By Tim Montgomerie
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The Wall Street Journal is hailing last night's US budget deal (that still needs to be formally ratified) as the biggest victory for small government conservatives since the 1996 welfare reforms.
What does the deal do?
- It is a two phase process;
- In phase one the debt ceiling is raised but spending is cut by a greater amount;
- There'll be budget caps so that failure to allocate first phase spending cuts will introduce immediate across-the-board cuts;
- Phase one also excludes "job-killing" tax hikes or, indeed, any tax hikes;
- In phase two there'll be a larger increase in the debt ceiling and the accompanying fiscal package will be decided by a joint committee of all parties;
- Unless there's agreement in phase two there could be big defence cuts;
- This phase two joint committee will examine entitlement reform.
John Boehner's partisan summary of the deal can be read here (PDF).
The American Left is furious. At every point Democrats drew lines in the sand only to retreat from them. First of all they said that they wanted the debt ceiling raised unconditionally. They then caved. They then said Medicare reform was off the agenda. They caved on that too. Then there had to be tax increases as part of any deal. Then they surrendered on that too. At the New York Times Paul Krugman is particularly critical of Obama:
"Republicans will surely be emboldened by the way Mr. Obama keeps folding in the face of their threats. He surrendered last December, extending all the Bush tax cuts; he surrendered in the spring when they threatened to shut down the government; and he has now surrendered on a grand scale to raw extortion over the debt ceiling."
The Republicans got so much because they won in a very, very big game of chicken. "The Republicans," claims Jonathan Cohn, "were willing to risk an economic catastrophe and Obama was not." That may or may not be true but the Democrats controlled all of Washington until January. They had the opportunity to agree a long-term budget deal before then. They didn't. Since winning control of the House the Republicans used their muscle to get a deal that will delight most of the Tea Party Movement.
I emphasise most because the majority of the new Tea Party members of the Congress have pushed the Republican leadership to strike a hard bargain with Obama but were willing to be flexible in the end. A small number of Tea Partiers – about twenty – were completely unwilling to be flexible and these have been the people in the spotlight of the British media (whose reporting of events has been shockingly dire and one-sided). The instransigent Tea Party fringe is not the same as the bulk of the Tea Party fringe. The bulk has been a very good thing for fiscal conservatism. On a wave of public anger they've forced the American political establishment to call time on the excessive spending of the Bush and, particularly, Obama years. Obama's rushed stimulus cost at least $228,055 for every job created and perhaps as much as $586,428.
There are no final battles in politics. The GOP have won the first battle but there are many ahead as the spending cuts are allocated and the new bipartisan budget committee deliberates. But Obama is weaker today. Much weaker. His ratings are in decline. His base is very unhappy with him. If the Republicans can choose a mainstream candidate for next year's presidential election they can win the White House and then really control the budget debate without having to make big, economy-endangering threats.
By way of footnote this whole episode reinforces Sajid Javid MP's case for a British debt ceiling. The debt ceiling debate forced politicians to confront their overspending. The people's elected officials were forced to vote publicly in favour of a higher debt ceiling, something most American voters were very unhappy about. Additional borrowing couldn't be agreed silently without public knowledge. Distinguished sponsors for Sajid's idea so far include:
- Rt Hon Frank Field
- Mark Garnier (on Treasury Select)
- Matthew Hancock (former Osborne Chief of Staff)
- Jo Johnson (former FT Lex editor)
- Rt Hon David Laws (former Chief Secretary)
- Andrea Leadsom (on Treasury Select)
- Jesse Norman (on Treasury Select)
- Clare Perry (former Osborne adviser)
- Rt Hon John Redwood (Chairman of Backbench Economic Affairs Committee)
- David Ruffley (on Treasury Select)
- Rt Hon Nicholas Soames
- Rt Hon David Davis