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The Coming Debt Ceiling Settlement

by JACK RASMUS

History repeats itself, but always in combinations of past events.

What today’s debt-ceiling/government shutdown dual crisis represents is a telescoping, within a time period of two months, of similar events that rolled out over an extended two year period in 2011-2012. What took two years to conclude previously, between 2011-2012, in a prior debt ceiling + deficit cutting settlement is now happening in the course of two months, September-October 2013, in today’s repeat of debt ceiling + government budget fight.

Today’s debt-ceiling 2.0 + refusal to approve a government budget October 2013 is similar to events of 2011-2012—i.e. the debt ceiling fiasco of August 2011 and the Fiscal Cliff ‘crisis’ of December 2012, consisting of trillions of dollars of sequestered spending cuts and Bush tax cut extensions.

The prediction here is that, in the settlement to the current crisis coming in the next few days, or week or so at the most, the final terms and details will likely prove remarkably similar to that concluded in August 2011 and December 2012:   Massive social spending cuts combined with tax cuts for the few, in exchange for an extension of the debt ceiling and a political ‘armistice’ for Obama and Democrats until after the next Congressional elections.

The differences between the 2011-2012 and today’s 2013 settlement will be the particular focus of tax cuts and spending cuts in exchange extending the debt ceiling.

In August 2011 the settlement was debt ceiling extension in exchange for an immediate $1 trillion in social program only spending cuts, plus another $1.2 trillion in the so-called ‘sequestered’ spending taking effect January 1, 2013.  That was more than $2.2 trillion—or more than twice Obama’s original 2009 stimulus spending of $787 billion.  Overlaid upon the August 2011 deal was the permanent extension of $4 trillion of the $4.6 trillion Bush tax cuts that also took effect January 1, 2013.  Together the two—sequestered cuts and Bush tax cuts extension—were referred to as the ‘fiscal cliff’.

What the Republicans and its House Teaparty faction together got out of the 2011-2012 debt ceiling plus fiscal cliff settlements was a total of $6.2 trillion in spending cuts and Bush tax cuts (80% of which benefited wealthy households and investors)—$2.2 trillion in spending and another $4 trillion in tax cuts.

What Obama and the Democrats got out of the 2011-2012 deal was a politically convenient agreement in August 2011 from the Republicans not to raise the debt ceiling issue again until after the November 2012 national elections.  What Obama and Democrats didn’t get was any tax hikes on the rich in August 2011 they had said was a deal breaker.

What Obama got from the December 2012 fiscal cliff part of the settlement was mere $60 billion a year in tax hikes on wealthy investors.  (Actually, it was not even $60 billion, as the fiscal cliff deal included a generous liberalization of the inheritance tax for multimillionaire households, a liberalization of the Alternative Minimum Tax for them, and the ‘super-sweetener’ of the remaining $4 trillion in tax cuts now made permanent forever). Obama and democrats also failed to achieve any reduction in the $1.2 trillion sequestered spending cuts that they had expected, not believing the Republicans would allow those cuts, involving defense spending as well as social programs, to take effect. But those sequestered cuts began taking effect in March 2013. Now, post-October 2013, they are beginning to have their full negative impact on the economy.

No wonder the Teapublican faction in the Republican party eventually went along with both the 2011 debt ceiling and 2012 fiscal cliff deals. They got a big bite of the apple, and a chance for another down the road today. The Obama-Democrat ‘cave-ins’ on both the August 2011 debt ceiling agreement and subsequent fiscal cliff no doubt emboldened the faction to take the even more aggressive stance they have recently assumed in today’s crisis.

Notice in the foregoing remarks there is no reference to cutting Obamacare as key to the settlement deal today.  It never was part of any deal.  Last August 2013 the Republican strategy was to use the debt ceiling extension as a hammer to further pound out social spending, especially entitlements like social security and medicare, cuts that were left out of the 2011-2012 spending reductions deal of $2.2 trillion. Another difference in today’s repeat of the debt-ceiling debacle will be that the corresponding tax cuts eventually agreed to probably will focus on corporate taxes instead of individual wealthy taxes—the latter now being set up in the tax code overhaul bill moving rapidly through Congress. That tax cut part of today’s deal may also not be made public in an eventual deal, but will be agreed to in principle by the parties for when the legislation on corporate tax cuts (keyword: Tax Code Overhaul) reaches the House and Senate for a vote.

That 2011-2012 Republican-Teapublican strategy resurrected again by the Republican leadership this past August 2013 was essentially the same as its prior 2011-2012 strategy. What happened was the Teapublican faction of the party intervened in September 2013 and injected its pet provision of defunding Obamacare into the mix, thereby upsetting the timetable and the process for another second debt-ceiling/spending reduction deal this second time around. Negotiations since September may therefore be viewed as attempts by the Republican, Obama and Democrat leadership—with massive corporate lobbying and pressure in the background—trying to get the negotiations back on track with the original process and objective of debt ceiling extension for entitlement cuts plus corporate tax reduction.

The recent Teaparty grandstanding on Obamacare has been for the media and public, with the goal of enhancing their 2014 midterm election results within the Republican party as well as in general. They have now accomplished this. The Obamacare issue was never a serious possibility. They will now retreat.

In the past week a shift back to the original strategy and process—of trading off debt ceiling extension for spending (entitlement) cuts and taxes (cuts for corporate America) has begun to emerge.  A weekend ago Boehner signaled such in his round of TV press show appearances. Teapublican presidential candidate, Paul Ryan, trying to keep a foot in both Teapublican and Republican leadership camps, followed Boehner with a similar focus of ‘lets focus more on general spending and entitlement cuts’ in a lengthy Wall St. Journal editorial.  Even Corporate radicals like the billionaire Koch brothers, supporters and funders of various radical right causes, published a widespread commentary that Obamacare was not the real issue—that spending and tax cuts for corporations were the key issue. And today, Senators of both parties are trotting out to give press interviews to the same effect. As conservative Republican Senator, Bob Corker of Tennessee, declared today to a Bloomberg interview: “for the past two months we’ve been focused on the wrong subject”. That correct focus “is spending cuts”.

On Monday, October 14, the real bargaining and ‘end-game’ to the current crisis began.  Obama held closed door meetings with Boehner and Senate Republican leader, Mitch McConnell, and with Senate-House Democrat leaders, Harry Reid and Nancy Pelosi.  Now the real deal details and terms will be hammered out. It will, this writer predicts, result in more spending cuts, especially social security, medicare and Medicaid, as well as an understanding and consensus to cut corporate taxes when the tax code overhaul bill comes to votes in Congress and for Obama’s signature.

One should not forget that Obama has been, and continues to be, a strong advocate of cutting the corporate tax rate from 35% to 28% and providing ‘relief’ for multinational corporations’ tax rates.  Obama has also already indicated cuts of $630 billion in social security and medicare in his 2014 budget. This is the starting point for the ‘original process’ negotiations that have been temporarily derailed by Teapublican grandstanding, now coming to an end.

The deal may include some token concessions to Teapublicans in the House as well. Perhaps the already offered repeal of the medical device tax. Perhaps some further exemptions to Obamacare for business and wealthy individuals. A long list of such concessions to exempting and postponing parts of Obamacare have already been unilaterally made by Obama since the beginning of this year. Difficulties in the rollout of Obamacare may encourage him to agree to more. There may even be a short delay of a few months in the implementation deadline for the Obamacare act.

But the final deal to be struck in 2013 will appear more like the prior 2011-2012 deal of spending cuts and tax largesse for the wealthy. This time seniors and retirees will be the primary target of the spending cuts, while corporations get the tax cuts instead of wealthy individuals.

As this writer wrote in late 2012 when the fiscal cliff fears were being whipped up by both parties and the press, what was going on at the time was a ‘Well Orchestrated Dance’ between Obama and the Republicans. (see ‘Fiscal Cliff: A Well-Orchestrated Dance’, December 18, 2012, at the blog jackrasmus.com). A deal was inevitable by year end 2012, it was predicted.

Today the leadership of the two wings of the single corporate party have entered into final negotiations again, after a brief interruption by the Teapublicans ‘cutting into’ their cozy dance. The latter are about to leave the dance floor, however, and the well orchestrated dance now begins anew.

Dr. Jack Rasmus is the author of the book, “Obama’s Economy: Recovery for the Few”, published by Pluto Press, London, April 2012. He is the host of the weekly internet radio show from New York, ‘Alternative Visions’, on the Progressive Radio Network, prn.fm. His website is www.kyklosproductions.com and he blogs at jackrasmus.com. His twitter handle is drjackrasmus.    

 

Jack Rasmus is the author of  ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at jackrasmus.com. His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

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