President Obama has effectively cast the debt ceiling issue on his terms. Raising the debt ceiling is necessary to prevent a series of catastrophic economic outcomes that could push the US back into recession, make total debt even higher, and put at risk social security payments, veterans benefits and other important services.
Republicans are split on the issue. The hardliners don’t care – they just want to cut spending. But even moderates want to find some way to leverage their control of the House into forcing the Democrats to bend on spending. They thought the debt ceiling would be the way to do it, but increasingly the politics around it is forcing them to back down.
But that will be very bitter medicine for the right wing of the party, especially after having failed to prevent tax hikes on the wealthy during the fiscal cliff negotiations. John Boehner is a smart man. He understands the issue enough to know it would be irresponsible to let the US default — most of the business community would be angry if that were to happen, and they represent a core portion of the Republican constituency. But he also knows that he has to appease the hardliners.
Here’s what I expect: The Republican leadership will decide, perhaps as a sudden surprise, to simply punt on the debt ceiling. They know that not only does he now have the issue framed on his terms, but the State of the Union address gives him the ultimate bully pulpit. He’ll set the narrative, it’ll be hard for the Republicans to react.
At the same time they will call for negotiations to begin immediately on finding spending cuts. They’ll say that they are showing their good faith by raising the debt ceiling, and thus expect President Obama and Senate Majority Leader Harry Reid to show an ability to compromise. If they don’t, they will warn, do not expect a continuing resolution to fund the government to be passed by the March 27th deadline. In other words – threaten a government shut down.
Since 1981 there have been five government “shutdowns,” but the first four were hardly felt, except by federal workers. Two lasted a day or less, the third took place over Columbus Day weekend.
The last time this happened was between December 16, 1995 and January 6, 1996 (and earlier between November 14 and 19, 1995). Bill Clinton was President, and Newt Gingrich was Speaker of the House. Gingrich had also threatened not to raise the debt ceiling, but realized the Republicans could not risk the US defaulting.
The shutdown was seen by many as helping President Clinton recover from low approval ratings and win a second term. Newt Gingrich believes it was instrumental in pushing Clinton to compromise with Republicans to balance the budget. To be sure, the shut down cost money, nearly a billion extra dollars. A shut down itself doesn’t save money, even if its used as leverage to get the other side to agree.
Based on what happened back in 1996, here’s what to expect:
* Social security recipients will keep getting checks, but if newly qualifying recipients may not be able to apply for benefits until the government is back up and running;
* Welfare recipients will still get checks, but again – new applications for things like food stamps would be delayed;
* National parks would shut down;
* Food testing would continue, but farm loans and benefits would cease;
* The armed services would see cut backs in civilian staff, and possible delays in payment for active duty personnel;
* The IRS would not process tax forms, except perhaps ones submitted electronically
* Passport and visa applications will be delayed, with the backlog continuing even after government is up and functioning.
As inconvenient as all that would be, it would be nothing like the devastation of a default. It would be a high stakes drama, but one we could recover from quickly.
Unlike the debt ceiling, President Obama could embrace negotiating to help pass a continuing resolution to keep the government running. It would provide the leverage and drama House Republicans want without the economically suicidal path of preventing the country from paying its bills.
Moreover, having won on the fiscal cliff and debt ceiling, President Obama would have cover for compromising on some issues dear to progressives. Moreover, House Republicans loathe to compromise about anything would have the real ramifications of a shut down staring them in the face. It’ll push them to compromise as well.
So if you need a passport, apply sooner rather than later — because while I don’t think Republican leadership is irresponsible enough to not raise the debt ceiling, they aren’t going to give up on their core issue of cutting the deficit. So don’t be surprised if in just over two months the crisis du jour is a government shutdown.