Senior Democrats spar over maximizing fiscal-cliff leverage

Current and former Obama and Clinton administration advisers and Senate Majority Whip Dick Durbin, D-Ill., squared off on Thursday over how to work with Republicans to forestall a looming fiscal crisis.

At an economic event at the Democratic National Convention in Charlotte, the Democrats also sparred over how to use the leverage of the impending fiscal doom of tax increases and spending cuts set to go into effect in January that could drag the economy back into a recession, as well as how to achieve Democratic goals of maintaining investments for the future and how to carry out Obama’s second-term agenda.

Durbin argued that lawmakers will probably vote for a six-month extension during the lame-duck session of Congress to give negotiators more time to reach a deal. But Robert Rubin, a former Treasury secretary under President Clinton, and a former Citigroup executive, argued that such a long extension will give lawmakers a false sense of security about staving off the fiscal cliff and increase the temptation to seek additional extensions to get through the 2014 elections.

“It’s very hard to look at the way Congress has functioned and not think there is going to be a tremendous temptation on the part of Congress to kick this thing down the road,” Durbin said at a Peter G. Peterson Foundation Breakfast moderated by Bloomberg News.

Rubin said that the American public has to be convinced that the country is like the Titanic, headed for an iceberg that it can avoid. He said an extension of only two months, or at most four, should be used to ensure the pressure is kept on lawmakers.

“We have to get the American people to realize that our future absolutely depends on this issue,” he said.

Echoing those sentiments, John Podesta, head of the Center for American Progress and a former Clinton chief of staff, argued that if Obama is reelected, his entire second-term agenda will hinge on his ability to reach an early resolution on the fiscal crisis. If the debate is protracted, he said, Obama won’t have the time — or leverage — to focus on other priorities, he said.

“The second term is riding on the outcome of this decision,” Podesta said. “If he does not get a fiscal framework put in place — I’m with Bob — within the first couple months of 2013, or if you are with Dick, the first six months of 2013, I think it’s going to be very, very hard to do the kinds of things that President Obama is going to talk about tonight, which is to make those important investments in innovation and infrastructure in education and ensuring that we have the workforce for the future."

For his part, National Economic Council Director Gene Sperling said he hoped Congress would take advantage of the lame duck to make as much progress as possible.

“The lame duck would be a terrible thing to waste,” he said. “I for one think we should be very focused on using the lame duck when we have the gun … or two guns … to our head; when we have the moment when we will be furthest away — assuming President Obama has been reelected — from another election.”

But Sperling said that Republicans will have to accept that revenue increases must be part of the mix.

“You have to have that fundamental honorable compromise, that fundamental agreement that you are going to have a larger deal that is going to include significant revenues from those who are in the best position to pay for them together with significant entitlement and mandatory savings,” he said.

Podesta argued that Democrats should agree to forestall the automatic defense cuts that are set to go into effect next year when they return from recess next week, to take that piece of the fiscal cliff off the table, to isolate the tax fight and get serious about tax reform.

But Durbin disagreed, arguing that Democrats need the defense sequester as leverage. “I love you, John, but if you put your gun in a holster, then the showdown is over. We’ve got to keep the cliff there,” he said.

The Democratic operatives also disagreed over the ratio of spending cuts to revenue. Durbin argued for a 2-to-1 ratio, while Rubin argued for a 50-50 split.