Aug. 5 (Bloomberg) — Democrats and Republicans, bracing for a game of chicken over a possible government shutdown and a debt-ceiling default, should rewatch the 1955 movie Rebel Without a Cause, starring American icon James Dean.
A thug challenges Dean’s character to race their stolen cars toward an abyss. The first driver who jumps out of his speeding vehicle is a coward. Dean leaps just as his car is about to go over the cliff; the other guy’s leather jacket gets ensnared in the door handle, and he plunges into the void.
In Washington, both sides anticipate a huge fight this autumn over the budget, the mandatory spending cuts under the so-called sequestration and the debt ceiling. They’re expecting the other guy to jump first.
House Republicans think President Barack Obama is bluffing when he says he won’t negotiate on lifting the debt ceiling. They contend that the president’s position isn’t nearly as strong as it was at the end of last year, when the tax cuts enacted under President George W. Bush were about to expire. Obama, who had lots of leverage then, got half a loaf.
The White House recalls Speaker John Boehner’s discomfort with the game House Republicans played with the debt ceiling in 2011, which hurt both the economy and their party. Privately, they say that Boehner doesn’t wish to wage that fight again when the limit is reached late this year and that his demand that any increase in the debt ceiling be matched by comparable spending reductions is a bluff. That position is unacceptable to Obama and Democrats.
The stakes are high in this game of chicken; a miscalculation could send shock waves through the economy.
The probability is that any budget deadlock, which could force a government shutdown and action on the much-discredited across-the-board sequestration cuts in defense and non-defense discretionary spending, will be postponed beyond the Oct. 1 deadline. Then, everything, perhaps including any tax reform initiative, will be thrown in with the debt-ceiling increase sometime in November.
There were plenty of private partisan and bipartisan conversations before the congressional recess, which began August 2. Some of these discussions will continue this month. No one is confident of the path, much less the outcome.
The early budgetary battle lines for the fiscal year that begins Oct. 1 have been drawn, and the two sides are almost $100 billion apart. Neither starts from a position of strength. The White House has made little progress on its insistence on additional revenue. House Republicans had to pull a spending bill containing big cuts from the floor last week for lack of votes. It is relatively easy for most Republicans to support a scaled-back budget concept; actually cutting programs is tougher.
Much of the negotiations when Congress gets back in September are likely to focus on the sequestration, which was adopted only because any agreement on regular spending measures collapsed. The sequestration is indiscriminate, makes for poor policy and is ridiculed by most members of Congress, from defense hawks to domestic policy progressives. It’s just that they can’t agree on a replacement, as House Republicans continue to pretend that the Pentagon will largely be spared.
Treasury Secretary Jack Lew made clear a week ago that any changes to the sequestration had to equally affect non-defense discretionary cuts as well as defense. There are a number of senators, from both parties, who would support such a deal.