Why Democrats Lost the Budget Fight

This week, congressional negotiators will either reach an agreement on a continuing resolution for the 2011 budget or force the government to shut down. Even at a time when unemployment remains at an elevated 8.8 percent and a number of global concerns (the Japanese earthquake disaster, the European debt crisis, state budget cuts, and the depressed housing market) threaten the nascent recovery, Republicans will most likely succeed in cutting an additional $23 billion to the budget. Including the $10 billion already slashed in the two stopgap funding measures that were passed earlier this year, that brings the total to $33 billion, about the same level that House Republican leaders proposed before their most conservative members forced them to try to cut even deeper.

Republicans have played the "bad cop, insane cop" strategy well, staking out a maximalist position and then compromising back to the level of cuts they always wanted.

There are plenty of liberals willing to criticize Democrats and the White House for dropping the ball in these negotiations. After all, Democrats had the stronger economic argument: Virtually every nonpartisan analyst agreed that contractionary fiscal policy at this time was unwise; Democrats had estimates on hand that the Republican proposal would lead to as many as a million job cuts; and while public-opinion polls showed a generic desire for reducing the budget deficit, on the specifics the public resisted, in overwhelming numbers, almost all of the cuts that Republicans sought.

But if you want to fault Democrats and President Barack Obama for their negotiating, you have to go back further. The seeds of this defeat were planted in December, when the president negotiated a two-year extension of the Bush tax cuts; in practice, this meant any reduction in the 2011 deficit would have to come from cutting domestic spending. At the time, Democrats held large majorities in both houses of Congress, but talks on a 2011 continuing resolution collapsed because Republicans knew they could just wait a month and take the majority in the House, changing the dynamic of the negotiations. In December, Chairman of the Council of Economic Advisers Austan Goolsbee told MSNBC's Dylan Ratigan, "I think it would be a big mistake if we pass the tax deal, and then we were to immediately try to reverse it, but I don't think the president would go along to that." Yet that's exactly what's happening. Democrats knew that Republicans campaigned on an immediate $100 billion budget cut, and then gave them the opportunity to enact it.

But there's more to this. For a long time, conservatives' long game has been to "starve the beast," depleting government tax revenue through an endless series of tax cuts and opposition to any increases, and then to point to the lack of revenue as the reason to cut spending. The December deal, with $800 billion in tax cuts spread over two years, was the textbook move in this conservative game.

You can even pinpoint it to the day. On Jan. 26, a day after the State of the Union, the Congressional Budget Office released a revision of its 2011 budget estimate. It showed an explosion in the deficit from an initial projection of a little more than $1 trillion to a new figure of almost $1.5 trillion. There was no mystery about the projection -- it reflected the new set of tax cuts enacted in December, and the $390 billion in reduced tax revenue for the year that resulted. But on Jan. 26 in Washington, conservatives and even nonpartisan media treated this as an unexpected event that required a new focus on budget-cutting.

"America's free fall into debt is accelerating," pronounced The Hill. Rep. Tom Price of Georgia, speaking for many of his Republican colleagues, chalked up the estimate to "the pursuit of a big-government agenda." That same day, House Majority Leader Eric Cantor announced he would schedule H.R. 1, the Republican 2011 funding vehicle, for an early vote, citing the need to get deficits under control. On the Senate side that day, John Cornyn of Texas and Orrin Hatch of Utah introduced a balanced-budget amendment to cap spending at 20 percent of gross domestic product and force all tax increases to achieve a two-thirds majority in the House and Senate for approval. By now, every Senate Republican has backed that policy.

But Republicans were not alone in citing these estimates and emphasizing the need for deficit reduction. "The fiscal challenge confronting us is enormous," Senate Budget Committee Chair Kent Conrad, a Democrat from North Dakota, told the Associated Press on Jan. 26. "To solve this problem, it will require real compromise and a great deal of political will. We need to reach a [deficit reduction] agreement this year." The ranking member of the House Budget Committee, Chris Van Hollen, a Democrat from Maryland, agreed. "The report confirms two important things: that our economy is starting to recover from the worst recession since the Great Depression, and that we must tackle the deficit and put our nation on a path to long-term fiscal sustainability," he said. Charles Schumer of New York, who had been handed the messaging reins for Senate Democrats, concurred: "We have to cut government."

In short, Jan. 26 occasioned a marked change in how Democrats handled this debate. Forced onto the defensive by the expansion of the deficit, they led with the acknowledgment that deficits had to be reduced, not just in the long-term but immediately. And yet they had brought about the signifying event that led to this defensiveness: the tax-cut deal. While federal spending was always a preoccupation for the new Republican majority, the deal created a sense of urgency. If the 2011 budget had been put to bed in the tax-cut deal, Republican lamenting about exploding deficits would not have had a near-term outlet in the continuing resolution.

Nobody should be feigning surprise, then, that the best-case scenario for Democrats in the budget debate is precisely what the GOP leadership wanted. It was baked into the cake when the budget was left out of the tax-cut deal. Indeed, the 2011 budget negotiations can be viewed as the second half of that deal. And that deal, exchanging tax cuts for millionaires for a tax-driven stimulus that is getting rapidly canceled out by budget reductions, no longer looks like such a good trade for Democrats.

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