How Obama Blew a Big Debt Deal

Here are four key moments when the president declined to take a stance on the debt.

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If there's one rational man in Washington, it appears to be Barack Obama. The president casts himself as a leader among dilettantes, an executive intent on governing rather than picking political fights or sniping at the competition. He's getting a lot of help from Republicans like Sen. Mitch McConnell and Rep. Eric Cantor, who are starting to seem like petulant narcissists who crave a crisis because it keeps their names in the news. Foes like them make it easy to seem statesmanlike.

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But Obama is at the middle of a crisis over government borrowing and the national debt because he helped create it. Obama, like many Americans, is obviously weary of the partisan bickering that threatens to cut off the government's borrowing ability and tank the U.S. economy. "The American people do not want to see a bunch of posturing, he huffed at a recent press conference. "What they want is for us to solve problems. He insists it's time to do "something big to fix the huge mismatch between government spending and revenue, which requires Washington to borrow money to finance about 40 percent of all spending.

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Yet Obama has had plenty of chances to do something big about runaway spending and the mushrooming national debt, and he's taken a pass every time. He clearly didn't anticipate the showdown that's developed this summer over raising the debt ceiling, figuring Congress would raise the government's borrowing limit this year the same as it has done dozens of times before. Instead, Obama is now fighting to prevent an abrupt and highly disruptive cutback in spending, which would be the outcome if Congress refuses to raise the debt ceiling by early August. Even if it is raised, Obama could end up being the first U.S. president to hold office while rating agencies like Moody's and Standard & Poor's downgrade the nation's AAA debt rating. Here's how Obama got himself into this predicament:

He passed a huge stimulus bill with no plan to pay for it. Investors and economists have no problem with deficit spending by the U.S. government. It's routine, especially in a crisis, when governments have traditionally spent more to help boost an ailing economy. But the old Keynesian tradition of fiscal stimulus has an important caveat: The government is supposed to pay back what it borrowed later, by cutting spending and boosting taxes when the economy is healthier.

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The first big piece of legislation Obama signed after taking office was the 2009 stimulus bill, which added more than $800 billion to the national debt. Had Obama been the budget hawk then that he's trying to be now, his stimulus program would have included a convincing plan to earn back that money or offset it with spending cuts in later years, once the economy was out of recession and healthy again. But there was barely any talk of a payback plan back then, with breathless lawmakers hastily approving Obama's stimulus measures with little thought of the ramifications.

That stimulus plan has turned into a major liability for Obama, partly because it didn't do enough to fix the economy. Obama and his team pitched it as too much of a cure-all, which it obviously wasn't. But Obama also created the impression that he's willing to spend vast amounts of government money, even for a limited payoff. It's easy to second-guess a decision like that years later, but if Obama had included a payback plan in 2009, he'd have much more credibility now. Instead, he's allowed Republicans to back him into a corner and come to the White House to lecture him about the debt. This matters today because some economists feel we need even more stimulus spending (or tax cuts), to assure that there's no double-dip recession. The only way that might get through Congress is with a corresponding plan to reduce the debt later by at least as much as a stimulus plan would expand it.

He failed to tackle costs in his healthcare reform plan. Obama's other big legislative push after getting elected was healthcare reform. There were two ways he could have approached it: Start by finding a way to rein in costs, which are spiraling out of control and represent the single biggest threat to the nation's solvency, or start by focusing on ways to offer coverage to the roughly 45 million Americans who lack insurance and ready access to care. Each approach would have targeted a legitimate problem.

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Obama chose to focus on expanded coverage, and the result was a gargantuan and complicated bill that will remake much of the U.S. healthcare system. The Congressional Budget Office says that overall, the new law will save the government about $140 billion over its first decade. But that's mainly because of fees imposed on the private sector, not because medical costs will actually go down. It's possible that various pilot programs set up by the Obama plan will lead to cost savings, but for now costs continue to skyrocket, putting Medicare and Medicaid at risk. Obama has done virtually nothing so far to address that problem.

He extended the Bush tax cuts with no worries about the debt. The extended tax cuts enacted last December were a bipartisan outcome of the 2010 midterm elections, in which Republicans won control of the House of Representatives and picked up seats in the Senate. But Obama still had leverage when negotiating that deal. Had he truly been worried about the debt, this was yet another moment when he could have called for future paydowns on the debt in exchange for real-time stimulus—and seized the issue as his own. But once again, there was virtually no mention of the debt at the time. The tax-cut extensions, meanwhile, added another $850 billion or so to the national debt.

He hasn't gone public with a convincing debt-reduction plan. Obama says now that he has a plan to save $4 trillion over the next decade. Most of that would come from spending cuts, with a small portion coming from tax increases. But you can't look at his plan because he hasn't made the whole thing public. That gives Republicans a legitimate complaint, because they have in fact published a variety of detailed plans, including ones by Rep. Paul Ryan and Sen. Tom Coburn. Obama, meanwhile, has shared the highlights of his so-called plan in speeches, press conferences, and other public appearances, saying for instance that he'd cut defense spending deeper than others would, close a bunch of corporate tax loopholes, raise income taxes on the wealthy, and cut back on Medicare benefits for wealthy seniors. But he hasn't laid it all out in one place, which allows him to evade scrutiny and remain aloof when it comes to the details. That's consistent with Obama's style, which has been to issue guidelines on big issues while letting Congress supply the fine-print legislation. But it's hard to claim leadership on an issue when you're not willing to take a detailed public stance.

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Ironically, Obama may still represent the best hope for a sweeping debt-reduction plan that gets the government back on a sustainable path—but only if he wins re-election in 2012. Obama deserves credit for one important thing: appointing the "fiscal commission, led by Erskine Bowles and Alan Simpson, that published extensive recommendations last year for how to cut spending, reform the tax code, and return the government to solvency. Many of those measures, if pursued, would trigger huge political battles, such as cuts in Medicare and Social Security benefits, the elimination of all special-interest earmarks, and an increase in the federal tax on gasoline. That's why any action by Obama on the recommendations of his own commission seems unlikely while he's running for re-election.

Obama probably figured there'd be plenty of time to take up those recommendations in his second term, assuming he gets re-elected. Like many others, he didn't anticipate a smackdown over the national debt this summer. But it now seems likely that the best outcome on the debt ceiling will be a muddle-through solution that delays action on the most contentious issues. That means the government will still be deeply in the red in 2013, when the next president is sworn in. If a Republican wins, he or she will have the same problem Obama faces now: The action needed to truly pay down the debt will be so unpopular that it threatens re-election. A second-term president not running for re-election may be the only leader capable of solving the problem.

Twitter: @rickjnewman

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