A ‘sugar-coated Satan sandwich’

70 million payments to veterans and Social Security recipients would be at stake if the U.S. defaulted

A ‘sugar-coated Satan sandwich’

Bill Clark/Roll Call/Getty Images

Democrats have called them political “arsonists” willing to “slash and burn” to get their way, and Tea Party “terrorists” who took the American economy hostage—even, the “Tea Party Taliban.” Whatever their name, they certainly proved to be powerful. Republicans control only one of two legislative chambers, and the freshmen Republican congressmen who arrived in last November’s Tea Party-fuelled election number only 87 out of 435, but they managed to seize the agenda and get their way. They made debt and deficits, not persistent unemployment, the top issue in Washington. At a time of weak consumer demand, they pushed through a plan to cut US$2.5 trillion in government spending over the coming decade. And despite opinion polls suggesting a majority of Americans wanted a mix of cuts and tax hikes to balance the budget, they said no to tax increases and dared President Barack Obama to call their bluff. He didn’t.

The bipartisan agreement passed by Congress and signed by Obama last week allows the U.S. government to borrow an additional $2.4 trillion—enough to avoid default on existing debt payments for two more years—in exchange for $917 billion in spending cuts, and another $1.5 trillion in cuts to be found this fall by a special bipartisan commission. If sufficient cuts are not made, the legislation triggers automatic cuts of $1.2 trillion dollars, split between domestic and defence spending.

But to get here, the fiscal hawks in the GOP gambled with an already crippled U.S. economy—risking a possible debt default and putting at risk the federal government’s ability to make 70 million payments to veterans, Social Security recipients and others. They also gambled with the country’s triple-A debt rating, which Standard and Poor’s downgraded one notch to AA+ on Friday, and risked higher interest rates for the government and consumers. The Republicans were like a parent who got his or her way—by taking the kids hostage.

The other spouse gave in, but the kids might not be quick to forget. A poll by the Pew Research Center for the People and the Press in the final days of July found 72 per cent of Americans described the negotiations with negative words such as “ridiculous,” “disgusting,” “stupid,” and “frustrating.” And 42 per cent said their impressions of the Republican Party had worsened, while 30 per cent said the same about Democrats. Thirty-seven per cent say they have a worse impression of members of Congress who are affiliated with the Tea Party movement than they previously did, compared with 11 per cent who say they now view Tea Party members more favourably.

So the question remains, now that the Republicans have showed how far they are willing to go, do Americans want to go there with them? All but one of the declared Republican presidential candidates are betting on yes. Former Massachusetts governor Mitt Romney, who leads in the GOP race, said he would not have voted in favour of the deal because it was not conservative enough­—specifically, it did not prevent future tax increases or defence cuts. Congresswoman Michele Bachmann and former Minnesota governor Tim Pawlenty also oppose the deal. Only Jon Huntsman, the former Utah governor who served as Obama’s ambassador to China, said it would be “irresponsible” not to compromise to raise the debt ceiling.

The battle is not over. Specific cuts have to be found, and Republicans face internal divisions over balancing the budget and cutting defence. Republican Sen. Lindsey Graham, a prominent defence hawk, opposed the deal, and warned on Monday the defence cuts would be “devastating.” Meanwhile, Obama has arrived at a political middle ground and will be able to show independent voters in the next election that he is willing to compromise. But he has arrived there weakened. The President had initially demanded a vote on the debt ceiling with no strings attached. Then he insisted that any deal would have to be “balanced” between revenue increases and spending cuts. Each time, he backed down. During the negotiations, his approval rating fell to the lowest levels of his presidency, 40 per cent. And his own party was so disgusted with the deal that only half of Democrats in the House voted in favour—compared to two-thirds of Republicans. It was a Democratic congressman, after all, who called the final deal a “sugar-coated Satan sandwich.”

Obama did get the most important thing he wanted—a large enough increase to the debt ceiling to avoid another crisis before the November 2012 elections. And the bipartisan committee could still embrace Obama’s proposals to eliminate tax subsidies for oil and gas companies or corporate jets, or end tax deductions for high-income earners. The deal may not be as economically risky to the immediate economic recovery as Democrats feared—most of the spending cuts won’t hit until 2013. So far, everyone has emerged bloodied with still more rounds to go.

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