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This Game of ‘Debt Chicken’ Is Getting Scary

Unless there’s a breakthrough soon, hyper-partisanship, political positioning and ideological rigidity could throw the U.S. economy over a cliff. It’s getting scary.

Or, to change the analogy, sometimes in a game of chicken the participants miscalculate and a fatal crash occurs. That only kills the drivers, however.

In the case of a failure by Congress and President Barack Obama to reach a debt limit agreement by early August, the whole country would suffer — indeed, perhaps the world, if the building Euro-crisis and a U.S. default trigger a new Great Recession.

You’d think, given the stakes, that each side might demonstrate statesmanship, bargaining hard but preparing to give for the sake of the country.

That may be happening out of public view — one can only hope. 

In public, though, the sides are hardening. Obama is insisting on a $4 trillion “big deal.” He’s trying to look both leaderly and reasonable so that independent voters blame Republicans for a default disaster.

But Obama is demanding that Republicans agree to raise tax rates on the rich, which is anathema to them.

In fact, Republicans seem unwilling to contemplate revenue increases of any kind, even by closing tax loopholes. Leaders who might think about it — notably Speaker John Boehner (Ohio) —are getting repudiated for diverging from party dogma and pulled back into line.

Meanwhile, liberal Democrats — with House Minority Leader Nancy Pelosi (Calif.) in the lead — are threatening to vote against any agreement that “cuts” retiree benefits, even gradually.

Most Democrats oppose a deal that fails to include revenue hikes. Tea party Republicans say they won’t vote for any revenue increases at all, and their party leaders are toeing their line. Were a deal reached restraining future benefit growth and raising revenue, it might be  torpedoed in either the House or Senate.

And, out on the hustings, at least three GOP presidential wannabes — former Minnesota Gov. Tim Pawlenty and Reps. Michele Bachmann (Minn.) and Ron Paul (Texas) — are publicly welcoming a debt default rather than tax raises. Others are on the edge of doing so.

Is there a way to avoid catastrophe?

Senate Minority Leader Mitch McConnell (R-Ky.) has proposed a Plan B, but it seems designed as much to embarrass Democrats as to solve the debt problem, forcing them to vote for debt limit increases three times before the 2012 election.

There are other ways out.

One is for Obama to shift from a $4 trillion “big deal” to a smaller package of, say, $2.4 trillion to get the country past the 2012 election, when a new Congress (and maybe a new president) would reshape the package anyhow.

That’s not ideal, of course. Between now and then, GOP candidates up and down the line will have locked themselves into a “no new taxes” stance that will make compromise even more difficult. AARP will demand that Democrats “protect” Social Security and Medicare.

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