Adventures with debt-ceiling Kabuki, cont.
I’m worried about the brinkmanship going on in the debt-ceiling talks which House majority leader Eric Cantor has just decided to pull out of. Cantor’s point seems to be that he is incapable of talking about tax hikes as part of the deficit-reduction negotiations with Joe Biden; instead, the only way such a conversation can take place is if it’s between Barack Obama and John Boehner.
What this says to me is that we’re still very far from the point at which any House Republican — let alone Eric Cantor — is going to be willing to vote for long-term fiscal prudence, as that term is commonly understood. Triggers and ten-year fiscal straitjackets and other such mechanisms are all well and good if your aim is deficit reduction. But Republicans, as we saw most spectacularly during the George W Bush administration, tend to be very bad at reducing deficits, and very good at increasing them. If you vote for tax cuts on a semi-regular basis and you never vote for tax hikes, then no amount of spending cuts is going to get you smaller deficits — especially if Medicare and Medicaid are pretty much off the table.
This is all out of the standard Republican playbook: cut taxes, raise deficits, and leave the consequences to future generations. But now there’s been an important change, in that the Republicans are trying to have their cake and eat it. They can continue to be fiscally irresponsible on taxes, which inevitably means a steadily rising national debt, or else they can start drawing lines in the sand when it comes to the debt ceiling, in which case they have to allow that some tax increases are necessarily going to have to be on the table. But they can’t have it both ways. Hence the punt by Eric Cantor. Something has to give, and he doesn’t want to be in the room when that happens: he’s kicking responsibility over to Boehner instead.
Let’s say the Obama-Boehner meeting happens. If Boehner does give in on taxes — and that’s a big if — then will Cantor and the rest of the House Republicans fall loyally in line and vote for such things? That’s far from a foregone conclusion. And if Boehner doesn’t give in, it’s hard to see how the deficit-reduction plan would have any credibility whatsoever in the markets, since the markets know full well that the deficit can’t be shrunk without some kind of tax hikes.
The whole point of a long-term fiscal plan is to give the markets confidence that the US has its debt situation under control. What I fear is that coming out of these negotiations we’ll end up with a plan which sounds impressive coming out of the mouths of politicians, but which has no real credibility or fiscal force. And that as a result we’ll have even more uncertainty when it comes to future fiscal policy — the exact opposite of what both sides in these negotiations say that they want. And that would be a good outcome, compared to the worst-case scenario where there’s no agreement at all come August 2.
So can someone remind me again why we’re even going through this whole Kabuki? It seems to benefit no one at all.
Update: Boehner’s no more grown up than Cantor is:
“Tax hikes are off the table,” he said. “First of all, raising taxes is going to destroy jobs….second, a tax hike cannot pass the US House of Representatives — it’s not just a bad idea, it doesn’t have the votes and it can’t happen.”