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A Year From Debt Ceiling Debacle, What's Changed?

Aug 2, 2012
Originally published on August 2, 2012 6:39 pm

Transcript

AUDIE CORNISH, HOST:

A year ago today, Congress and President Obama stepped back from the brink. They agreed to a deal to raise the federal debt ceiling and prevented disastrous government default. But the tortured process left no one satisfied. The government lost its triple-A bond rating. The stock market plunged. And President Obama and Congress both saw their approval ratings plummet.

As NPR's Scott Horsley reports, the summer gridlock of 2011 helped set the stage for everything that's followed in 2012.

SCOTT HORSLEY, BYLINE: President Obama didn't have much to celebrate when he stepped into the Rose Garden a year ago this afternoon. Yes, Republicans in Congress had agreed to avoid a government default. But that merely dodged a bullet Congress itself had fired.

PRESIDENT BARACK OBAMA: Voters may have chosen divided government, but they sure didn't vote for dysfunctional government.

HORSLEY: The ugly debt ceiling deal was a far cry from the grand bargain Mr. Obama was hoping for. He'd spent months trying to craft a deal that would put a serious dent in the federal deficit. Democrats grudgingly accepted cuts to Medicare and Social Security. But the talks repeatedly broke down when Republicans refused to swallow higher taxes.

OBAMA: I've been left at the altar now a couple of times.

HORSLEY: Republican House Speaker John Boehner countered that it was the president who scuttled the deal by demanding ever larger tax increases.

REPRESENTATIVE JOHN BOEHNER: The White House moved the goalposts.

HORSLEY: Without a grand bargain, the two sides had to settle for a stopgap deal that at least kept the government honoring its debts and paying its bills.

But the credit rating agency Standard & Poor's was not impressed. For the first time ever, S&P lowered the rating on U.S. debt, citing doubts about the effectiveness, stability and predictability of American policymaking. S&P's Nikola Swann says the problem was purely political.

NIKOLA SWANN: There seems to be a lack of understanding of the degree to which either taxes need to be raised or spending reduced, or some combination of the two in order to eliminate the deficits.

HORSLEY: News of the downgrade came late on a Friday, August 5th. The following Monday, the stock market tumbled more than 600 points. Mr. Obama's approval rating also sank. By August, it was below 40 percent.

But that month also marked a turning point for Mr. Obama. After six months of trying to bargain with the new Republican majority, elected to the House in 2010, the president started actively campaigning against them.

OBAMA: If they've got an alternative vision and they don't want to sit there and do nothing for the next 16 months while unemployment is still high and small businesses are still suffering, then ultimately they're going to be held to account by you.

HORSLEY: White House spokesman Dan Pfeiffer says Mr. Obama could afford this more combative tone only because he'd insisted on raising the debt ceiling high enough to get beyond the election this fall.

DAN PFEIFFER: We essentially removed the gun from the hostage taker. House Republicans are no longer able to say pass our agenda or we're going to drive the economy over a cliff.

HORSLEY: The president has even won a few battles, most notably to extend the payroll tax cuts. In 2012, his approval rating has risen again, as has the U.S. stock market.

In general, though, the shock of the debt ceiling showdown has not produced more cooperation in Washington. A congressional super committee was named but failed to produce a deficit-cutting deal. So, under the terms of last summer's agreement, automatic spending cuts are set to take effect next year. That would include big cuts in Pentagon spending, a fate that Rutgers political analyst Ross Baker says Republicans are now trying to wriggle out of.

ROSS BAKER: Everybody was ordered to eat spinach. But now that the spinach is being served up, nobody wants to taste it.

HORSLEY: On the campaign trail, Mr. Obama has been telling voters the November election is their chance to break the stalemate. Political analyst Baker says there's no guarantee it will turn out that way.

BAKER: At the great card table of American politics, the voters deal the cards. And if they deal hands very similar to the hands they had dealt in 2010, I think we're going to see a repeat of the kinds of stalemate and the kinds of conflict and the kinds of failure to resolve these questions.

HORSLEY: S&P's Swann agrees, saying the stark divide in Washington is simply a mirror of equally stark divisions in the American public.

Scott Horsley, NPR news, Washington. Transcript provided by NPR, Copyright National Public Radio.