Suddenly, compromise is in the air in Washington — and you can thank the people at Standard & Poor’s.
Over the last week, the bond-rating agency has been warning the White House and Congress that, even with an increase in the debt limit, Uncle Sam’s Triple-A bond rating isn’t going to last until we get a genuine deficit-reduction deal.
Of course, the players are still at odds over exactly what kind of deal can be accomplished by Aug. 2, when Treasury Secretary Tim Geithner says he’ll run out of money to pay the nation’s bills and possibly default on its debt unless Congress authorizes the president to raise the debt ceiling.
Both sides have been haggling for weeks, with House Republicans refusing to raise the debt limit unless the White House agreed to some big time cuts — and President Obama refusing to sacrifice any of his ambitious social agenda.
Then came S&P’s warning, echoed by Moody’s: Absent a deficit-cutting agreement, America might lose its Triple-A rating, guaranteeing higher borrowing costs — as well as the humiliating loss of prestige for a nation whose bonds have for generations been the most creditworthy in the world.
S&P, of course, missed the 2008 financial crisis, but its reasoning on the issue is pretty straightforward: The impasse over the debt ceiling, following on prolonged gridlock over the budget, suggested the politicians might never get a handle on reducing the country’s $14 trillion (and rapidly rising) of debt.
The warnings made in meetings with lawmakers and staffers recently made a difference. First, Obama — who was demanding higher taxes as part of any budget deal — signaled that he’d support a Senate deficit-cutting plan that took the upper tax rate down from 35 percent to no more than 29 percent. Then, House Republicans, who didn’t want any tax hikes as part of a deal, said they were willing to at the least study the Senate plan.
Now Obama even says he’d agree to a temporary debt-ceiling extension to avert disaster and possibly craft a better deal, something he’d been adamantly opposing.
Of course, we could go back to Square One at any moment, because so many compromises remain so contentious.
Just before House Speaker John Boehner and Majority Leader Eric Cantor were scheduled to meet with the president, one of their senior staffers told me that while the Senate plan looks promising, it’s still filled with holes: “The rates . . . pretty good, but how do they get the $1 trillion in revenues the plans calls for?”
Even bigger questions surround the Senate plan’s entitlement cuts — which the Republicans say are necessary to any agreement. “What are the enforcement mechanisms, the cost-cutting triggers if things don’t get done politically?” the staffer asked. “And where are the cuts to other debt drivers — the plan looks a little light on Medicare reforms?”
But Republicans may just have to find a better day to fight.
If things go south, the president should shoulder much of the blame. He is, after all, the guy who ran so much fresh debt in recent years with runaway programs and failed stimulus plans.
But the polls suggest Obama is getting away with faulting the Republicans for refusing to raise taxes on the filthy rich. (No matter that most economists say, doing so in the middle of a crummy economy would make a bad situation even worse, and the rich — by which Obama means families with a combined income of $250,000 — aren’t that rich anyway.) At the end of the day, the man who drove up deficits and unemployment could come out on top, just in time for his 2012 re-election campaign.
That’s the scenario many Republicans have in their heads, and perhaps the biggest reason why Washington is suddenly, at least for a fleeting moment, headed toward compromise.
Charles Gasparino is a Fox Business Network senior correspondent.