In the wake of its failed negotiations with the new Republican Congress that swept into power in the 2010 elections, the Obama administration learned some painful lessons. The main point of my long print story about this from October was that Obama had learned from his failures and was developing a plan to handle the negotiations that was going to surprise liberals and conservatives alike with its toughness. The first, and most important, piece of the strategy is using the expiration of the Bush tax cuts as a leverage point to isolate the GOP’s unpopular attachment to keeping tax cuts for the rich low. That goal seems well on its way to being accomplished. Now Obama is already moving on to the next piece — the debt ceiling.
Much as they had expected they could win the tax-cut fight by replaying their 2010 strategy of refusing to extend tax cuts for anybody unless the top rates were included, Republicans have been planning to replay their 2011 strategy of using the debt ceiling as a hostage to extract concessions. It worked in 2011 for various reasons that no longer hold true: Obama’s looming reelection made a threat to market stability especially potent, and Obama genuinely believed House Republicans would compromise with him out of a desire to reduce the long-term deficit.
Today, the Obama administration began to strongly signal that it won’t let that happen again. The Treasury Department released a detailed proposal to replace the debt ceiling — a strange ritual that almost no other country has and which serves no purpose — with a system that would allow Congress to disapprove of deficits without threatening an international crisis. Obama today told business leaders that the debt ceiling “is not a game that I will play” and that “we’ve got to break that habit before it starts.”
The unanswered question is how Obama plans to break that habit. One possibility would be to include a reform of the debt ceiling into whatever deal he strikes with Republicans. If no deal is in place by the time the debt ceiling has to rise, probably in February, then Obama will be faced with a choice of exercising a unilateral option to ignore the debt ceiling, either by citing the Fourteenth Amendment or by minting a platinum coin, two options that have relatively strong legal basis. In all likelihood, it won’t come to that, because once January hits, the main impediment to an agreement (the Bush tax cuts for the rich) will be gone, and a deal will be pretty simple to make.
But Republicans are hoping the debt ceiling will give them leverage over Obama in shaping that deal. Obama is suggesting he won’t allow it. I suspect he’s right about that. It’s not 2011 anymore.
