The Fiscal Cliff: It's About Dealmaking, Not Debt Reduction

One of the most important things to remember about the fiscal cliff negotiations is that no one on either side of the table really wants to go over the cliff. Both Boehner and Obama would prefer to come to a deal — just not quite yet. 

President Obama wants to avoid any risk of a severe hit to the economy and focus on his second term agenda, not an extended budget standoff over a collection of policies that, tax rates on the wealthy aside, aren't high on his priority list. Republican House Majority Leader John Boehner would prefer to avoid the sequester's reductions in defense spending, keep tax rates from rising on anyone, and generally not make a big fuss about the rest of it; he's also understandably worried that Republicans will take the blame, at least in the short term, if there's no deal and subsequently the economy suffers. 

Yes, there are more committed partisans on both sides who think that their side should refuse to sign on to any deal that concedes anything to the other party. Which is why the incentive is to make a deal, some deal, but not until the last possible minute. Neither side wants to look like they gave in too early, or too easily.

And so far, that's the track we're on: The two sides come closer together. Things look hopeful for a moment. But then tensions rise again as the two sides employ new tactics intended to push the opposition. 

The primary considerations here are, as much as anything, about political posturing and positioning. In order to come to an agreement, both sides need to preserve an image and walk away with concessions. President Obama needs to look strong in the wake of an electoral victory, mostly by getting Republicans to agree to some sort of tax increase on the wealthy. Boehner has a somewhat more delicate job: In order to sell any potential deal to his own party, he needs to look reasonable in his willingness to negotiate, but also firm enough that he doesn't simply give away Obama's entire wishlist. He needs to extract symbolically meaningful concessions.

Neither side, though, can be completely honest about these sorts of political considerations. They need a policy framework through which to communicate — with each other, and with the public. And so they talk about debt and deficits.

Obama, for example, has repeatedly pitched his desire to see tax hikes on the wealthy as a deficit-reduction plan. As he put it during his first post-election news conference, "When it comes to how we reduce our deficit, I argued for a balanced, responsible approach, and part of that included making sure that the wealthiest Americans pay a little bit more."

Boehner's office puts out press releases that start with lines like this: "In the debate over avoiding the 'fiscal cliff,' an important point has been forgotten: when it comes to solving our debt, government spending is the problem that must be addressed." That's why Republicans are now pushing for a few hundred billion in additional spending cuts to be included in the deal.

But here's the thing: The fiscal cliff negotiations really aren't about reducing the debt. At best they're about maintaining it. This year, total public debt is equal to about 73 percent of the economy. Yet according to the Center for a Responsible Federal Budget, all of the offers made so far, by both parties, would result in debt equal to somewhere between 71 and 74 percent of the economy a decade from now.

True, that's an improvement over how things could go: CRFB's realistic baseline assumes that debt increases to 81 percent of economy in 10 years; other projections suggest it could be closer. But at best it means holding steady in the medium term. And that's only if Congress actually sticks to whatever spending cuts the deal actually calls for. That's a pretty big if. Most of the reductions in entitlements and other spending that have been outlined so far, especially in the White House proposals, aren't real cuts, because they aren't actually specified. At best they're potential cuts, details TBD. When legislators promise cuts but don't provide specifics, it's hard to trust that the cuts will ever be made. More to the point, nothing that's currently on the table would substantially address the biggest long-term problem: growth of spending on Medicare. 

If spending cuts and debt control were the real focus, they'd be hashing out these details, which are important to ensuring that any plan they agree on actually works. But they're not. Because this isn't about cuts. And it's not really about the debt . It's about making a deal, polishing a post-election image, and getting past the fiscal cliff to focus on other things — just not too soon.