Debt Ceiling Politics: Democrats Playing a Dangerous Game

Democrats working on a comprehensive budget reform deal to persuade Republicans to raise the debt ceiling are playing a dangerous game with the odds stacked against them.

"I will not support any long-term extension of the debt without a credible plan to deal with the debt," Sen. Kent Conrad said two weeks ago. "And by credible plan, I don't mean just on the spending side of the equation, because revenue is the lowest it's been in 60 years as a share of GDP, spending is the highest it's been in 60 years as a share of GDP. So, clearly you've got to work both sides of the equation."

Conrad is right and wrong. He's right that comprehensive budget reform shouldn't include lower spending and higher revenue. He's wrong that we should expect a deal this year, or anywhere close to the August deadline for the debt ceiling vote.

In the last two weeks, I've spoken with numerous Republican Senate offices, on and off the record, about the debt ceiling vote. From those conversations, I've learned that although there is a real chance that some Republican senators would vote for a tax deal that lowers rates but raises revenue by broadening the tax base (ie eliminating spending through the tax code), Democrats have no shot at raising revenue in the current political climate.

Here's the logic:

1) The only bipartisan deal to raise revenue will be to close loopholes rather than raise rates. This is how the bipartisan deficit commission attracted the support of Republican Sens. Coburn and Crapo. But...

2) The only senators talking about closing loopholes want to do so through comprehensive tax reform. And...

3) Nobody in Washington thinks we can get comprehensive tax reform before August, when the debt ceiling vote is due. Moreover, given the lack of progress from the Biden talks and the Gang of Six, not a single spokesperson I talked to expected budget reform before the end of 2011. Therefore...

4) There will be no comprehensive budget reform, which means there will be no tax loopholes closed, which means there will be no plan to raise revenue.

More than anything, Democrats need time to get Republican senators behind base broadening; Democrats behind spending sacrifices; and the economy healthy enough to accommodate tax increases. That's time that the debt ceiling doesn't have.

So what do Democrats think they'll win by pinning budget reform to the debt ceiling?

Drop-down image credit: Reuters

Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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