News organizations tend to report on the debt ceiling negotiations as if reducing the deficit is the main concern for both parties. Unfortunately that is not really the case. I say unfortunately because if Democrats and Republicans had the same overall goal, it would be much easier to get a deal done (and as previously discussed, a deal to raise the debt ceiling is absolutely necessary).

If reducing the deficit as much as possible was the goal of both parties, a deal could be struck in which spending cuts that Republicans covet would be traded for revenue raisers (tax increases, elimination of tax breaks, etc) that Democrats desire. The resulting deal would reduce the deficit by a certain amount and both sides would declare victory. This is the type of deal Reagan and Clinton enacted to reduce the deficit and it’s similar to what I expected to happen in this case.

The problem is that deficit reduction is not the primary concern of the Republican Party. Evidence of this can be found from the fact that Republicans on Sunday rejected President Obama’s call for a larger deficit reduction deal (made up of 75% spending cuts and 25% tax increases) and are instead coalescing around a smaller plan that they hope will contain 100% spending cuts. Rather than deficit reduction, the Republican Party’s main goal is to cut spending as much as possible without raising taxes. Although cutting spending will indeed reduce the deficit, it is a very different primary objective from reducing the deficit because, particularly under a divided congress, there is a limit to how much deficit reduction can be accomplished from spending cuts alone. 

For Democrats, the primary goal of these negotiations is to raise the debt ceiling in order to avoid an economic collapse. In doing so, they would like to reduce the deficit as much as possible both because they know it needs to be done and they think it’s good politics to combine raising the debt ceiling (which voters dislike) with deficit reduction (which voters like...in theory).To make matters even more confusing, while raising the debt ceiling is a secondary goal for more old-school, establishment Republicans such as Speaker Boehner, this is not the case for the many Republicans who have convinced themselves that there will be no adverse effects from not raising the debt ceiling. Some Tea Party Republicans are refusing to raise it altogether.

I truly have no idea how this is going to end.

The plans that both sides are advocating can’t pass congress at this time. A spending cuts only deal to increase the debt ceiling can’t pass the House (let alone the Senate) without at least a few Democratic votes due to the Republicans who are refusing to raise the debt ceiling at all costs, and very few Democrats would vote for a spending cuts only deal. Similarly, it seems unlikely that enough Republicans will vote for the type of balanced deal that Democrats will find acceptable. I initially assumed that Republicans would agree to some token tax increases (through the elimination of tax deductions) that would give President Obama and the Democrats enough cover to vote for a deal that still overwhelmingly favors Republican priorities. That makes sense in a world where both parties agree that deducing the deficit and raising the debt ceiling are the two main objectives. Unfortunately, we don’t live in that world.

"You Just Don't Get It, Do You?" - A Montage of Cinema's Worst Writing Cliche from Jeff Smith on Vimeo.

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Keith Doughty is a non-profit finance professional who in his spare time dabbles in music, politics, and interesting food. He lives and works in Philadelphia, PA.

Contact him at neuroticmonkey.com