The Blair Project

The Blair House Project

The White House and Republicans agree on where to go. They now have to work out how to get there

May 12th 2011 | WASHINGTON, DC | from the print edition

•

•

BUDGET-MAKING in America is an exercise in brinkmanship. Last December Barack Obama and Republican leaders in Congress narrowly avoided a sharp rise in tax rates. Last month they averted a government shutdown with barely an hour to spare. They returned to the table on May 5th with another deadline looming: they must raise the ceiling on the national debt by August, or else make the federal government default on its obligations.

Judging by their public postures, the prospects look poor. On May 9th John Boehner, the Republican speaker of the House of Representatives, called for “trillions, not just billions” of spending cuts as a condition of raising the debt ceiling above its current $14.3 trillion. He suggested he would rather let the government default than fail to cut spending. Mr Obama’s spokesman responded that “maximalist positions do not produce compromise.”

The two sides may not be as far apart as the rhetoric suggests, and anyway a default would not necessarily be to Treasury bondholders: many other payments, even to pensioners, could be sacrificed first. Though discussions have only just begun at Blair House, a stately building for official guests directly opposite the White House, both sides seem ready to lay out targets over the next decade that lower the deficit from 10% of GDP this year to 3% or less in 2015. That figure would represent a “primary” balance (a balanced budget once interest payments are excluded), and would also arrest the rise in the debt as a share of GDP. Furthermore, both sides appear to agree that if those targets are about to be breached, “triggers” would automatically cut spending or raise taxes across the board.

Although everything is officially on the table, the two parties have put to one side the most divisive issues: taxes and...