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After budget battle Act 1, will Obama, Reid, Boehner have an Act 2?

Looming debt-ceiling talks may be a bigger hurdle for the three negotiators than the hard-fought deal on the 2011 budget. As for a deficit-cutting plan? Obama and Boehner are starting far apart.

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"Republicans have insisted on spending cuts and deficit reduction, rather than reviving the economy, and with this speech [Obama] shifted to their ground," says Mr. Zelizer. "This is a White House that feels that Republicans are powerful and have been successful in shifting the public to their issues."

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In one respect, the fine art of dealmaking may make a comeback by virtue of divided government. When one party controls Congress and the White House, the template for moving major legislation is to jam it through. But with a new Republican majority controlling the House and the Senate still in Democratic hands, that approach won't work. The only option is to craft an agreement that can muster majorities in both the House and the Senate – and that requires patience, priority-setting, and an ability to mobilize outside groups to influence deliberations.

Obama, Boehner, and Reid now have one budget deal in their pockets, but its scope is modest compared with what comes next. On both the debt ceiling and the 2012 budget, which takes up the thorny issue of entitlement spending for Medicare and Medicaid, the two sides might as well be starting from different planets.

The debt ceiling

Obama wants a "clean bill" in which Congress simply votes to raise the limit.

Republicans want Congress to first put itself in a fiscal "straitjacket," such as statutory limits that trigger cuts when spending, the deficit, or debt exceeds a specified percentage of gross domestic product. If they don't get it, they say they'll allow the United States to default on its debt.

Default means the US could no longer sell securities to pay its bills, sending interest rates soaring and the stock market into free fall. "If you call into question the willingness of the government ... to meet its obligations, you will shake the basic foundations of the entire global financial system," Treasury Secretary Timothy Geithner told a Senate panel on April 5.

The White House has laid down its marker. "We do not need to play chicken with our economy by linking the raising of the debt ceiling to anything," says press secretary Jay Carney.

Deficit-cutting and the 2012 budget

Republicans see the debt crisis as driven by government spending, period. Cut government and you create private-sector jobs, allow people to save for their future, and get the nation back on a sound fiscal path. Boosting taxes for top earners would burden small businesses and stifle job creation, they say. Without overhauling Medicare, Medicaid, and, eventually, Social Security, entitlement spending will drive the economy into a ditch.


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