Taxes & Spending

Two More Years of Budget Winter–and Groundhog Day

Following Obama’s deficit speech, those awaiting a budget thaw can instead expect more winter.  Like groundhogs having seen their shadows, both sides can retreat into their budget burrows.  The only difference is that they likely will be there for two years, rather than six weeks.  Disappointing, but not surprising.  For negotiation so fraught with fundamental policy decisions, both sides have hopes for stronger positions in 2013.

The Wall Street Journal aptly observed Obama’s “blistering partisanship” in his deficit speech.  The administration well knew tone was more important than content, so it was no accident.  It was intended to push Republicans away.  It succeeded.  The question is why?

Most importantly, policy alone—even tax increases—would not have sufficed.  No one reasonably expected Obama to not put tax hikes on the table.  Deals come at negotiation’s end, not its beginning.  And negotiations open with each side’s strongest position.  

Last year, Obama only accepted a two-year extension of Bush’s 2001 upper-income rate cuts under duress, and his current budget did not extend them.  Tax increases also serve a defensive function for the administration.  They reduce the need for domestic spending cuts—something the administration needs to defend for its base.   Every tax increase dollar is a spending dollar spared.

So to truly foreclose negotiations, the administration had to do it rhetorically—pushing Republicans from the table.  Necessarily arduous and acrimonious, negotiations are hard enough to conclude with friends, let alone enemies.

Obama cannot afford negotiations now.  His approval rating already precarious—below 50% and often negative—he faces the electorate in just more than18 months.  Just last November, he suffered crushing defeat in large part because his base supporters did not turn out.  Any additional spending cuts he accepts only risk further alienating them.  Reelection is problematic with last November’s turnout.  It is impossible with an even lower one.

Looking to precedents from momentous bipartisan negotiations, Obama wants to be Reagan in 1986, not Clinton in 1996.  Reagan achieved landmark tax reform that remains the El Dorado all others still seek.  Reagan had won a landslide reelection, still held the Senate, and had considerable sway in the House.  Something approaching that is what Obama wants.

Contrastingly, Clinton was a weakened President.  Still facing reelection, he was forced into budget abdication.  Following landslide midterm losses that cost his party any control of Congress, Clinton had no choice but to accept Republicans’ balanced budget demands that led to surpluses through 2001.

Obama is neither as weak as Clinton in 1996, nor as strong as Reagan in 1986.  Unlike Clinton, Obama’s party still controls the Senate, which means he can not be forced into negotiating.  His speech signaled that he won’t be.

Unlike Reagan, Obama does not yet control his own destiny.  He has not yet won reelection and retained the Senate and leverage in the House.  His speech last week reminds us that he needs to accomplish at least the first of these.

As much as Republicans are eager for serious budget negotiations, the groundhog delay does not necessarily hurt them either.  Any version of a tax increase is anathema to their base—from which they don’t want the estrangement Bush I had in 1990, which even resounding Persian Gulf success could not mitigate.

Republicans also have the possibility of better political prospects in 2013—winning perhaps not only the Senate, but the White House too.  In less than two years, they could control all the levers of federal government.  And even failing to capture both, adding either would still double their current negotiating leverage.

So what happens during the next two years?  The spending fights continue continuously: a series of smaller battles, rather than a single decisive one.  There are the 12 spending bills for this year and next—roughly one a month.  There will be at least two debt limit increases—a single increase being unlikely large enough to carry government borrowing through to 2013.

This terrain is hardly unattractive to Republicans.  It tilts to their advantage.  They are gaining in reality (each bill yielding real spending cuts) and rhetorically (staying on their message), while states’ cutting forms an echo chamber.

And while not attractive to Obama, it is the best he can achieve under current circumstances.  He avoids a decisive battle on his foes’ turf at a time when he is most vulnerable.

So the budget’s near future looks like its recent past.  We go from groundhogs searching for a winter reprieve to Groundhog Day, the movie in which Bill Murray’s lead character was doomed to relive the same day over and over.  Big negotiations will wait until 2013.  Today, neither side knows who will be at that table—let alone what they will bring to it, or put on it.

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