US Politics Analysis: "The Game's Afoot" --- The Budget Battle and Obama's Historic Speech

As Sherlock Holmes might have said, "The game's afoot, Watson." The plot has been introduced, and now it is time for the actions leading to a resolution of the mystery.

After President Obama's combative speech on fiscal policy Wednesday, the political game of deficit reduction is truly afoot in Washington. All the major actors have now signalled their intent --- with a Chief Executive hero entering to save the day --- and as a result the 2012 Presidential campaign has begun.

Before considering Obama's latest suggestions, the rest of the cast that will share the spotlight for the next 18 months:

The National Commission on Fiscal Responsibility (Bowles-Simpson) report "Moment of Truth" was released in December. Initially ignored by the President who appointed the Commission, the document's recommendation that revenues be raised while spending is cut is now the core of Obama's plan.

Obama's main opposition comes in the form of Rep. Paul Ryan's ideologically conservative "Path to Prosperity", summarised in an earlier post on EA. Ryan proposes reducing the deficit without increasing taxes, concentrating instead on reining in government spending on health care.

Around these central protagonists we have the lesser characters. The Republican Study Conference, dismayed that Ryan's plan does not cut the deficit quickly enough, have released an "Honest Solutions" budget resolution. Key to their suggestions is that "federal spending would increase by only 1.7% each year", the lowest of any rate offered in serious budget proposals this Congress.

Feeling somewhat left out of all these budget talks, Senate Republicans have come up with several ideas to reduce the deficit. The caucus is reportedly supporting a Balanced Budget Amendment. Freshman Senator Pat Toomey announced on Wednesday he would be releasing a budget proposal addressing conservative concerns. Immediately after President Obama's speech on Wednesday, Senator Rand Paul, in concert with Senators Mike Lee and Lindsey Graham, introduced their sponsorship of the "Social Security Solvency and Sustainability Act".

On the Democratic side, the Congressional Progressive Caucus unveiled their "People's Budget". In contrast to Republicans' "unwavering commitment to taking trillions of dollars from the pockets of the middle class and giving ever more generous windfalls to millionaires and corporations", the CPC have outlined a proposal that protects Medicare, Medicaid, and Social Security ---- "the safety nets that have made this country strong and prosperous".

The Democratic minority in the House Budget Committee have offered a budget propsal which, they admit, does not cut the deficit as quickly as Republican plans. By reducing spending gradually however, they aver, their suggestions will protect Medicare and Medicaid from the slash-and-burn tactics of the GOP.  

And waiting in the wings as the possible hero of the piece are the "Gang of Six", who hope to have a bipartisan fiscal plan ready for debate when Congress returns from its Easter recess in two weeks time.

From this slew of drastically divergent opinions, President Obama and Congress will need to find a compromise to move forward on reducing America's deficit. Obama stated on Wednesday that he hopes a final agreement can be reached by the end of June, pinning his hopes on talks involving both parties beginning in early May. But after the President's speech, which drew a line in the sand beyond which he is not prepared to negotiate, those hopes may be premature.

One of the popular phrases that has surrounded the growing momentum this year for bipartisan budgetary talks is "everything must be on the table". On Wednesday the President removed from the table the two major planks of Republicans' budget plans, with the explicit promise for his progressive allies that he would not, under any circumstances, allow them to become part of the conversation. 

This is what he said when referring to a further extension of the Bush tax cuts at the end of 2012, when they are due to expire: "We cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in society. We can't afford it. And I refuse to renew them again."

President Obama has left himself no wriggle room here. His re-election chances are now firmly linked to his stance on tax cuts for wealthier Americans, especially as the last few weeks has witnessed a dramatic rise in the number of progressives linking the cost of the Bush tax cuts to the deficit. This was a speech designed to rally his progressive base, hence the scathing referrals to the last Bush administration in the introductory section, and the commitment to end tax cuts for millionaires was central to that strategy. President Obama made the same pledge at the time of passing the extensions at the end of last year, but this promise makes it clear for Republicans there will be no reneging on that promise in return for brokering a long-term deal on America's deficit.  

As if that was not an explicit enough rejection of Republicans' central tenet that taxes must not be raised to pay off America's debt, President Obama then demolished the other major proposal in Ryan's Path to Prosperity: the need for fundamental changes to Medicare to lower government spending on healthcare. Rep. Ryan has recommended the introduction of a premium-support system for seniors, beginning in ten years time, akin to the one he proposed in his earlier Roadmap for America's Future.

President Obama shot the suggestion down in flames, vowing "I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs. I will not tell families with children who have disabilities that they have to fend for themselves."

Quite what these two commitments leave Republicans to play for come the round-table negotiations in May is unclear. This was a combative speech, a rallying call for progressives who were voicing their resentment at Obama's conciliatory approach to government spending. On Tuesday, one of the larger liberal online activist groups, the Progressive Campaign Change Committee, issued a petition: "President Obama: If you cut Medicare and Medicaid benefits for me, my parents, my grandparents, or families like mine, don't ask for a penny of my money or an hour of my time in 2012."

This was a speech that will be in the history textbooks in 50 years' time. Their verdict on its importance may be uncertain as yet, but Obama showed on Wednesday the essential role of the Chief Executive in framing the context of debate in the United States. Now the budget battles over the future of the entitlement programs in America can begin in earnest.

However, though the game may now be afoot, that is where this particular script ends. It is almost impossible to see, now the Bush tax cuts and Medicare as a guaranteed benefit scheme have been taken off the negotiating table, quite where Republicans can go to appease their conservative base. And where that will lead them on their quest to cut government spending is anyone's guess.