**UPDATED: Things fall apart: debt ceiling deal unraveling as Boehner retreats from $4 trillion goal

Obama v. Boehner

When that “unnamed source”-laden Washington Post story came out earlier this week, claiming the White House was putting Social Security and Medicare cuts on the table, I was extremely dubious.

The Washington Post and Politico versions of the story quoted no one, cited no “unnamed administration officials” — only “sources with knowledge of the White House’s thinking” — always a sketchy concept. And the reports claimed that the White House was dangling entitlement cuts in front of cut-happy Republicans in exchange for ending the Bush tax cuts for the rich. But that made no sense, because everyone knows Republicans will never, ever go for it. Besides, Democrats don’t need to deal that hand, since those cuts will expire at the end of 2012, after the election is over, when regardless of the outcome that November, Democrats can let all of the Bush tax cuts die (including the ones Democrats want to keep, like the child tax credits, but there you go…) by simply refusing to bring them up for a vote in the Senate.

Now, with word that John Boehner has abandoned all hope of a $4 trillion “grand bargain” to raise the debt ceiling and cut twice the increase out of the budget, I’m starting to think that Wapo story was an early warning sign that the speaker is getting played… again.

From Business Insider’s Zeke Miller:

Speaker of the House John Boehner ruled outa “grand bargain” on the deficit and the debt ceiling Saturday night, ending hopes for a historic $4 trillion deal.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes,” Boehner said, leaving room for a more modest deal that would only cut spending by the amount of the debt ceiling increase.

The Republican position on tax increases was nothing new to Obama, who appears to have ignored Boehner’s oft-repeated “bottom-line,” that a deal not include any new taxes.

Boehner simply cannot accept tax increases — no matter how deep Obama’s proposed spending cuts are — or risk losing the Speaker’s office to the more conservative House Majority Leader Eric Cantor (R-VA).

Obama appears to be unwilling to take the Boehner-offered deal of cuts to corporate subsidies in exchange for no tax increases in the “grand bargain,” believing it to be a political liability with the Democratic base.

In response, Obama renewed his call for those with higher incomes to contribute more to the federal government.

Miller accuses the president of thinking he can “strong arm” Boehner into accepting horrid tax hikes on the rich, and he blames Obama for blowing up what could have been a deal. He may be partly right.

Look closely at that piece again, especially this part:

Boehner simply cannot accept tax increases — no matter how deep Obama’s proposed spending cuts are — or risk losing the Speaker’s office to the more conservative House Majority Leader Eric Cantor (R-VA).

Obama appears to be unwilling to take the Boehner-offered deal of cuts to corporate subsidies in exchange for no tax increases in the “grand bargain,” believing it to be a political liability with the Democratic base.

In response, Obama renewed his call for those with higher incomes to contribute more to the federal government.

If it’s accurate, Obama may be crazy like a fox. Having allegedly — and I reiterate “allegedly,” since the Wapo story never quoted an administration official, even off the record, and the White House denied the story’s accuracy — offered Republicans everything but the kitchen sink, even at the risk of making liberals’ heads explode over vague, never explained “cuts” to entitlements (the only specific being a potential shift in how Social Security cost of living increases are calculated), Obama is on the verge of proving, once and for all, that Republicans are unwilling to govern, because they are unwilling to touch tax breaks for the rich and for corporations, even at the risk of shutting down the government. That is how Republican intransigence will be played in the media, because essentially, it’s true.

Meanwhile, the president gets credit from the Beltway press — which yearns for entitlement cutting “grand deals” — for being willing to compromise even fundamental Democratic ideals when Boehner was too scared of a palace coup to even touch the tax breaks on corporate jets and oil rigs. And the president avoids an actual deal that might have risked Democrats’ advantage on Medicare going into 2012, without leaving his fingerprints on the abandoned ship.

Amazingly, with his Saturday announcement, John Boehner has single-handedly done what all of the Democrats in Congress and the White House could not: he has effectively cut the potential economic pain from withdrawing federal spending from the economy in half — from the $4.4 trillion over 10 years proposed in the Medicare-killing Paul Ryan budget, to the $4 trillion over 12 years floated by the White House in April, when Obama played Republicans by dissing Ryan’s budget with him sitting in the front row (angering TIME’s in-house winger Mark Halperin in the process) — and prompting Republicans to vote en masse for the Ryan “vouchercare” budget just days later, in a huff that will rebound nastily on them in 2012; to around $2 trillion now. (Senate Democrats have their own plan to cut $4 trillion without touching Medicare.)

The debt ceiling increase will now likely match the budget cuts, in what amounts to a stopgap measure to get the country through to election day.

Meanwhile, Obama seems to have drawn a line in the sand, sticking to his position of raising taxes on the wealthy, even when he knows that tax hikes can’t pass the House. Progressives who have been whining that the president won’t “fight” should take note of the fact that Obama is insisting on the principle of making the rich pay their fair share, or no deal. Here’s the statement from White House spokesman Dan Pfeiffer:

“The President believes that solving our fiscal problems is an economic imperative. But in order to do that, we cannot ask the middle-class and seniors to bear all the burden of higher costs and budget cuts. We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree.

Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington. The President believes that now is the moment to rise above that cynicism and show the American people that we can still do big things. And so tomorrow, he will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge.”

That’s not a half bad position to be in, because if there is no grand deal (there will be some form of deal, because Wall Street would go apoplectic otherwise, and Boehner wouldn’t survive that blowback), it will be clear that the Republicans walked away, not because they didn’t get enough cuts — Boehner himself just cut the deficit reduction figure in half. It will be because they refused to raise taxes on the rich — something the vast majority of Americans want done. And it will be because even though the White House was willing to defy fellow Democrats and infuriate its base on entitlements, Republicans just can’t buck their friends who sip $350-a-bottle Merlot.

For his part, Boehner is already taking major incoming from the right for seeming to fold like a cheap suit on deficit reduction, for proposing to kick the deficit can down the road, and for seeming to get snookered on taxes.

This from Reuters’ conservative columnist James Pethokoukis, apparently before the “deal” blew up:

1) Various news accounts Saturday morning made it sound as if Boehner was flirting with some convoluted deal where some taxes would be raised – including the high-end Bush tax cuts – but lowered later as part of major tax reform, with maybe some of the savings from fewer deduction going to reduce debt.

2) Then on Larry Kudlow’s radio show this afternoon, the WSJ’s Steve Moore said his paper’s reporting was accurate and the GOP were being “tempted” by this offer.

And then, Pethokoukis got this from a “Congressional source”:

WH is demanding major, unambiguous tax hikes. To get spending caps & entitlement tweaks, greater economic pain appears to be the WH’s asking price. It is increasingly likely that we aren’t going to see a ‘big’ deal if the WH doesn’t budge. Speaker looks to be holding strong. …

[Update 7:39 PM] Appears that the basic framework for future tax reform could not be resolved.

The bipartisan consensus on tax reform (broader base & lower rates) was championed by President’s fiscal commission, and yet now is being rebuked by the President. Lowering top rates that would help make America more competitive was too large a leap for a true class warrior. [Emphasis from original]

And then Pethokoukis adds this:

That Team Obama wants higher higher taxes is not news.  But the growing GOP allergic reaction is. I think these comments gives good insight into how the GOP perceives the evolving deal. And I hope that second part is true. Tax reform should only be done in the context of lowering marginal tax rates, especially if Democrats aren’t offering entitlement reform that would move things toward a more market-based system such as the one outlined in Rep. Paul Ryan’s bold and visionary Path to Prosperity. [Emphasis added]

I also doubt whether the spending cuts being offered by the Obamacrats are largely legit and not a manipulation of the CBO baseline by a) cutting defense spending that was never going to happen and b) pushing cuts to Medicare providers that Congress will later undercut. My best guess remains a smaller spending cut deal + no tax increases + a hike in the debt ceiling.

I wouldn’t doubt Pethokoukis on the spending cuts, particularly based on the way Obama drank Boehner’s milkshake in April on the $100 billion! in cuts that turned out to be more like $352 million in cuts plus a lot of accounting tricks. And if it’s true that Democrats aren’t offering more than cosmetic changes to Medicare, then that means the White House is holding the line on entitlements, too. So what will the final deal look like? Signs point to the deal worked out by Vice President Joe Biden’s commission, which came up with about $2 trillion in spending cuts, and which will now likely be the plan that’s adopted.

Overall, not a good look for John Boehner, and a sign that he’s still being outmaneuvered by Barack Obama.

UPDATE: On Sunday’s “Chris Matthews Show,” Washington Post reporter Bob Woodward said that his sources in the business community are indicating that any deal that comes out of the truncated White House-Congressional negotiations will include cuts that are “feathered” — meaning decreases in federal spending wouldn’t bite this year, since the economy is clearly too weak to take it. And the same would likely go for tax hikes, which would also, under Woodward’s theory, kick in late next year, probably after the 2012 election.

And on This Week with Christiane Amanpour, IMF chief Christine Lagarde said the U.S. failing to raise the debt limit and defaulting on its debt obligations would send a shock through the entire world financial system.

TNR’s Jonathan Cohn digs through the unraveling, and finds that Boehner just couldn’t prevail over the lunatics. Cohn’s opening:

Does anything matter to Republicans more than protecting tax cuts for the very wealthy? Developments of the last 18 hours suggest very strongly that the answer is no.

Good times.

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10 Responses to **UPDATED: Things fall apart: debt ceiling deal unraveling as Boehner retreats from $4 trillion goal

  1. ABL says:

    You and are on very similar wavelengths. I like your point about the media vi made a similar point on my BJ thread, except I swapped “moderate voter” for “Beltway Media.”

    I’m so NOT concerned about this that I find the predictable overreaction to be somewhat amusing.

  2. ABL says:

    “media vi” is “media. I”

    iPad fail.

  3. bmull says:

    Obama played his hand well, but not without giving a lot of us a fright. There’s still a risk that the $2T deal (probably more like $1T when all is said and done) will contain some damaging cuts. We have not seen the details of the Biden plan.

  4. Rupert says:

    So it’s true; Grover Norquist runs the GOP, not John Boehner. And MoveOn proves itself to be as childish as Eric Cantor.

  5. hilda banks says:

    I so wish everything would not be reported until there is something real and true to report. Oh, I forgot, how stupid am I? Everything is geared towards making the President look weak. When did the debt ceiling become such a political football? Most Americans never heard of the debt ceiling because during the Bush years they voted on it and kept it moving. Now that we have a black President everything that has been done or was done is now suddenly wrong and questioned. His every move is questioned. He gets it from all sides, left, right and center. the only time the left complained was during the Iraq war and that was only after the death toll became so great. God help these idiots.Hey Joy, saw you on MSNBC, Friday, love you!!!

  6. hen says:

    The President has shown, once again, that the Republicans aren’t really concerned with deficit reduction; only with cutting spending and then offsetting those cuts with more tax cuts for wealthy individuals and corporations. The President knew what so many others who claim to be so much smarter, didn’t. It would’ve been great if the Professional Left whiners had been out in the media over the past few days explaining why Boehner and the Republicans would never except this the deal; because they’d have to go against their religion of protecting the wealthy as all costs.

  7. woo says:

    Lovely. Now Obama will own anything he does to medicare or SS. Sad face Obama just lost his cover, one term for sure. Everyone realizes that none of this is necessary to raise the debt limit? That the republicans have said they know they’ll raise it whatever happens. You see Obama bargaining with himself now, to cut SS?

    How’s that hopey changey thing workin’ out for ya? lmao.

  8. Rupert says:

    Woo, what are you watching. It was Boehner who blinked. Get your Palin lingo out of here.

  9. Woo says:

    Yes Rupert, Obama lost his kabuki partner. Now he and dems are going to get credit for trying to cut old folks medicare. Nice move by Boner, doncha think? It’s funny, the look on Obama’s face. One term and out of there!

  10. Flo says:

    @Woo: are you living in a dream world? getting your news from Nancy Grace? Is your last name Hoo? Woo Hoo, such a joker. Yes, nice move by Boner abdicating his authority to Cantor and Grover Norquist.

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