Real Debt Reduction Will Require Bipartisan Negotiations
Our last post argued that the divided and chaotic GOP House has no power to require Democrats to negotiate spending cuts in response to the empty threat of a US national debt default. It will not be the Democrats, but rather it will be the bond markets and credit rating services, that force the Republicans to yield to the reality that they will be blamed for crashing the global economy if they crash the global economy. Causing a global depression is obviously neither good policy nor good politics. President Biden has all the leverage and can refuse to negotiate with Speaker of the House Kevin McCarthy (R-CA).
A day or so after we published that post, President Biden said he was seeking to negotiate with Speaker McCarthy. We see this as great news because America desperately needs bipartisan negotiations over the national debt and the unsustainable annual deficits, and because we have every reason to believe Biden understands he is negotiating from a position of strength, not weakness. We do not need bipartisan budget negotiations under a threat to default on our current debt obligations, but we do need bipartisan budget negotiations. Biden would be correct to unlink the default threat from the budget negotiation, but as we hinted in the final paragraph of our last post, Biden can choose to link his response to the default threat and the budget negotiations if it serves his interests in getting the House Republicans into productive talks toward a balanced approach to reducing the long-term threat to economic stability posed by the unsustainable borrowing.
Once again, we have reached a point when both political parties say they support meaningful deficit and debt reduction. For the past three decades, this seems to happen every time there is a Democrat in the White House. For some reason, neither party places much emphasis on deficit reduction when there is a Republican president. We saw large battles involving both parties over how to cut deficits in the Clinton and Obama Administrations, but there was little mention of the issue from either side during the George W. Bush and Donald J. Trump Administrations.
House Speaker Newt Gingrich’s (R-GA) confrontational tactics, government shutdowns and threats to default on the national debt failed to deliver significant deficit reduction early in the Clinton Administration (1995-1996), but after these hardball tactics were rejected by voters and Clinton won reelection in 1996, Gingrich shifted his tactics from confrontation to bipartisan cooperation that was successful in replacing deficits with four consecutive years of budget surpluses. Six years of confrontational GOP tactics, government shutdowns and threats to default on the national debt again failed to deliver significant deficit reduction in the Obama Administration (2011-2016).
We are confident Biden knows he is now negotiating from a position of strength because he has been here before as Vice President and the lead negotiator for the Obama Administration with then House Speaker John Boehner (R-OH) and then House Majority Leader Kevin McCarthy, a history we tell in detail in a full chapter of our book, “Divided We Fall” by Alice Rivlin, Sheri Rivlin and Allan Rivlin. (Boehner was eventually replaced as Speaker by Paul Ryan (R-WI) who was similarly challenged to unite the GOP Caucus and achieve siginificant deficit reduction.)
In addition to learning that talk of a debt default is an empty threat that will be abandoned as soon as the stock and bond markets start to tumble, Biden also learned that the Republicans are not seriously pushing for spending reductions – at least no cuts that they are willing to list. Their entire strategy in 2011 was to force the Democrats to specify cuts that would add up to a target level. This is just what they are trying to do now.
We know Republicans do not want to put specific budget cuts on the table because they did not make meaningful budget cuts in 2017-2018 when they controlled the House and Senate and Trump sat in the White House. Instead, they dramatically increased the deficit and debt with a large tax cut that mostly benefited wealthy individuals and large corporations. We also know the Republican House is now divided over whether there should be cuts in military spending or support for Ukraine, and former president Trump recently issued a statement to those that still follow him that Medicare and Social Security should not be touched.
These categories of spending that divide Republicans add up to two-thirds of the budget. If Republicans can reach agreement among themselves to make specific cuts in any of these areas, or if they want to propose deeper cuts in the remaining third of the budget that funds retirement commitments for veterans and civil servants; programs that help keep poor families and families with children fed, housed, and above the poverty line; law enforcement; medical and scientific research; and roads, bridges, smart energy grids and broadband connections, then they should spell out their proposed cuts. We will go deeper into the details of budget math in a future post, but the broader point here is simple. Threatening to harm the economy in order to trick Democrats into proposing unpopular budget cuts is the opposite of leadership.
And this is really the problem. Absent real political leadership, our political system is currently rigged to produce deficit spending, because the public has been taught to oppose tax increases and budget cuts to popular programs – and no programs are universally unpopular. This is a problem created by partisan blame shifting, name calling, and negative campaigning, that cannot be solved by more of the same. This problem can be solved with bipartisan cooperation and tough closed-door negotiations where both sides move beyond hardened absolutes. This is a central thesis of our book, and we will provide greater depth in future posts.
Building on the Simpson-Bowles blueprint from the Obama era updated for today’s realities, budget experts have proven the nation’s borrowing can be controlled on a sustainable path with a balanced package of spending restraint and revenue increases. This can be done without cutting needed benefits for the elderly, children, or vulnerable groups, and without tax increases that choke business investment or harm the economy, all while maintaining needed investments in health, technology, infrastructure, and worker skills and education to ensure future gains in productivity, equity, and quality of life.
It will not be easy to get from the shutdown and default threats coming from the GOP House to a bipartisan agreement on a long-term budget bargain, but the Senate has been seeing a lot of bipartisan cooperation over the past two years. There is likely more House support, we suspect even a majority of the whole House, for a cooperative approach than is currently being expressed. If Biden is seeking to use the leverage he gains by the foolish House Republican default threat to start a bipartisan conversation, at least that’s a start. Every long journey must begin with a first step.