It was not the Saturday Night Massacre because nobody got fired.
But the Saturday collapse of what looked like a promising bipartisan effort to craft the biggest deficit-cutting deal in American history reduces the already scant hopes for a recovery robust enough to produce the level of job creation needed to rescue the American economy. And that means a lot of people without jobs, fired or not.
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The announcement by House Speaker John Boehner, R-Ohio, that he was scaling back his ambitions for the debt talk may carry the same echoes of a Washington on the brink as the Nixon-era firings that advanced and foreshadowed the march of Watergate. Of course, nothing about the shattering of already brittle budget talks compares with the criminality and corruption of Watergate, but for a nation beset by economic misery, a partisan impasse this close to the first default in American history may carry with it a sense of despair and powerlessness reminiscent of the toll Watergate took on confidence in basic governance.
A deal to raise the debt ceiling by itself wasn't going to jolt the lethargic economy back to life, but the resurrection of gridlock creates an element of uncertainty that, at least in the short term, threatens to create a downdraft on Wall Street, higher interest rates, and a consumer psychology even more cautious than it is now.
There is no clear political or legislative path to raising the debt ceiling by the August 2 deadline, and the chances of partial default on U.S. government obligations is now more than just technical. No one is panicking yet. But that doesn't mean they won't or shouldn't.
Ironically, it was Friday's abysmal jobs report that brought D.C. to its latest and most economically volatile budget standstill.
Republicans saw the low rate of job growth—18,000 in the month of June—as another reason to reaffirm their opposition to tax increases of any kind. Led by Boehner, Republicans concluded the White House advocacy of tax increases—either through closed loopholes and subsidies or the expiration of the Bush tax cuts for the wealthy in 2013—was both politically and economically toxic. The jobless rate has risen steadily for three straight months and now stands at 9.2 percent, mocking both history and economic prognostication. Economists foresaw at least 90,000 new jobs in June; historically, there is no period since 1948 when job growth has been this anemic two years into a post-recession recovery.
Democratic sources told NJ a strong jobs report—showing 200,000 new jobs, for example—would have given Obama the strength to argue nothing should threaten the slow but steady economic recovery and would have cast GOP intransigence on tax increases as short-sided and rigid. Now, Democrats fear, Republicans will exploit the economic anxiety bred by two straight months of sour jobs data to tighten the political vise on Obama by refusing to accept any increase but the smallest loopholes closures and user fees—amounting to less than $200 billion over 10 years.
White House Communications Director Dan Pfeiffer said in a statement Saturday that raising the debt ceiling and enacting sweeping deficit reduction was "an economic imperative," but that he would not ask "the middle-class and seniors to bear all the burden of higher costs and budget cuts."
“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," Pfeiffer said.
But Boehner has not only the full backing of his GOP colleagues—who had begun to grow restive and even agitated about talk of a so-called "Big Bang" deal—he has Senate Minority Leader Mitch McConnell, R-Ky., right by his side.
"McConnell has consistently said that we should cut Washington spending without raising taxes on job creators, particularly in the middle of a jobs crisis," said top McConnell spokesman Don Stewart, who underlined the GOP demand for Medicare and Social Security reforms that could lead to benefit cuts. "And he remains concerned with the Democrats’ unwillingness to take steps to protect entitlement programs from bankruptcy."
Rank-and-file Democrats were furious at word that Obama was open to Social Security, Medicare, and Medicaid cuts as part of a mega-deal that would have also raised upwards of $1 trillion in new revenue. Just as it was hard to see how Boehner could sell tax increases of that magnitude to his House GOP followers, it was just as difficult to envision Senate Majority Leader Harry Reid, D-Nev., rounding up Democratic votes for Social Security and Medicare cuts with 23 Democrat-held Senate seats up in 2012.
Even so, Senate Democrats swiftly portrayed Boehner as a sympathetic figure, a stalwart negotiator bludgeoned into submission by party extremists.
"Speaker Boehner had shown in the last week that, if it were up to him alone to decide, the nation would not be risking default to protect the wealthiest two percent of Americans," Sen. Chuck Schumer, D-N.Y., said in a statement. "In the end, neither the olive branch extended by the President nor the pragmatic streak shown by Speaker Boehner was enough to overcome the far right's obsession with defending tax breaks for millionaires and other special-interest tax loopholes."
It's the kind of faint praise Democrats showered on Boehner during the protracted negotiations to avoid a government shutdown in the spring. What effect such praise will have now on Boehner is unknown. It is unquestionable, however, hard-core House GOP conservatives were made more skeptical of Boehner's negotiating skills after the shutdown was averted than they were before it.
GOP aides said Boehner was prepared to dig deeper into negotiations on a 10-year, $4 trillion deficit-reduction package and presented Obama with an array of tax reform proposals late Friday. But it may have been the case that fundamental disagreements over what constituted tax reform meant a meeting of the partisan minds was never possible.
Top Boehner aides said the speaker sought reform as a means to lower individual and corporate tax rates and through "efficiency of tax collections—not from tax increases." Erased from this description of Boehner's negotiating line is the White House sense that the GOP leader was willing to consider an end to the Bush tax cuts for the wealthy (including on investments) in 2013. Boehner insists he never so committed, and at this stage it scarcely matters.
As one Boehner confidante said late Saturday: "Events Friday and Saturday erased most hope. On Friday, the speaker presented a set of tax-reform principles that were aimed at guarding against tax increases. The White House refused to agree to the core elements of tax reform envisioned by the speaker—broaden base, lower rates. That, and an ongoing gulf on the nature and details of structural reforms, led to his reluctant announcement tonight."
Boehner now wants the talks to revert to the list of spending cuts—numbering about $2 trillion over 10 years—at the center of the budget talks Vice President Joe Biden led. But Obama's running the negotiations now, and he wants a bigger deal. Last Thursday in his White House meeting with the bipartisan congressional leadership, he threatened to veto a short-term debt-extension bill that only delayed default for a matter of months.
Obama has yet to make that threat in public, and Democrats fear if he does, the public might see the president as the inflexible one—with Republicans saying the debt ceiling can be raised without tax increases. In the main, though, Democrats believe they can portray Republicans as captives of big-money interests for rejecting higher levies on the rich (those earning more than $250,000) or the abolition of certain corporate tax breaks.
"We asked Republicans to consider a balanced approach that would have required shared sacrifice, but they would not," Reid said in a statement.
No one can agree on what constitutes a balanced approach. And no budget plan on the table offers the prospect of a balanced budget for the foreseeable future. In fact, $4 trillion in deficit reduction over 10 years would cut by less than half protected federal deficits over the same period.
So, there is no balanced budget or "balanced" approach to deficit reduction. That means we are entering a phase of intensified economic wobbliness.