What Democrats did wrong on the debt ceiling in 2010
Felix Salmon writes that since Republicans could never have agreed to a grand bargain that included taxes, “there was no point even trying to construct one.” The cost of that mistake, Salmon says, “is going to be enormous ... I can’t help but draw some kind of causal connection between Treasury’s oversized ambitions and the current mess.” Brad DeLong agrees. He calls it the White House’s “greatest unforced error.”
I can think of a way that this all might have turned out differently. But it’s not the one that Felix hints at here. The world in which the Obama administration simply refused to deal on the debt ceiling isn’t a world in which Republicans cracked and gave him the increase he was looking for. Raising the debt ceiling is really, really unpopular. The idea that Congress should vote itself more authority to run deficits is really, really unintuitive. Even now, after many months of coverage and the most aggressive communications campaign this White House has attempted, Americans are closely split on whether we need to raise the debt ceiling by Aug. 2.
Whenever I try to run out the logic of Obama simply refusing to allow Republicans to take the debt ceiling hostage, I end up with us approximately where we are now, but Obama’s numbers are lower, the GOP’s numbers are higher, a number of congressional Democrats have broken ranks, and Washington elites are firmly arrayed against the White House. It’s not a line of reasoning that leads to a better outcome for Democrats.
This issue is playing out essentially as you would expect given the basic power imbalance at its heart: Many elected members of the GOP really are willing to let Treasury exhaust its borrowing authority. Very few elected Democrats can say the same. For that reason, Republicans always had the leverage on this issue, and in that world, Democrats could never have credibly refused to deal. You can ask whether Obama should have offered as much as he has, but I think that’s a more marginal question given that the GOP has rejected everything he’s proposed.
But there was a moment when Democrats did have the leverage: December 2010. The election was over. Nancy Pelosi was still speaker of the House. Harry Reid still had 59 Democrats in the Senate. The Bush tax cuts were expiring. And Democrats had a perfectly popular and intuitive position: Extend the cuts for the middle class but, in a time of deficits and sacrifice, sunset the cuts for the rich.
Republicans, of course, didn’t want to allow the Bush tax cuts for the rich to expire. They were, in fact, desperate to preserve them. Which meant Democrats had the leverage. And they used it. To secure a temporary extension, Republicans had to accept a substantial round of additional stimulus: A one-year payroll tax cut, an extension of unemployment insurance, and a handful of sundry other stimulus measures. And the extension only lasted for two years, so the White House preserved the option of coming back and killing off the tax cuts after the 2012 election.
But there was one thing the deal didn’t include, that many observers -- myself included -- said should have been there: an increase in the debt ceiling.
It seemed to fit. The deal was going to increase the deficit by almost a trillion dollars, so it was going to accelerate our collision with the debt ceiling. It was passed by an outgoing Congress, and it’s always easier for retiring legislators to take tough votes than it is for newly elected legislators to take them. And it would have headed off the awful choice that Democrats face this year: deep, sharp cuts that will slow the recovery, or a debt crisis that could plunge us back into recession.
But Democrats rejected it. One argument was political. As Harry Reid put it, “let the Republicans have some buy-in on the debt. They’re going to have a majority in the House. I don’t think it should be when we have a heavily Democratic Senate, heavily Democratic House and a Democratic president.” That didn’t make sense then, and it makes even less sense hearing it now. Republicans aren’t going to end up with buy-in on the debt. Their opposition to raising the debt ceiling is pretty clear. What they’re going to end up with is massive concessions on spending.
The other argument was legislative. Including the debt ceiling in the tax deal could have blown up the tax deal. And even if it didn’t, it might have slowed the negotiating such that the lame-duck session of Congress wouldn’t have had time to pass the START Treaty, the repeal of Don’t Ask/Don’t Tell, the 9/11 First Responders bill, and everything else it got done.
And maybe that’s right. But it needs to be balanced against what’s happening now, which includes the certainty of massive spending cuts and the risk of a huge economic crisis. It seemed to me at the time that Democrats were overestimating the importance of a deal now and underestimating the dangers of Republicans taking the country’s credit rating hostage later. Now, with the benefit of hindsight, I’m certain they were.