whole 'nother level to this particular exercise in governing. Let's assume, as columnist Gerald Seib doesin Tuesday's Wall Street Journal, that Obama and House Speaker John Boehner (R-Ohio) genuinely want a big deficit-cutting deal because it's good policy. Naturally, the version Obama supports isn't the same one Boehner advocates. The former reportedly would accept limited cuts in entitlements in exchange for a tax overhaul that eliminates some corporate tax breaks and raises revenue, possibly while lowering rates. The latter appears open to a deal that achieves its savings through spending cuts; he'd support a tax overhaul that eliminates some corporate tax breaks, but it would have to lower rates enough to offset those increases in revenue.

There's no guarantee that Democrats (or even Republicans) would accept the entitlement cuts that Obama is reportedly backing, such as raising the eligibility age for Medicare and providing lower cost-of-living adjustments for Social Security. But Democrats may not have to cast that vote -- the GOP's refusal to countenance an increase in revenue means that Obama's debt-reduction package isn't advancing, at least not at this point. That effectively liberates Obama to press publicly for a bigger, more dramatic deficit-reduction package than Democrats are comfortable with.

Republicans have argued that the entitlement changes Obama supports aren't all that meaningful. But that debate has gotten subsumed by the fight over taxes. The GOP appears to be betting that the public is so concerned about taxes, Republicans will be rewarded for standing even against the elimination of a handful of corporate tax breaks.

The fact that both sides are tussling over how to trim the deficit, not whether to do it, is a victory for the GOP. But give Obama credit for some rhetorical jujitsu: By holding out for a bigger deficit-reduction package than House Republicans favor, he seems to be leading again, not just reacting.

RELATED:

The debt ceiling and wrong-way Republicans

Shifting from stimulating spending to stimulating confidence?

Stop playing chicken with the debt ceiling

-- Jon Healey

Photo: Why are these people smiling? Credit: Charles Dharapak / Associated Press

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