Inside the debt deal: Who won, who lost

National Journal
August 1, 2011

By Major Garrett
National Journal

It started clean and ended messy.

When the debt-ceiling crisis began to capture the public's and Wall Street's bemused imagination in June, President Obama's Gallup approval rating was 50 percent, the highest

It's now at 40 percent, the lowest of his presidency, and a disturbing sign that dismay with America's "dysfunctional" government is taking a toll on more than Congress - mired since early spring with approval ratings in the mid-teens.

Obama won a long-term extension of the nation's $14.3 trillion debt ceiling. The deal extends borrowing authority by at least $2.1 trillion with no threat of congressional obstruction.

But Obama lost on his push for higher revenue. Tax increases - even for favorite targets like corporate jet subsidies and oil companies (heavy on symbolism but relatively light on revenue) - were left to a special committee. That means Obama traded spending cuts upfront without a dime of guaranteed new revenue - already a flashpoint on the left.

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In the main, Obama did protect Social Security, Medicaid, children's health insurance, and veterans benefits and other entitlements from across-the-board cuts if the special committee fails to propose specific budget cuts to Congress. The committee's mandate is silent on the fate of these programs, but since many in Congress see the possibility — if not probability — that the 12-member committee bipartisan committee will deadlock, these programs are shielded from automatic cuts that failure would set in motion.

Also, Obama won a 50-50 split in all domestic cuts between non-defense spending and allocations for defense, homeland security, and the State Department. This amounts to $350 billion over 10 years and gives Obama an opportunity to press for more economical spending in the security sphere. Republicans say they will fight another day to ensure military readiness, training, and availability of necessary weapons systems.

But the president opened the door to Medicare cuts. Even though they are limited to providers, Obama has put Medicare cost savings on the table at just the moment congressional Democrats cherished a clean shot at Republicans for backing a 10-year plan to transform the health care program for the elderly from fee-for-service to a voucher system to finance insurance purchases on the open market.

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On the tax side, Republicans are certain the rules will nullify higher taxes. Democrats are equally convinced the magnitude of future spending cuts through caps or across-the-board sequestration will prove so politically unpopular that Republicans will relent and raise taxes. That's what happened in 1990, when sequestration-ordered cuts led President George H.W. Bush to raise taxes in a budget deal reviled to this day by conservatives.

For Republicans, the victories are embedded in forcing Obama to agree to deficit-reduction with no explicit call for tax increases. They won votes in both chambers on a balanced budget amendment to the Constitution and built what they regard as acceptable protections of future defense spending. They also eliminated a Democratic bid to count as savings $1 trillion in spending on wars in Afghanistan and Iraq that was unlikely ever to be spent. Still, GOP unity was sorely tested and House Speaker John Boehner's leadership clout is less sturdy than it was.

Citing precedent, Obama asked Congress for a debt-ceiling increase with no strings attached. But the grudging deference that previous Congresses granted Obama's predecessors evaporated in a partisan-fueled demand by the new GOP House to turn a once-obligatory debt ceiling increase into a policy cudgel.

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The president swiftly retreated, giving Republicans a victory no other Congress enjoyed. Even in 1985 when President Reagan signed the Gramm-Rudman-Hollings deficit-reduction law, he didn't do it under the threat of default. But House Republicans used default and the economic damage it would inflict as a political weapon -- one that forced Obama to link a debt ceiling increase to deficit reduction.

With that choice, Obama had to simplify his demands, and his one unquestioned victory in the debt deal was a boost in U.S. borrowing authority until 2013. In the hard-fought negotiations, which the White House said didn't wrap up until 7:30 p.m. Sunday, Obama also won relatively light first-year discretionary spending cuts.

Of the $917 billion in discretionary cuts on the table now, only $7 billion occur in this fiscal year. Another $3 billion will be cut in next year's budget from 2010 spending levels. That's certainly a cut when compared to typical year-to-year spending increases that take inflation into account. But it also makes the deficit-reduction target in the out-years considerably larger than most House Republicans would prefer. In essence, Obama won a $900 billion debt ceiling increase for $10 billion in hard cuts over two years - with half coming from defense.

In sum, it's hard to see how Obama would have called this a victory back when he asked for a clean debt-ceiling increase. Similarly, House Republicans would have preferred more spending cuts up front and a stronger link to a balanced budget amendment or more iron-clad budget process reforms.

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It's a deal that neither side particularly likes, that has taken a toll on everyone's popularity and cast a pall over the U.S. economy.

Clearly, it's not enough to satisfy Obama or Republicans.

Judging from the sagging poll numbers for all the combatants, though, it is the public that will probably have this one-word reaction.


Correction: An earlier version of  this story misstated the mandate of the special committee on deficit reduction.  The committee's mandate is silent on possible cuts to entitlement programs such  as Social Security, Medicaid, unemployment insurance, veterans benefits, and  others. But these programs are specifically exempted from across-the-board  spending cuts if the committee fails to recommend a deficit reduction package to  Congress.

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