Jul 07 2011

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A Grand Bargain on the Debt?

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The Real Dilema

Before the 4th of July holiday, President Obama used a press conference to excoriate congressional Republicans for their lack of work ethic and soft spot for millionaire tax breaks, as talks on the debt limit sputtered.

By all accounts, it appeared that the negotiations between the White House and Republicans had run their course, that the ideological divide was too great to bridge, and each side was jostling for advantage with the public to deflect blame for a lack of a budget deal.

But now, a week later, POTUS is talking about a possible “grand bargain;” a deal that puts everything on the table, makes radical adjustments to spending, entitlements and taxes, and resolves the debt question, not only for this year, but most likely as an issue in 2012.

Last week it seemed that machinery of government could barely handle the demands of a deal to keep the government out of default by August 2nd.  Now POTUS is saying that perhaps the most far reaching deal on government spending and revenue in a generation can be accomplished in the same time period?

What version of the President is the real deal here; the one belittling opponents for defending billionaires, or the one looking to solve the budget debate once and for all?

Look no further than President Obama’s re-election.  Which narrative gets POTUS four more years?

The President’s performance at the press conference was red meat for progressives. Calling out the GOP for defending “indefensible” tax breaks for the wealthy, while putting the sick, disadvantaged or infirm in jeapardy.

But that narrative is only going to get the President so far.

POTUS’s approval is stuck in the mid to upp 40s in most polls. 60% of voters believe the economy/debt is the biggest issue facing the country. According to Bloomberg, 57% of Americans disapprove of President Obama’s handling of the economy. 57% disapprove of his handling of job creation, and 61% disapprove of his handling of the budget deficit.

For President Obama, the debt ceiling isn’t simply an issue to get past, but both a powerful symbol and a  structural impediment to his re-election.  It will dog him wherever he goes, particularly if there is only a temporary solution to the problem that forces Congress to consider another debt ceiling increase in 2012. 

And the debt question will be made worse by growth and jobs numbers. There are only five quarterly reports on the economy left before the election in 2012. With the debt serving as an effective block to any additional fiscal stimulus by the Feds, most predictions are for at best middling growth between now and election day, which means continued, high unemployment.

The economic facts complement a sobering political fact.

No matter how much red meat the President throws to progressives, there aren’t enough progressive votes to re-elect him.  Those horrendous polling numbers include the very independent voters that are Obama’s only hope for re-election.

So, to win, the President is going to need to cut a deal on the only part of the economic equation that he has a meaningful influence on  now- spending and taxes.

But to cut a deal that meets the political requirements of settling the debt/deficit issue and flips the Independents, the President will necessarily have to throw his base under the bus, supporting cuts in entitlements and government spending, while eliminating tax breaks in return for lower tax rates.

It is a very high risk political gamble for the President, but the returns are potentially huge.

By striking a sweeping bargain, the President will have taken some of the most effective Republican campaign issues off the table. And having pivoted decisively to the center, POTUS will leave the Republican aspirants to jump right to distinguish themselves from whatever deal was cut, effectively marginalizing the GOP in the general election.

As for congressional Republicans, there is precedent for cutting a substantive policy deal that, as a consequnce ensures the reelection of a Democratic president, amid a weak field of Republicans.

In 1996, Newt Gingrich cut the deal with President Clinton to get welfare reform passed before the election. The deal infuriated Democrats, but sealed Clinton’s credibility as a centrist who could work with the opposition, and he coasted to re-election.  The deal effectively hung the Dole presidential campaign out to dry.

 So the raw material and incentives of a deal are there. The political logic for a deal is compelling.

The question is whetherPresident Obama has the courage to do a deal big enough to regain the center, that will necessarily outrage his already restive base.

 Or is all of this a finely orchestrated kabuki dance for the benefit of the Independents, blue smoke designed to make the President look reasonable and put the Republicans on the defensive ahead of a far more frightening showdown before August 2nd.

Today’s meeting at the White House will tell.

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