President Obama’s Epic Debt Fail

Let’s face it, Obama screwed the pooch on the debt ceiling. Where does he go from here?

President Obama's Epic Debt Fail

This morning on MSNBC’s “Morning Joe” President Obama’s economic adviser Gene Spalding discussed the deal to raise the federal debt limit that was reached yesterday. He praised President Obama, saying, “The president didn’t give one inch. The president made clear, while he was willing to compromise, he was not willing to allow anyone to hold our economy or government hostage by using the threat of default.”

It sounds like the Administration is attempting the art of Orwellian double speak that the Republicans often deploy with mastery—for the reality of what occurred in the debt negotiations was the exact opposite: Obama made it clear that he would allow Republicans to hold our economy and government hostage using the threat of default. They did, and they did so effectively.

John Boehner proudly said of the debt deal reached yesterday, “There is nothing in this framework that violates our principles. It’s all spending cuts. The White House bid to raise taxes has been shut down.” While he outwardly describes the party’s “principles” as “small government,” the real principle he’s referencing is protecting corporations and the rich.

The debt deal agreed to yesterday is nothing if not a referendum on the philosophy of American society: Obama wanted to both increase federal revenues through modest tax increases for the wealthiest Americans—those who can most easily afford to pay slightly more—and by closing tax loopholes for corporations. This strategy implicitly champions what is left of the middle class. Republicans, meanwhile, mandated that the rich pay not a dime more and that tax loopholes for corporations stay wide open—the same corporations, mind you, that can now make unlimited campaign donations under last year’s Citizens United ruling.

Obama not only gave up “an inch,” he gave up his entire position. He signed off on a plan to cut spending without raising revenue by a nickel and to keep corporate tax loopholes wide enough to fly a private Gulfstream G650 through with plenty of clearance.

As Jonathan Chait from The New Republic writes this morning, Obama committed a major tactical error last year when he allowed the Bush tax cuts to continue (a deficit increasing measure) without insisting that the federal debt limit be increased to compensate for it.

This left Obama on his heels to negotiate a debt limit increase this spring, and gave the impression that he was a poor negotiator willing to give a whole lot more than an inch.

So where does he go from here?

Next year we will face a similarly rancorous fight over the Bush tax cuts, which were extended last December and now set to expire at the end of 2012. Allowing them to expire will raise taxes somewhat at all income levels and provide the country with a badly-needed estimated $4 trillion in revenue over ten years. Paired with the $2.4 in spending cuts Obama just agreed to yesterday, this should go a long ways toward getting our financial house in order.

Republicans are now 2 for 2 in negotiating finances with the president. If Obama is going to finally realize some increase in tax revenues by insisting that the Bush tax cuts expire next year, he’s going to have to come up with a different war plan than the one he’s been following. The way things have been going, Republicans are no doubt looking forward to the fight.