How Republicans Can Win the Debt Limit Fight

April 20, 2011

The debate over this year's budget is over. Next up: an even more contentious battle over raising the debt ceiling.

For this fight, President Barack Obama's strategy is three-fold. First, warn of catastrophic consequences if the debt ceiling isn't raised by early July when the Treasury Department runs out of fiscal tricks to keep from breaching the limit. Second, demand a "clean" debt ceiling increase, unencumbered by the tough spending and deficit caps that some congressional Republicans want to strap on the measure. Finally, blame the GOP for holding our economy hostage as often as possible.

In the background is the S&P downgrade of its outlook for U.S. debt, and the Federal Reserve's winding down of its second round of quantitative easing (QE2). Both raise the possibility of instability in bond markets and higher interest rates. And just as QE2 goosed stock prices, the end of the program could have the opposite effect.

Democrats are already preparing to use this backdrop to pressure the GOP into letting Mr. Obama continue his wild spending. Rep. Sander Levin (D., Mich.), like Mr. Obama, voted against raising the debt ceiling in 2006. But the ranking Democrat on the House Ways and Means Committee said Monday that the S&P announcement sends a "very clear" signal to Republicans not to "play games with the debt ceiling." Calling for a clean debt ceiling, Vermont's Democratic Rep. Peter Welch lambasted House Majority Leader Eric Cantor on Monday, saying if he "persists in playing politics with the debt limit" then "he will be held accountable for unleashing the financial hounds of hell." And Treasury Secretary Timothy Geithner warned that those who think they "can take this to the brink" are "going to own the responsibility for the risk that creates for the American economy."

The GOP needs to push back now—thoughtfully and aggressively. Yet in conversations with Senate and House Republicans, I was amazed to find they weren't talking to each other. Though the Senate and House GOP leadership may be, congressional Republicans need to settle on a common negotiating posture sooner rather than later.

If congressional Republicans wait until June to offer their proposal, they'll have fallen into the Democratic trap. Mr. Obama will beat them like a drum, blaming them for any hiccups in the markets and every bit of bad economic news, all while demanding a clean debt ceiling.

It's not enough for the GOP to insist on a vote on a balanced budget amendment. Even if the amendment were to muster the two-thirds vote required in Congress, it could take years to be ratified by three-fourths of state legislatures. Robust spending and deficit caps requiring rescissions and cuts if spending or deficits breach historic norms would be better and effective almost immediately.

Settling on a fiscally responsible package soon would put Democrats on the defensive. It would define the fight in terms favorable to Republicans and increase tensions inside the Obama administration, which is split into two camps.

The politicos want to use the debt ceiling to strengthen the president's 2012 re-election. They know a largely compliant White House press corps won't challenge Mr. Obama when he slams the GOP for being responsible for any economic tremors. The adults in the administration understand the debt ceiling must be passed with deficit and spending caps to reassure markets that the U.S. is serious about putting its fiscal house in order. Unfortunately, the adults are few in number, and the politicos run the show.

Democrats will attempt to foment discord inside Republican ranks to weaken their negotiating power. That may have been why Mr. Geithner said last Sunday on NBC's "Meet The Press" that congressional leaders "understand that you can't play around with this." He had to know that presuming to speak for the Republican leadership was unhelpful.

A vote to raise the debt ceiling is an acknowledgment of past actions—in this case Mr. Obama's massive spending since coming to office. Republicans are not to be blamed for Mr. Obama's spending. And as much as he tries to shift the blame, Americans are not buying it. In an ABC/Washington Post survey this week, 57% disapproved of the president's handling of the economy. While 28% said they would definitely vote for his re-election, 45% said they definitely would not.

While he barnstorms the country paying lip service to reducing the debt, Mr. Obama is intent upon avoiding limits on his expansion of government. By offering a tough proposal to restrain spending and deficits, a unified GOP can gain leverage in negotiations with Mr. Obama and put America's finances on the right path.

This article originally appeared on on Wednesday, April 20, 2011.

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