The Government Shutdown and Debt Limit Fights Are Merged

October 8, 2013Danny Vinik 2 Comments

President Obama reiterated today that he will not negotiate over the debt limit. This has been his stance for the past couple of years after the disaster that was the 2011 negotiations. Using the debt limit as extortion is not acceptable. It’s not how our government works and Obama cannot give in to Republican hostage-taking. The problem is that Obama may not have a choice.

We are currently in day eight of the government shutdown and Treasury will breach the debt ceiling sometime in the next two weeks or so. The only way for Obama to demonstrate that he really means it when he says that he won’t negotiate over the debt ceiling is by forcing Speaker John Boehner (R-OH) and House Republicans to raise the debt limit with zero concessions. And guess what? Boehner would reluctantly bring such a bill to the floor at the last minute, because he understands how catastrophic a default would be. Obama knows Boehner understands this and will wait him out if necessary.

The problem comes with the government shutdown. If the two parties come to an agreement before the debt ceiling deadline, that agreement would very likely include a debt ceiling increase. Boehner knows that even if tosses it in there without receiving any concessions, he can still turn around and tell his members that he broke Obama’s pledge not to negotiate. At the same time, Obama can’t reject that.

If the two parties don’t come to an agreement over the government shutdown by the deadline, it will force Boehner to surrender and raise the debt limit without concessions. This would be embarrassing for the speaker and would infuriate his conservative members. He would also lose significant leverage in the government shutdown negotiations. From his comments today, the speaker understands all of this as well.

That’s why I’m confident that a deal will be reached by October 17, the approximate date that the government won’t be able to pay all of its bills. It will take until the 11th hour so that Boehner can return to his conservative members and say he got everything he could out of the president. Both sides will also ramp up the rhetoric and partisan attacks as the time goes by in order to gain leverage in the standoff. Boehner is still hoping that Obama is bluffing, although he knows that is highly unlikely. Obama is still hoping that Boehner will cave and raise the debt ceiling with a clean CR, also highly unlikely to happen. Yet, neither side is going to let go of those hopes and that will force these fights to continue until the last minute.

But they will come to an agreement. It will include a new CR with a debt limit increase and some minor concessions (a new non-binding supercommittee, repeal of the medical device tax, etc.) to placate the Tea Party. Unfortunately, that means Boehner can return to his members and tell them that Obama negotiated over the debt limit. When we hit the debt ceiling in the future, we’re going to go through this entire process again and conservatives will claim that Obama negotiated in 2011 and in 2013. It won’t be true, but it won’t matter. Hopefully then there won’t be a government shutdown fight to muddy the waters. Unfortunately, right now there is.

Boehner’s Shutdown Strategy is Working Out Pretty Well

October 7, 2013October 7, 2013Danny Vinik 4 Comments

Democrats are still underestimating this man.

We’re into the second week of the government shutdown and rapidly approaching the debt ceiling deadline. Republicans are overwhelmingly taking the blame for the shutdown and still have no leverage in the negotiations. Democrats are still unified in their support for a clean continuing resolution. That doesn’t sound like a good situation for Speaker John Boehner (R-OH) and his party, right? Wrong.

In fact, this shutdown has worked out pretty well for Boehner. He’s kept his party unified while slowly ramping down their demands. Liberals dismiss the importance of party unity too quickly. They have clamored for the past week that the speaker should bring a clean CR up in the House and allow a vote on it. Such a bill would likely pass (despite Boehner’s bizarre refutation of that yesterday) and the shutdown would end. But this ignores the political reality of the situation. Conservative Republicans would go crazy at such a move. They may try to challenge Boehner’s speakership. Club for Growth and other conservative organizations may immediately look to primary moderate Republicans who voted for the bill. If these outside groups didn’t have much power, then Boehner and moderate Republicans could ignore them. But they are powerful. They have money and an influential grassroots networks. The Tea Party can’t simply be brushed away as an inconvenience. This means that a clean CR is simply not an option. Liberals who call for Boehner to bring one to the floor are ignoring the political dynamics that exist in the Republican party.

Another positive for Boehner is that he has a successfully merged the government shutdown and debt ceiling fights. It quickly became apparent last week that any shutdown deal would have to raise the debt ceiling as well as there was not time for two fiscal fights. Yet, this is a huge win for the Republican Party. Whatever final deal that the parties work out, Republicans will be able to tell their constituents that they broke Obama’s promise not to negotiate on the debt limit. If Boehner had split his party in half and passed a clean CR, he would’ve faced a debt ceiling fight a few weeks later and Obama would have held firm on not negotiating. In the end, Boehner would have had to raise the debt ceiling without getting anything in return (or anything remotely substantial). He understands how catastrophic a default would be and would never have allowed it to happen. In order to show that he extracted concessions out of Obama for raising the debt ceiling, he had to combine that fight with the one over the budget. He has accomplished that as well.

The Republican party is also taking a political hit each day the shutdown continues, but it’s highly unlikely to threaten their majority in the House and that’s what really matters. It may make it more difficult for them to take back the Senate, but with Obama in office, a Republican Senate won’t accomplish anything anyways. Politically it might help them for the 2016 presidential election, but controlling both houses of Congress in 2014 won’t allow Republicans to accomplish much legislatively. If the shutdown truly risked their House majority, it would be a big deal, but it doesn’t. In addition, the piecemeal bills the House has passed to fund the politically toxic aspects of the shutdown have given Republicans a talking point they can use to deflect blame. The political consequences of this shutdown simply aren’t very large.

Part of that is because the shutdown is actually not that harmful. The negative economic effects are minimal, especially with half of the furloughed workers returning to work today and all of them receiving back pay for their missed work. In fact, 83% of government spending is happening as scheduled. That’s not to say that the other 17% is minimal. It isn’t. There are some truly terrible parts of this crisis – NIH patients not receiving cancer treatment and research ruined – but it’s a sad truth that the effects of the shutdown are limited. Most Americans aren’t feeling them and the national parks and monuments being closed – while frustrating and disappointing to many tourists – isn’t a big deal. The longer the shutdown continues, the more it will become a true crisis that requires an immediate solution. But it will likely be over in less than two weeks as both parties understand the need to find a solution before we breach the debt ceiling. The effects of a government shutdown from October 1st to October 17th aren’t that big.

Finally, Boehner may earn his party substantial policy concessions from Obama and Senate Democrats. If the speaker had listened to all those calling for a clean CR, he would’ve received the sequester level cuts and nothing else, including nothing in return for raising the debt ceiling. Now, he has already locked in sequestration and will receive something else for a combined deal on both the government shutdown and debt ceiling. That may be the repeal of the medical device tax, some larger deal with chained CPI or a mechanism to spur tax reform. Whatever it is, it’ll be more than he would’ve accomplished by passing a clean CR, all while keeping his party unified and limiting the negative political consequences of the shutdown. The Tea Party will likely be angry at the final deal as some are OK with breaching the debt limit, but Boehner and moderate Republicans can turn to them and say they did absolutely everything they could to fight Obama and Senate Democrats.

It’s easy for liberals to look at Boehner’s position and see a weak leader who has no strategy or endgame and is terrified of the Tea Party. That’s not an entirely wrong description, but it doesn’t mean he is ineffective and it ignores the fact that Boehner has accomplished quite a bit the past week. Once again, Democrats are underestimating him.

Americans Still Don’t Understand the Debt Ceiling

October 1, 2013Danny Vinik 2 Comments

I don’t mean understand it in terms of what it actually is (though I don’t think they understand that either). They don’t understand the consequences of it. Breaching the debt ceiling would be catastrophic, causing irreversible long-term effects on our debt and economy. That’s not hyperbole. The market doesn’t believe that we will breach the debt ceiling, because it would be too idiotic for John Boehner to allow that to happen. The current government shutdown is a drag on our economy and harms many different aspects of people’s daily lives. But a default is many orders of magnitude worse. Yet, a new Quinnipiac Poll today suggests that Americans are a bit confused about which is more dangerous: breaching the debt ceiling or a government shutdown.

Raising the debt ceiling is non-negotiable.

The poll finds that by 72% to 22% margin, Americans do not want Congress to shut down the federal government over Obamacare. That’s good. However, a smaller margin (64% to 27%) do not want Congress to default over Obamacare. It’s good that in both cases Americans understand that it’s not acceptable to use a fiscal crisis as leverage to extort the opposite party. But these polls demonstrate that more Americans are OK with that extortion when the hostage is the debt ceiling than when it is government funding,

That’s backwards and needs to change. Part of the reason for this may be because this poll was conducted over the weekend, right before a government shutdown, while a possible default is still a few weeks away. Nevertheless, the media must do a better job explaining the consequences of a default to the American people. There should be no pretense that there will be negotiations over the debt ceiling. That’s not how this works. President Obama screwed up in 2011 by negotiating over it, but that was an outlier. It did not set a precedent.

Speaker Boehner will raise the debt ceiling, because if he doesn’t, it will go down as one of the single worst actions a legislator has done in the history of the United States. Once again, that’s not hyperbole. We need to stop treating this as a back-and-forth game, trying to guess what the speaker will do, and start calling it what it is: a foregone conclusion. Boehner will raise the debt ceiling, because it would be apocalyptic not to. The American people need to know that as well.