The Debt Ceiling Debacle

By Robert L. Borosage, cross-posted from Huffington Post.

Things fall apart; the centre cannot hold;
....
The best lack all conviction, while the worst
Are full of passionate intensity.
-William Butler Yeats, The Second Coming

"It is clear we must enter an era of austerity; to reduce the deficit through shared sacrifice," reads the statement issued by House Minority Leader Nancy Pelosi, as she endorsed Democratic Senate Leader Harry Reid's plan to cut $2.7 trillion in spending over 10 years with no call for the wealthy to pay anything in taxes.

It has come to this. The proud liberal leader of House Democrats, excluded from many of the debt ceiling negotiations because she insisted on defending Social Security and Medicare, has now capitulated to the austerity caucus. And the Republicans still refuse to take yes for an answer.

For all the president's talk about shared sacrifice and the wealthy paying a bit more by closing loopholes, the two choices before the Congress now are all about spending cuts without revenue increases. Republican Speaker Boehner's plan would raise the debt limit to cover debts for six months in exchange for $1.2 trillion in spending cuts, followed by an election year debate over the same debt limit in exchange for cuts of $1.8 trillion coming largely from Social Security, Medicare and Medicaid over the next 10 years. In his plan, benefits of current retirees would necessarily face harsh cuts. 

The alternative, put forward by Senate Majority Leader Harry Reid, endorsed by the president and Pelosi, calls for stunning cuts in discretionary spending over $2.7 trillion over 10 years, excluding entitlements and any new revenues. These would come partly from winding down two wars and cutting defense, but would require deep cuts in domestic programs in everything ranging from schools to the environment to mass transit and food safety.

Both plans would set up a super committee -- a gang of 12 -- with special powers for expedited votes on a proposal to cut entitlement and, in Reid's case, consider closing loopholes if not raising taxes.

The irresponsible decision of the Tea Party Republican right to hold the economy hostage over the raising the debt ceiling has paid off big time. And Americans will pay the price.

It is worth recalling just how extensive the Democratic retreat has been.


1. The president began his administration by laying out an integrated strategy for American renewal, a strategy to rebuild the sinews of our economy, revive the middle class and put Americans back to work. This would include new initiatives to balance our trade, support manufacturing, capture a lead in the green industrial revolution, rebuild a decrepit infrastructure, save our schools and fix our health care system. And that would require measures to pay for that over the long term, with progressive tax reforms and new priorities. Instead, Democrats have accepted the focus on deficits and spending cuts.

2. At the very least, Congress should -- as most sensate economists argue -- be focused on the jobs deficit, not the budget deficit in the short term. Instead, with 25 million people in need of full time work, one in four children in poverty, one in four young people unemployed, the president and now the Democratic congressional leaders have accepted the bizarre conservative assertion that draconian cuts to government spending will somehow generate growth in a faltering economy with mass unemployment. Good luck with that.

3. The president initially called for a clean lift of the debt ceiling as every other president has received. Republicans took a hostage -- the economy -- that they could not afford to shoot. Instead the president embraced negotiations and accepted their arbitrary demand of a $1 in debt reduction for every $1 in lifting the debt ceiling. So Americans began to think this was about taking on more debt, when in fact it was merely a matter of paying the bills that Congress had already racked up.

4. Democrats should have demanded more revenue from progressive tax reform than savings from spending cuts from programs for the vulnerable. The reality is that domestic spending -- adjusted for inflation and population -- has not risen since 2000. Tax cuts, unfunded wars, rising health care costs and recession have racked up the deficits. With the wealthiest 1% of Americans capturing fully two thirds of the income growth in the society -- and paying the lowest rate of taxes since the Great Depression, top end tax hikes should bear more of the burden than domestic spending cuts. It is not shared sacrifice if hedge fund billionaires must finally pay a tax rate similar to their secretaries while seniors have to choose between medicine and food.

5. Democrats have insisted from the start that Medicare and Medicaid be protected. The president had this right: health care costs are the leading source of long term debt projections, but this is because our health care system is broken. Medicare actually does a better job controlling costs than the private insurance industry. The focus should be on taking on the drug and insurance companies, the hospital complexes, the way we deliver medicine to make health care affordable. Focusing instead on Medicare or Medicaid doesn't solve the problem of rising costs, it just shifts more of them to those least able to pay -- the elderly, the poor, the disabled.

6. As Pelosi and Reid have agreed, Social Security should not be part of this discussion, since Social Security is in surplus and has contributed nothing to the deficit. The changes needed to insure Social Security remains solid -- primarily raising the cap on payroll taxes - should be considered separately, outside of the mania about deficits. The Reid plan excludes Medicare and Social Security from the $2.7 trillion in cuts over 10 years, but sets up a Gang of 12 committee established with a mandate to cut them.

What is notable about the current choices is how far removed they are from the opinions of most Americans. By overwhelming majorities, Americans want Social Security, Medicare and Medicaid protected. The most popular options on deficit reduction are raising taxes on millionaires, lifting the cap on Social Security, taxing Wall Street bankers for the mess they made, closing off shore tax havens and various corporate subsidies and loopholes.

So how did we get to this utterly wrong headed and unacceptable choice, with even former Speaker Pelosi embracing austerity in the midst of mass unemployment?

In her good piece on the debacle for the New York Review of Books entitled What were they Thinking, Elizabeth Drew summarizes two core factors.

1. Tea Party Terror. A deeply conservative Republican Party, Drew argues, is terrorized by its right-wing Tea Party zealots. Country club Republicans like Speaker Boehner, although far more conservative than their predecessors, could not have imagined the deal that they are now terming unacceptable. They have been driven by the zealots who challenged sitting Republicans defeating some, and helping to elect a class of zealous ideologues. Their more extreme candidates may have cost Republicans some Senate seats -- in Nevada and Delaware for example. But they put sitting Republicans on notice that they were at risk if they compromised -- and they set the terms of debate in the Republican caucus.

2. Presidential Re-election Strategy The president's political advisors decided that independent voters, key to his re-election, were freaked out about spending and deficits, and wanted bipartisan cooperation. So the president would compromise early and often, reach out to Republicans, turn to deficit reduction, while standing firm for Planned Parenthood, or repealing Don't Ask Don't Tell. He would put Medicare and Social Security on the table in exchange for modest revenues on closing loopholes to prove he was willing to go the extra mile.

What Drew doesn't emphasize is perhaps more important: money politics and the passivity of the Democratic base. As campaigns grow more expensive, and labor grows weaker, big money plays a greater role in the Democratic Party. A whole New Democrat ideology has been developed to marry corporate economic policies -- financial deregulation, corporate trade, privatization and more -- to social liberalism. When Pete Peterson and others used the crisis to drive a new focus on deficit reduction, corporate Democrats saluted. The president moved to deficit reduction -- and established his deficit commission -- long before the Tea Party made its presence known. With Republicans captured by the far right, the President could embrace a conservative agenda on economics, confident that his own base had no place else to go. And in fact, most progressive activists have been reluctant to challenge a reform president they were proud to elect.

The Obvious Lesson

Progressives need to learn not so much from the Tea Party as from their own history and build an independent movement to stand with working Americans. Unlike the Tea Party fringe, a progressive movement has the advantage of mobilizing Americans around values and the policy priorities that are supported by a broad majority. It can organize to hold legislators in both parties accountable, demanding that they stand up for the many, not the privileged few. Today, a range of groups are doing just that, calling on members to inundate Congress with demands that Medicare and Social Security be protected, and that the rich pay their fair share of any deal. The challenge for the movement is whether it can gear up to run its own challengers in Democratic primaries against incumbents who are more responsive to their contributors than their constituents. The American Dream Movement, championed by Van Jones, Moveon.org, the Center for Community Change, the Campaign for America's Future that I help direct and others, is beginning to build that uprising.

There is much talk about new centrist third parties, about the need for bipartisan compromise to get things done. But when the Democratic position is to embrace $2.7 trillion in cuts from discretionary spending, divorced from any demand for progressive tax reform or any growth strategy that will rebuild the middle class, the "center" has been wrenched so far to the right that it is at odds with the common sense of most Americans. We need a citizen's movement willing to challenge money politics, clean out the corrupt stables in Washington, and demand a politics that works for working people.