As I wrote earlier this week, the fiscal-cliff deal was mostly a win for Barack Obama, but only a temporary victory fought on one issue. By delinking the tax debate from the spending debate and keeping the debt limit out of the fiscal-cliff deal, Republicans at least allowed themselves the chance to fight another day for spending cuts and entitlement reform. Whether they can successfully negotiate real reform is another question, of course, but even Obama’s former OMB director acknowledges that the White House now has significantly less leverage to prevent budget reform now that taxes are off the table. Peter Orszag tells CNBC’s Andrew Ross Sorkin that Obama may have won the week but lost the quarter by agreeing to that split (via the RNC):
SORKIN: But you know the president. The president said that he will not negotiate for example on the debt ceiling. This is a nonstarter. Is that a nonstarter or is that the beginning of a negotiation?
ORSZAG: Well I don’t know that that statement actually frankly matters that much. Because they’re going to have to negotiate over replacing the – you know the sequester was only delayed by two months. So you’re going to have to negotiate over that. You’re going to have to negotiate over the appropriations bill for the funding the daily operations of the government. So if you’re negotiating over those things, and the debt limit’s kind of thrown in, you can say you’re not negotiating over the debt limit but there will be negotiations in February and March.
SORKIN: Who’s got the leverage in all this? I mean when you look back at what just happened over the past three days do you say the Democrats won? Do you say the Republicans won?
ORSZAG: I think — my own perspective at least is I think the White House in this second best world won that round, but they, by not insisting that the debt limit be tied that to the package, it’s entirely possible they’re going to win the week and lose the quarter. And we’ll see, you can’t – you don’t know yet until you see how February and March plays out, and I think there’s no doubt that they have somewhat less leverage than they did in the round just completed.
This is why liberals were not entirely happy with the outcome of the fiscal cliff deal, either. While Democrats had the political advantage on the “fairness” issue on taxes, Republicans almost certainly have an advantage when it comes to federal spending, at least in principle. And now that the Republicans gave way on taxes, there will be more political pressure for Democrats to demonstrate moderation by agreeing to some meaningful reforms on spending. That doesn’t mean that Harry Reid will accommodate that in the Senate, but it gives Republicans an advantage if and when it comes down to a government shutdown over the debt limit and spending approvals — especially since Reid and his Democratic majority in the Senate hasn’t passed a normal budget in almost four years.