So where are we at on the debt limit? While the progressive movement tried to figure itself out in Minneapolis at Netroots Nation, Joe Biden met three times with Congressional leaders to work out some kind of deal. I heard a lot of musings about this at the conference, and most of them lined up with this from Ezra Klein. Here are the broad points:

1) Democrats have agreed to $1 trillion in cuts over ten years, Republicans want two trillion.
2) Some kind of deficit trigger or cap that will force $2 trillion more in cuts, for a total of $4 trillion in the 10-year window, that would kick in by 2014.
3) Something on Medicare or Medicaid. Very unclear what that something is, but nothing major.
4) $50 billion in revenue raises from eliminating tax expenditures. These could take the form of eliminating some energy tax breaks. After the vote in the Senate last week on ethanol, there’s talk of a compromise that could be folded in here.

The safety net and revenue contributions here, then, are extremely limited. Basically you have “cuts and caps.” It’s unclear whether the cap would mandate cuts to spending or also tax increases if the deficit target isn’t hit by 2014. If there’s one thing I think Washington can do, it’s create an unworkable and useless trigger mechanism, so I’m not totally worried about that. The cuts will have immediate and lasting effects, especially because they’re being targeted on such a narrow set of programs – mostly non-security discretionary spending.

Ezra has put this in terms of “forcing events”:

The negotiators see deficit reduction as having three phases, connected to three forcing events. The first forcing event is the debt ceiling, and that will lead to the “downpayment” and the establishment of trigger policies that will require more deficit reduction later. That’s where we are now. The second forcing event is the December 2012 expiration of the Bush tax cuts. That’s when we’ll see the real showdown over revenues. The third forcing event will be in 2013 or 2014, and it’ll come from the deficit trigger, which will begin making automatic cuts about that time. That’s where we might see revenues unrelated to the Bush tax cuts and structural reforms to entitlements.

By the way, it’s not clear that even REPUBLICANS would accept this. They might say the trigger kicks the can down the road, and that even the token $50 billion in revenue represents something verboten. House Speaker John Boehner is reportedly having trouble getting his caucus to agree on anything like this.

But if they don’t take this deal they’d be insane. This isn’t half a loaf but about 90% of a loaf for them. Not only are there almost no revenues gained from the deal, there’s absolutely nothing in the way of short-term economic stimulus, i.e. what the economy needs. The fact that the likely successor for the Council of Economic Advisors, Rebecca Blank, doesn’t really believe in stimulus signals that you can forget about even modest ideas like extending the payroll tax cap. Adoption of this plan will mean tangibly worse economic performance over the next year-plus, and as a result a much shakier picture for the President in the 2012 election. Since that’s the primary goal of the Republican Party, they ought to jump at this.

Democrats, meanwhile, aren’t bothering to use their own power. They’ve dropped a millionaire’s surtax proposal that was floated as part of the Senate budget. They aren’t saying loudly that the expiration of the Bush tax cuts – all of them – would accomplish EVERY SINGLE GOAL OF THE NEGOTIATIONS, namely $4 trillion in deficit reduction over 10 years. They are still consumed with this idea of compromise, of bargaining with an irrational opponent, rather than forcing Republicans to live with the idea that they created a default event, which would be a much greater problem for Wall Street than almost anyone (and therefore, Wall Street simply will not allow it).

Mitch McConnell said over the weekend that there could be a short-term deal put in place as negotiations continue, with the issue coming up again in the fall. This is plausible, with $1 trillion apparently already signed off. But since that would probably be an all-cuts scenario, it would reduce the mix of spending and revenues from its already unacceptably low level.

David Dayen

David Dayen