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The First 100 Days: What’s At Stake

October 29, 2012

New York magazine’s Jonathan Chait makes a case that next week’s election may matter more—and more quickly—than most of us realize.  “Whichever party wins will have within its grasp the power to break the back of the other’s political-economic macro-strategy” is Chait’s conclusion, and as he outlines the two most likely electoral scenarios, it’s hard to argue with him.

credit: AP/Pablo Martinez Monsivais; AP/Charles Dharapak

Scenario #1:  In the final week of the campaign Mitt Romney surges to victory, carrying with him Republican majorities in the House and Senate.

Chair argues that the team of Mitt Romney and Paul Ryan—at first separately, and now together—has laid the groundwork for a fiscal plan that will generate faster short-term economic growth and that will dismantle the Great Society and the New Deal in the longer term.

Romney has made clear that he endorses (with minor changes) the Ryan budget which a Republican Congress is ready to pass in the first 100 days of a Romney administration.  That plan would “repeal Obamacare, cut income-tax rates, turn Medicare for people under 55 years old into subsidized private insurance, increase defense spending, and cut domestic spending, with especially large cuts for Medicaid, food stamps, and other programs targeted to the very poor.”  Because it’s a budget bill, the Senate can pass it by a simple majority (with Vice-President Ryan casting the deciding vote in case of a tie) using reconciliation rules.

For his part, candidate Romney has repeatedly made clear the weakness of his commitment to short-term fiscal austerity.  Romney and his top economic advisers understand the need for Keynsian stimulative policies in a weak economy.  And since most Democrats agree on the need to reduce unemployment more quickly, it gives Romney the opportunity for a bipartisan victory:  “quickly pass the Ryan plan, couple it with middle-class tax breaks, and put off many of the nastiest cuts to middle-class services for the future”.

Scenario #2: On the heels of two strong debate performances, and riding the success of the auto bailout in key Midwestern states, Barack Obama wins re-election, along with a Republican House and Democratic Senate.

At first glance, this is a recipe—the exact same recipe—for political gridlock like we’ve seen in Washington for the past two years.  Chait disagrees:

“Obama does have a plan to break the legislative impasse and settle the long-term struggle over the scope of government. It does not rest on the GOP’s coming to its senses and thinking of the national good. The plan is the very opposite of naïve. And he can put it into effect even more quickly than Romney could enact his own plan.

Here is how it will happen. On the morning of November 7, a reelected President Obama will do … nothing. For the next 53 days, nothing. And then, on January 1, 2013, we will all awake to a different, substantially more liberal country. The Bush tax cuts will have disappeared, restoring Clinton-era tax rates and flooding government coffers with revenue to fund its current operations for years to come. The military will be facing dire budget cuts that shake the military-industrial complex to its core. It will be a real-world approximation of the old liberal bumper-sticker fantasy in which schools have all the money they require and the Pentagon needs to hold a bake sale.

All this can come to pass because, while Obama has spent the last two years surrendering short-term policy concessions, he has been quietly hoarding a fortune in the equivalent of a political trust fund that comes due on the first of the year. At that point, he will reside in a political world he finds at most mildly uncomfortable and the Republicans consider a hellish dystopia.”

By doing nothing until after the Bush tax cuts expire on Jan. 1, 2013, Obama will have an additional $5 trillion in tax revenues.  By allowing the sequester that congressional Republicans demanded in the summer of 2011 as part of the debt-ceiling deal to begin taking effect, Obama is suddenly holding in his hand a $50 billion/year military spending cut while Social Security, Medicare and Medicaid and program that aid the poor—the heart of the New Deal and Great Society programs—remain untouched.

“Last summer, Obama was pleading with Boehner to give him $800 billion in additional revenue. Come January, he’ll have $5 trillion in higher revenue without doing anything. Since Obama’s own budget proposes to raise only $1.5 trillion in new revenue and trim entitlement spending, he could then offer Republicans a deal that cuts taxes (by, say, a couple trillion dollars), increases military spending, and reduces entitlement spending. In other words, he could offer a right-wing bill—and the end result would be a mix of policies to the left of his own budget, and to the left of the Simpson-Bowles proposal.”

It requires a bit of reading between the lines, but apparently whatever Chait is hearing from his sources in the White House gives him confidence that Pres. Obama is prepared, if re-elected, to withstand the political heat he’ll get from angry Republicans, nervous Democrats and Washington centrist bi-partisan fetishists to cut a deal before going over the “fiscal cliff”.  That’s partly because, as Chait explains, the fiscal cliff is more like a fiscal slope—one in which lots of deficit reduction takes place faster than all but the most fanatical fiscal scolds envisions or wants, but that goes into effect gradually throughout the year.

Bipartisan agreement is not necessary to fix the debt. Nothing is necessary to fix the debt….The budget deficit is … an oversolved problem. In the absence of any agreement between the president and Congress, the deficit will shrink to less than one percent of the economy by 2018, and remain below that level through 2022. The budget deficit declines so sharply and so drastically, and in ways that neither party is entirely comfortable with, that the task for Washington is to pull back on deficit reduction.

The change in circumstance after Jan. 1—with the Bush tax cuts repealed and $100 billion in sequestered funds beginning to accumulate—is what gives Obama the upper hand.

Chait also thinks Obama would hold the upper hand if House Republicans attempt to hold raising the debt limit hostage in February or March as they did in the summer of 2011.  A recently re-elected Pres. Obama with a strengthening economy is in a better political bargaining position than the Pres. Obama who had lost the House just a few months before the 2011 debt-ceiling vote.  “What’s more, there are strong legal arguments that the president can ignore Congress and essentially moot the debt ceiling on his own. Obama ignored these tools in 2011 and submitted to a shakedown because he believed he could cut a deal. Members of the administration aren’t brandishing this weapon, but, somewhat like the Israeli nuclear program, they are happy to have its existence known, if not acknowledged.”

I don’t know whether Chait’s analysis is correct in all respects.  Most especially, I don’t know whether the Obama White House would carry through on a threat to go past the Jan. 1 deadline in order to win a better deal from Republicans, or claim that Congress has no constitutional power to limit payment of debts for spending already approved by Congress.  But on the larger issue of the significance of this election as a potential resolution of the domestic policy arguments the two parties have waged over the past two decades, I agree; the stakes couldn’t be clearer or higher.

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