Busily Marking Time

Republicans and Democrats continue to argue. Will a solution be postponed until after the election?

Something’s happening in the conflict over the debt and the solvency of the United States. There’s still little sign of convergence between Democrats and Republicans. But the business with which each camp marks time has evidently increased. President Barack Obama and the leaders of both parties in Congress are intent on averting the impending insolvency, just three weeks away.

Up until Friday, Obama and Republican House Speaker John Boehner were exploring the possibilities of a “grand bargain,” which envisioned considerable spending cuts together with tax and Social Security reforms.

Boehner’s rejection of the plan on Saturday followed the proposal of a “small bargain,” limited to budget cutbacks. Sunday evening, Obama and the leaders of both parties in the House of Representatives and in the Senate met in the White House, but went their separate ways without any conclusion after 75 minutes. The next round of talks was set for Monday evening. Beforehand, Obama wanted to give a press conference to raise the pressure.

According to current calculations, the United States will reach the legal debt limit of $14.3 billion on Aug. 2. At that point, the government may take no further credit in order to pay routine expenses — unless Congress decides to raise the limit.

The White House negotiations center on the terms of this decision. Both sides are also concerned with their position in the presidential and congressional elections in 16 months, on Nov. 6, 2012. Republicans generally support a small State and low taxes. Democrats maintain that the sacrifices for the budget reform must not affect the lower-income brackets alone. The wealthy must carry the lion’s share.

For Obama and the Democrats, the ideal solution would be for Congress to allow the incursion of further debt without any restrictions. That’s typically how it has worked in previous years. A clear majority in Congress wishes this time to tie the increase to a mandatory balancing of the budget. The Republicans stand firm behind this position and want to fulfill it only through budget cuts. That promise was the foundation of their 2010 electoral victory. Many Democrats would also like to see more budgetary discipline, but would like to reach that goal through a combination of cutbacks to spending and increased revenue. The U.S. finances one-third of its $3.7 billion in expenditures per year on credit. Tax revenues decreased dramatically during the financial crisis of 2008. There is nothing to indicate that these will return to pre-crisis levels in the foreseeable future.

For the “grand bargain” that Obama sought, both sides would have had to make compromises to the core of their campaign strategies. There were higher State revenues, not through increases to the tax rate — those were refused by the Republicans — but through restrictions on tax write-offs. The Democrats, in contrast, would have had to allow reform of the retirement system and health care for senior citizens in order to limit the expense of an aging society. On the Republican side, powerful forces oppose any increase to State revenue. And on the Democratic side, strong battalions reject cutbacks to entitlement programs.

The fall back position for both is the “small bargain.” Agreement can be reached over cutbacks, permissible by a majority, in order to justify an increase to the debt limit. The country will reach the new limit at the end of 2012; then the struggle begins anew. But by then, Election Day will be past.