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Double trouble: House GOP eyes default, shutdown

01/14/2013

POLITICO.  JANUARY 13, 2013.  House Republicans are seriously entertaining dramatic steps, including default or shutting down the government, to force President Barack Obama to finally cut spending by the end of March.

The idea of allowing the country to default by refusing to increase the debt limit is getting more widespread and serious traction among House Republicans than people realize, though GOP leaders think shutting down the government is the much more likely outcome of the spending fights this winter.

“I think it is possible that we would shut down the government to make sure President Obama understands that we’re serious,” House Republican Conference Chairwoman Cathy McMorris Rodgers of Washington state told us. “We always talk about whether or not we’re going to kick the can down the road. I think the mood is that we’ve come to the end of the road.”

Republican leadership officials, in a series of private meetings and conversations this past week, warned that the White House, much less the broader public, doesn’t understand how hard it will be to talk restive conservatives off the fiscal ledge. To the vast majority of House Republicans, it is far riskier long term to pile up new debt than it is to test the market and economic reaction of default or closing down the government.

GOP officials said more than half of their members are prepared to allow default unless Obama agrees to dramatic cuts he has repeatedly said he opposes. Many more members, including some party leaders, are prepared to shut down the government to make their point. House Speaker John Boehner “may need a shutdown just to get it out of their system,” said a top GOP leadership adviser. “We might need to do that for member-management purposes — so they have an endgame and can show their constituents they’re fighting.”

The country would eventually default if House Republicans refuse to raise the debt limit, which the Treasury estimates will hit in late February or early March. The government would shut down if House Republicans instead were to refuse to extend the law funding current government operations on March 27.

Boehner assumes he can ultimately talk members out of default, but he is so wounded and weakened from last month’s tax-hike battle that the speaker might very well be wrong. Obama assumes Republicans would never be so foolish as to put the economy at risk to win a spending fight. Conservatives say he’s definitely wrong on that score. They say he’s the foolish and reckless one for piling up $6 trillion in debt on his watch.

The coming spending fights make the Christmastime tax increase battle seem like child’s play. While everyone knew the tax drama would end with the rich paying more taxes, no one can telegraph how the coming spending fights will unfold. And the economic stakes are more dire.

“For too long, the pitch was, we’ll deal with it next time,” said Rep. Jason Chaffetz, a conservative from Utah. He said GOP lawmakers are prepared to shut things down or even default if Obama doesn’t bend on spending. “No one wants to default, but we are not going to continue to give the president a limitless credit card.”

Starting Monday, Boehner will huddle with his leadership team to discuss his preliminary thinking on a spending strategy. A source who attended meetings to prepare for those private talks said GOP leaders are authentically at a loss on how to control members who don’t respond to the normal incentives of wanting to help party leaders or of avoiding situations — like default — that could be public relations nightmares.

After meeting with his leadership team, Boehner will head to Williamsburg, Va., to meet with the entire GOP conference on Thursday and Friday. He will walk them through the political and economic consequences of default and his plan for forcing spending cuts without allowing any new tax hikes to get smuggled in. “It is more likely you default than you raise any taxes,” said a senior GOP aide.

The truth is Boehner is at the mercy of a Republican Conference that is far more resistant to compromise than he is. Boehner was embarrassed when he had to pull his plan for raising taxes — and then watched as three-quarters of his members opposed him on the final tax increase bill after Christmas. He might be the weakest speaker of his generation right now — and there is a fair amount of back-biting about who to blame for the recent debacles.

To pacify conservatives, he made two promises to his members that will greatly restrict his ability to craft a compromise in the spending fights ahead. The first promise was to bring to the floor only legislation a majority of his members support and do it through the committee process. The second was to increase the debt limit only in exchange for a dollar-for-dollar decrease in spending in the time period covered by that debt increase.

In a meeting between House GOP leadership and outside campaign groups at the Republican National Committee on Thursday, Boehner’s chief of staff, Mike Sommers, discussed the possibility of increasing the debt limit for only one to three months — a move that would rattle markets and threaten the U.S. credit rating. The idea, which has little chance of winning Senate or White House support, shows how uncertain Republicans are about how they might avoid the white-knuckle moment of default. “Any option — including that one — is contingent on getting corresponding cuts/reforms in return,” a Boehner aide said. “It depends on the White House. If they offer cuts and reforms equal to one month, that’s what they get. If they agree to more cuts and reforms, they get a greater increase.”

The conventional wisdom is that Obama and Congress will ultimately work out a grand spending compromise that raises the debt limit, keeps funding the government and changes the $1.2 trillion in automatic “sequestration” spending cuts set to kick in on March 1.

Here’s the problem with that: Two top GOP officials told us Republicans are not willing to compromise on the $1.2 trillion in cuts. Those cuts, designed initially by the White House and GOP leaders, were agreed to by the last Congress and Republicans consider them a done deal, in the bank. They would negotiate the specific programs that get cut — but not the total number. Right now, half the cuts target defense, half other programs.

This is a radically different view from Obama’s. The White House not only wants to use the sequestration debate to resolve all of the spending fights — it wants to replace some cuts with tax increases.

GOP officials said 90 percent of their members are prepared to allow the cuts to take effect, rather than compromise, based on their preliminary head counts. This seems like the most likely outcome right now.

Sequestration, while devastating to defense contractors like Lockheed Martin, is small potatoes compared to the debt limit.

Boehner’s own staff has warned conservative lawmakers that deficits will soar, as interest rates rise, the markets will tumble and the economy will face catastrophe if they truly follow through on default. They will walk members through a presentation on this scenario this week, and the hope is conservatives will conclude it would be economic and political suicide to go all in. But GOP leaders have made similar pitches before, and most House Republicans didn’t buy it. They are willing to take that risk because they believe the future consequences of more spending are more severe. Sommers told the RNC meeting they will not finalize a strategy until their members weigh in this week.

Look for members to push for an idea, crafted by Sen. Pat Toomey (R-Pa.), to cushion the effect of default by passing legislation beforehand that prioritizes the order that government bills will be paid in the event the debt limit is not increased.

Boehner and Obama couldn’t be further apart on the debt ceiling increase. Boehner is demanding dollar-for-dollar cuts. That would mean $1 trillion or more in additional cuts — beyond sequestration — if the debt limit is to be lifted for a long period of time. Obama is offering zero, and a top White House official said he won’t budge. There is no real middle ground here, both sides say, unless Boehner can talk his members into giving up on the debt limit fight to focus elsewhere.

That will be a tough sell, says Chris Chocola, president of the conservative Club for Growth. “What’s more irresponsible: continuing on this path to fiscal ruin, or changing the path?” he said. “There is a high level of frustration, and a willingness to do something dramatic. They think this is the only way to get Obama’s attention.”

Boehner won’t say this to his members, but Republicans who know him well believe he will never allow default, even if it puts his leadership position at risk. Remember, raising the debt limit requires a House vote, so it is possible Boehner could face a choice of allowing a vote that a majority of his members would oppose, which he has promised not to do — or allowing default.

Sommers, his chief of staff, and others are searching for ways to delay that life-or-death choice or convince members that a government shutdown is sufficiently dramatic to make their stand.

The 2013 continuing appropriations resolution expires on March 27, cutting off funding for most federal agencies. It needs to be extended, and Republicans don’t want to do so unless a new continuing resolution reduces spending, too.

This is where they could choose to shut down the government to dramatize their contention that for four years Obama has promised in words to cut spending but in action only piled up debt. Many Republicans believe this is precisely what they will do.