Calm down, liberals. The White House won.

January 2, 2013

I've covered every one of this White House's major deals. Part of that coverage has been taking the temperature of key players on the left. So I heard the frustration when the White House agreed to shave a hundred billion dollars off of the stimulus, when they threw the public option overboard to pass the health-care bill, when they extended the Bush tax cuts for two years to secure more stimulus and when they agreed to the 2011 Budget Control Act to resolve the debt ceiling. 

There's a good case to be made that the White House pulled this one out. (Pete Souza/White House)

The frustration I'm hearing in the aftermath of the fiscal cliff deal is different. First, it's less fury than disappointment. In the aftermath of these deals -- with the possible exception of the 2011 debt-ceiling crisis -- there's usually a core group of liberal pragmatists who think the White House did indeed outfox the Republicans, even if much of the left is angry over the deal. This time, those sources seem to think the White House got outfoxed, that they traded a lot of leverage for a little revenue, and they're depressed over it. 

Second, the disappointment is more total than I can remember it being at any time since the debt-ceiling crisis. I literally have not had one conversation in the last 24 hours in which the person on the other side of the phone tilted positive on the deal. 

Most of those conversations have been off-the-record. But you can see a similar level of frustration among liberal pundits. New York's Jonathan Chait, who's typically pretty friendly to the White House's strategic thinking, says that "What we have now is a spectrum of outcomes that will play itself out over the next few months, ranging from 'okay' to 'terrible.'" The New Republic's Noam Scheiber says he's "in the pessimistic camp." Paul Krugman is relatively unbothered by the specifics of the deal, but is "despondent" over the way the president negotiated.

Meanwhile, the more strategic thinkers on the right are elated. Grover Norquist can barely contain his excitement. Yuval Levin says Republicans "probably couldn’t have done much better." Ross Douthat takes the long view: "The lesson of these negotiations seems to be that Democrats are still skittish about anything that ever-so-remotely resembles a middle class tax increase, let alone the much larger tax increases (which would eventually have to hit people making well below $100,000 as well) that their philosophy of government ultimately demands."

All of which is leaving me a little unnerved. Because after diving deep into the arguments that Democrats and Republicans are using to justify this deal to their members, I actually think the White House got a pretty good outcome, and I think they're well positioned going into the next negotiation. 

All arguments, on all sides of the issue, come down to the debt ceiling. The liberals just don't believe the White House can hold firm against the GOP's threats to push the country into default. The conservatives, well, they believe the exact same thing. I disagree. As I see it, there are now three possible outcomes in the debt-ceiling fight:

1) The White House is right, and they'll be able to enforce a roughly 1:1 ratio of tax increases to spending cuts in the next deal;

2) The Republicans are right, and they'll be able to get major spending cuts solely in return for raising the debt ceiling;

3) Both sides are wrong, and we breach the debt ceiling, unleashing economic havoc.

Of these three possibilities, I see #1 as the likeliest, #3 as the second-most likely, and #2 as vanishing unlikely. That is to say, I think it's far more plausible that we breach the debt ceiling than that the White House agrees to raise the debt ceiling as part of a deal that includes huge spending cuts but no significant tax increases. But likelier than either outcome is that Republicans agree to a deal that includes revenue-generating tax reform. Here's why.

First, Republicans make a big show of being unreasonable, but they're not nearly as crazy as the tea party would have you believe. In the end, they weren't even willing to go over the fiscal cliff. The debt ceiling would do far more damage to the economy than the fiscal cliff, and Republicans would receive far more of the blame. Many thought President Obama actually wanted to go over the fiscal cliff in order to raise taxes, and so it was possible Republicans could've portrayed the breakdown in negotiations as a Democratic strategy. No one thinks that the White House wants to breach the debt ceiling, and so Republicans will take all the blame.

Second, there's no evidence yet that the Republicans will even be able to name their price on the debt ceiling. House Speaker John Boehner has his dollar-for-dollar principle, which implies more than a trillion dollars in cuts to raise the debt ceiling through 2014. But Republicans haven't named anywhere near a trillion dollars of further cuts in any of the fiscal cliff negotiations. They've been afraid to take direct aim at Social Security and Medicare, and while they can call for deep cuts to Medicaid, everyone knows that's a nonstarter for the White House in the age of Obamacare. Meanwhile, domestic discretionary spending has already been cut to the bone, and Republicans want to increase defense spending. So what's their demand going to be, exactly? Will they force America into default on behalf of spending cuts they can't name?

Third, a consequence of the 2012 presidential election, in which Mitt Romney argued for capping deductions and exclusions to pay for his tax cuts, and of the early fiscal cliff negotiations, in which Boehner argued for raising revenue through tax reform, is that Republican policy elites, in my experience, really don't hate revenue-raising tax reform all that much. Raising any revenues is a bit of a problem for them as it permits the growth of government, but it's really raising tax rates where they've talked themselves into hardline opposition. So they may be willing to strike a deal on this.

Fourth, I don't think the White House has a shred of credibility when they say they won't negotiate over the debt ceiling. They may not call what they're about to do negotiating over the debt ceiling, but that'll be what they're doing. That said, I'm quite convinced that they don't intend to be held hostage over the debt ceiling. As a former constitutional law professor, the president sees himself as a steward of the executive branch and is deeply hostile to setting the precedent that congressional minorities can hold presidents hostage through the debt ceiling. At some point in the coming talks, Boehner or McConnell or both are going to realize that the White House really, seriously will not accept a bargain in which what they "got" was an increase in the debt limit, and so they're going to have to decide at that point whether to crash the global economy.

Fifth, the constellation of economic interest groups that converge on Washington understands the debt ceiling better than they did in 2011, are becoming more and more tired of congress's tendency to negotiate by threatening to trigger economic catastrophes, and is getting better at knowing who to blame. It's not a meaningless sign that John Engler, the former Republican Governor of Michigan who now leads the Business Roundtable, called for a five-year solution to the debt ceiling. 

It's worth keeping this in perspective: All it means is that the White House can potentially demand a perfectly reasonable compromise of one dollar in revenue-generating tax reform for every dollar in spending cuts. When you add in the fiscal cliff deal, and the 2011 Budget Control Act, that'll still mean that the total deficit reduction enacted over the last few years tilts heavily towards spending, particularly once you account for reduced war costs. 

But that is, arguably, another reason that the White House isn't in such a bad position here: They've set up a definition of success that will sound reasonable to most people -- a dollar in tax reform for a dollar in spending cuts -- while the Republicans have a very unreasonable sounding definition, in which they get huge cuts to Medicare or they force the United States into default. So while it's possible that the White House will crumble, rendering itself impotent in negotiations going forward, and while it's possible that the we'll breach the debt ceiling, both possibilities seem less likely than Republicans agreeing to a deal that pairs revenue-generating tax reform with spending cuts.

That said, we'll know the answer soon enough.

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Brad Plumer · January 2, 2013