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Mixed messages complicate White House debt strategy

July 25, 2011|By Peter Nicholas
  • President Obama speaks to the National Council of La Raza at a Washington hotel.
President Obama speaks to the National Council of La Raza at a Washington… (Olivier Douliery / Pool…)

Lifting the debt ceiling should be paired with steep reductions in the deficit. So says President Obama. But the White House position hasn't always been so clear cut. When the debate over raising the cap opened in January, the Obama administration seemed reluctant to tie the issue to any other legislative goal.

Treasury Secretary Timothy F. Geithner sent a letter to Senate Majority Leader Harry Reid (D-Nev.) on Jan. 6 calling for an increase in the debt limit. In the four-page letter, Geithner said the president believed the government must "spend less and spend more wisely." But he didn't explicitly link deficit reduction to lifting the debt ceiling.

Doing so poses obvious risks, as we're now seeing in the debt ceiling drama. Congress can be trusted to rename post offices in a timely fashion. But asking a deeply polarized House and Senate to pass complicated tax and spending proposals on a tight deadline is taking the political system to the brink.

The country has until Aug. 2 to raise the debt cap or risk a default that could rattle the global economy.

Obama has been a late convert to the notion that deficit reduction is an urgent national priority.

Twice in the last seven months he passed up chances to take aggressive action to reduce deficits. He ignored the most far-reaching recommendations offered by the deficit reduction commission headed by Alan Simpson, a former Republican senator, and Erskine Bowles, who was chief of staff to President Clinton.

And many budget experts were dismayed that the 2012 budget he released in February didn't take bolder steps toward cutting a national debt that has grown from $10.6 trillion when he took office to $14.3 trillion today.

Obama pivoted in April, giving an address at George Washington University that called for $4 trillion worth of deficit reduction over a dozen years. Some budget experts wish that speech came earlier.

"I hoped he would use the State of the Union address [in January] to embrace the bipartisan fiscal commission or say, 'Here's my position,'" said Christina Romer, former chairwoman of Obama's Council of Economic Advisors. "I would have liked to see him come out really strongly then -- pages and pages of, 'Here's what I think we should do.' He did that in April. His April speech is what I wish he had given in the State of the Union. So, he was about four months slower than I would have liked him to be, but I he ended up in the right place."

January would have been a good moment to stress deficit reduction, Romer added, because the economy was in a better place and the debt was becoming an increasing concern.

Political reality may be shaping the administration's thinking. House Republicans have made plain they won't raise the debt ceiling without corresponding cuts in spending.

In his response to the Geithner letter, for example, House Speaker John A. Boehner (R-Ohio) wrote: "The American people will not stand for such an increase unless it is accompanied by meaningful action by the president and Congress to cut spending."

At times, the White House has sent mixed signals about what it wanted.

For months, the administration's position seemed to be that the debt limit should be raised with no conditions. In Washington-speak, that's known as a "clean" increase.

In February, Geithner spoke at a House Budget Committee hearing and said, "You know, this is not a popular thing for people to do, and if you let people negotiate over the terms, the risk is you leave people with expectations you can't meet. And it is just that that suggestion leads us to suggest you should do it clean."

But two months later, Obama told a reporter that lifting the debt ceiling was "not going to happen without some spending cuts." Later in the month, White House Chief of Staff William Daley said something similar: "Nobody thinks there will be a clean debt ceiling extension vote. There probably shouldn't be, without some changes in spending. The budget deficit is a real thing that has to be addressed."

Around that time, though, Rep. Peter Welch (D-Vt.) said he got a phone call from Geithner commending him for pushing for an increase in the debt ceiling not tied to anything else.

Welch had been leading an effort in which 114 House Democrats put out a letter asking for a "clean" vote on lifting the cap.

He wishes the political leadership in Washington had stuck with that approach.

"What's happened since is very predictable," the congressman said. "The negotiations have gone nowhere and for the first time in our history as a country we're in danger of defaulting on our debt."

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