A Grand Bargain? You Show Me Yours…

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Showing a little leg on deficit reduction is a highly risky proposition these days: display the scantest hint of skin and you risk losing a limb. The ink was still drying on the final edition of the Wall Street Journal‘s Thursday story detailing a grand bipartisan plan for deficit reduction when the angry missives began. Grover Norquist fired off a letter to the three Republican senators participating in the talks – Oklahoma’s Tom Coburn, Idaho’s Mike Crapo and Georgia’s Saxby Chambliss – accusing them of treachery. “I urge you to reject this so-called ‘deal’ which is little more than a transparent attempt to hike taxes and put off the spending restraint the country so clearly called for in the 2010 elections,” Norquist, the president of Americans for Tax Reform, wrote.

Just hours later, the trio responded with a defense the negotiations. “Proposals that simplify the tax code, broaden the base, lower all individual and corporate tax rates, and make our corporate tax code more competitive for U.S. business will create a surge in economic growth,” they wrote.

The gang of six – Coburn, Crapo and Chambliss along with Democrats Kent Conrad of North Dakota, Illinois’ Dick Durbin and Mark Warner of Virginia — have actually been meeting for months, but the episode shows how hard it will be for both sides to join hands and jump together into a public debate. If Social Security reform is the most politically radioactive issue in American politics, then overhauling Social Security, Medicare, Medicaid, defense budgets, discretionary spending and taxes all at once is akin to throwing oneself into a nuclear reactor. If you come out glowing, it’s rarely in a good way.

Looming deficits will take drastic action to fix and the sacred cows, entitlements and defense chief among them, will have to be slaughtered. A successful grand bargain will require both parties to expend their combined political capital. Success promises mutual benefit, while failure ensures mutual destruction.

Earlier this week, Senate Minority Leader Mitch McConnell said “entitlement reform will not be done except on a bipartisan basis with presidential leadership,” a signal that he’s unwilling to take action without President Obama making the first move. But the President has taken a wait-and-see attitude as well, declining to mention serious entitlement reform in his 2012 budget. When asked about this, Obama said: “This is not a matter of ‘You go first’ or ‘I go first.’ This is a matter of everybody having a serious conversation about where we want to go and then ultimately getting in that boat at the same time so it doesn’t tip over. And I think that can happen.”

Yet within Obama’s inner circle, there is little interest  in putting out a fixed proposal for entitlement reform only to to see it criticized from the left and picked apart by Republicans. Instead, the President is hoping for a repeat of the backroom negotiations that led to a tax break deal in December of last year. And most important of all, Obama’s aides want to make sure that the President comes out of debate over entitlement reform as one of the adults in the room, someone who is willing to compromise and willing to work hard to solve problems, even if he is not urgently driving the process.

That leaves Congress in the driver’s seat for the time being. The process split is in two. House Republicans have said they plan on including entitlement reform and deficit reduction measures in their 2012 budget that is due out in April. “Our budget will lead where the President has failed,” House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, said in a joint statement with GOP leaders. “It will include real entitlement reforms so that we can have a conversation with the American people about the challenges we face and the need to chart a new path to prosperity.”

In the Senate, Conrad is leading his gang of six. The group is hoping to circulate a draft of their proposals next month to more than 40 senators who have expressed interest in the talks. According to a senior Democratic Senate aide, they are considering two legislative options. One is to attach the deal to a bill to raise the debt ceiling expected at the end of April or early May. The other option is to add whatever deal is reached to the budget, as is his prerogative as chairman of that committee. If Conrad and Ryan, who are personal friends, can hammer out an agreement between the two budget committees on deficit reduction, the package could be passed in the Senate with just 51 votes under a privileged budget resolution process called “reconciliation.”

Though the White House has been careful not to get too involved in the process, they have drawn a few lines in the sand. The administration would prefer not to see any agreement attached to the debt ceiling measure, Office of Management and Budget director Jacob Lew told reporters Thursday. And it wants to see Congress deal with Social Security separately. “It is essentially a parallel issue and it’s important for it not to be confused with either contributing to the problem or a central part of the solution,” Lew said.

Negotiators in Congress are looking at Bill Clinton’s 1997 Balanced Budget Act, which was negotiated with then-Speaker Newt Gingrich, and the 1984 Deficit Reduction Act as models. Both passed under reconciliation and both included triggers, measures that impose specific austerity measures when a predetermined spending level is reached. But both pieces of legislation were later criticized by some fiscal conservatives for including tax hikes. This time around, Conrad and Ryan are looking to the blueprint left in December by the deficit reduction commission on which they both served. The commission recommended an overhaul of the tax system that would bring in $180 billion in new revenue over the next 10 years, a bitter pill for the Tea Party set to swallow, and $1.7 trillion in spending reductions that would be equally hard for Democrats to stomach. Bringing about those major changes would take not only Conrad and Ryan, but Obama, McConnell and House Speaker John Boehner to show a great deal of good faith. It remains unclear who will be willing to make that display first.

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