Who really won the U.S. debt debate?

I followed the debate over the debt ceiling in the U.S. from Europe, where the commentators were perplexed about why the U.S. government would risk a default for the sake of purely partisan politics. With the deal done and a possible catastrophe is averted, the discussion has shifted to who won and who lost.

Conservatives like columnist Charles Krauthammer have supported raising the debt ceiling all along while acknowledging the work done by Republican negotiators. Others, such as Utah Senator Mike Lee, a leading Tea Party activist, and most GOP presidential hopefuls, opposed it. Respected liberal economist Paul Krugman wrote in the New York Times that President Obama had surrendered. So, who actually won? Was there a winner?

Clearly, this was a manufactured crisis, as raising the debt ceiling has never stirred so much down-to-the-wire confrontation in the past. President Reagan raised it 18 times and he is the darling of the Republican right to this day.

The end result of the negotiations is more debt and cuts that are undefined and gradual. Spending cuts will take place in two sequences (now and within 6 months) and are meant to span the next decade. Both defense and entitlement program cuts are on the table, as well as tax reform. A bipartisan congressional committee will handle the second series of cuts. If the committee is unable to put together a package of cuts that would pass Congress, their disagreement would trigger across-the-board spending cuts.

To many observers, the Tea Party faction of the Republican Party has won the day. The liberal media has lent credence to this view by lambasting Obama and accusing him of capitulation. Even conservative columnist Ross Douthat writes of a “diminished” president. The early assessments may still be a bit premature.

What did the Republicans gain, exactly? They got spending cuts equivalent to the rise in the debt limit. They also got Obama to buy into the debt/deficit discussion. But this is not new ground for Obama. He had already acknowledged the unsustainability of prolonged debt and deficits. The December 2010 deal with a freshly emboldened GOP reflected that view. So I guess, the Republicans win the P.R. war. But on the substance—if not on the means—both parties agree.

The Republicans wanted no new taxes. Yet, tax reform is part of the mandate of the bipartisan congressional committee. Both sides—liberal and conservative—acknowledge that tax reform will result in new tax revenues. Obama has also kept his right to veto the Bush tax cuts when they expire in 2012.

The debt ceiling debate was a convenient tool for more militant Republicans to attack the size and role of government. Entitlement reform is often seen as the vehicle for this. Yet, this deal in the first sequence protects the parameters of entitlement programs, and adds the possibility of defense cuts (a Republican concern, and a Democratic intent) to the mix. If the size and role of government is to change, it will not be solely the way the GOP wants them to. Obama has kept all options open down the road as the deal unfolds.

What did Obama want? He needed to raise the debt ceiling to prevent default and a sure recession. He had to have a credible plan to avoid a downgrade of the U.S. triple A rating. He wanted the cuts to be gradual to avoid stalling the recovery any further and wanted to protect key entitlement programs. He did not want to lose his veto on the Bush tax cuts in 2012 and he did not. Finally, he wanted to avoid a repeat of this summer’s debt ceiling battle prior to the 2012 election. While the credit rating remains a concern, Obama got much of what he felt was necessary.

So, who really won? It is too early to render a definitive verdict. The Republicans did not do as well as the Tea Party hoped. But Obama did not do as badly as his liberal critics would indicate. The result in the 2012 presidential elections will give us the real answer.