Obama must lay foundation for budget deal

In order for an ambitious budget deal to emerge, an awkward conversation must take place. House Speaker John Boehner needs to tell President Barack Obama: “I can give some on rates for the wealthy, but I need cover on serious, structural cuts in entitlement programs.”

The call would be Boehner’s. But the groundwork for that conversation must be laid by the president. And Obama has been actively making it harder for Boehner to cry uncle. Obama’s initial budget offer was a calculated insult, involving, by some accounts, an actual spending increase. He has demanded unlimited debt-ceiling increases — a constitutional innovation of Mohamed Morsi-like ambition. And Obama has been in full, anti-Republican campaign mode around the country, as if the election had never ended.

The president has cultivated an atmosphere of distrust, in a relationship with a House speaker never characterized by trust. The moment Boehner concedes on rates, Republicans fear a leak and a Democratic victory dance, before any serious outcome on spending cuts can be locked in.

Part of the art of the deal is giving your opponent a soft place to land. Seeing no soft places, Republicans are increasingly concluding that Obama doesn’t want a deal.

This is not the only possible interpretation of these events. Obama could be a ruthless negotiator, trying to squeeze every possible concession out of Republicans before agreeing to their last offer at the last minute. He could also be an unskilled negotiator who misjudges his opponents, overreaches wildly and backs unintentionally off the cliff. See Bob Woodward’s The Price of Politics.

But in any case, Obama has a higher tolerance for cliff diving than Republican leaders, which gives the president a negotiating advantage. The Democratic left is perfectly comfortable with most consequences of the cliff — large defence spending cuts, tax rates back to Bill Clinton levels for everyone, Republicans blamed for defending the rich. Obama may be calculating that his leverage with the House would be even greater in January. As the weeks of pain go by, political pressure might grow so heavy on the GOP that Obama could essentially dictate terms — whatever mix of tax increases, tax cuts and spending he wishes.

The risk of this strategy is serious — market panic, credit downgrade and recession. The political reward for Democrats might also be considerable: marginalization of the GOP based on a three-point presidential victory.

Republicans have begun to realize their poor negotiating position — the reason they cave a bit more with each passing week. Some are contemplating a strategic retreat. House leaders are considering a variety of approaches that would move rates up marginally on the wealthy, perhaps to 37 per cent, while postponing the spending battle until the debt limit debate in March, or even until 2014. While this would be a GOP loss, at least Republicans would be taking matters into their own hands.

But there is a serious question whether any legislation pre-emptively increasing tax rates would get enough GOP votes in the House. It is one thing to know that your political emasculation is inevitable. It is another to take a hand in it.

There is a political problem at the heart of the budget debate. If Democrats get what they want — tax-rate increases on the wealthy — they can crow about it in public. If Republicans get what they want — structural reductions in entitlement spending — they are unable to crow. Their motivation is fiscal and ideological, not political.

Despite Rep. Paul Ryan’s best efforts, entitlement reform is not yet a popular, bottom-up political movement. It won’t happen unless the president leads — providing cover for the political class to move together. Democrats must be dragged into it. Republicans must be constantly reassured they aren’t being herded toward politi- cal slaughter. But Obama doesn’t seem particularly interested in this project. He talks about a “balanced approach,” but focuses almost entirely on tax-rate increases that would fill about seven per cent of the deficit hole. Since the election, there has been no difference in content, strategy or tone than if Howard Dean had been elected president.

The failure to secure a grand bargain — either by design or through incompetence — would be a lost opportunity for the country and the president himself. Putting the budget on a sustainable path, then moving on to pass immigration reform, would be historic achievements of the first order. But Obama must suddenly find the skill to squeeze the political system without breaking it to pieces.