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.

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If you are following the debt ceiling talks (and really, who isn’t?) you might get the impression that things are at a complete stalemate. Republican leaders continue to insist that entitlement cuts are necessary for a deal to be made and Democratic leaders are equally insistent that they will not agree to significant Social Security or Medicare cuts. Similarly, Democratic leaders believe that tax revenue increases must be part of any deal but Republicans argue they will not agree to any tax increases. Despite these seemingly contradictory stances, word from DC is that these talks are proceeding nicely and a final deal is slowly taking shape. How is this possible?

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