What Congress Can Cut: Anatomy of a Grand Bargain

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Brendan Smialowski / Getty Images

President Obama makes a statement to the press during a daily briefing at the White House July 5, 2011 in Washington, DC.

For all the melodrama in weeks of Washington’s deficit reduction talks – Republicans walking away from the table, President Obama calling them on the carpet, Wednesday’s purely symbolic vote on “shared sacrifice” from the wealthy – things have actually turned a corner in recent days. We are approaching the end of what I like to call the Five Stages of Washington Theatrics. Stage 1: The wrong politicians sit down and try to hash out a deal (In this case, Joe Biden’s Blair House talks and the bipartisan “Gang of Six” Senators were doomed to inefficacy). Stage 2: Negotiators on one side furiously abandon talks, thumping theirs chests to appease the base and say, “We will never agree to X” (Eric Cantor and Jon Kyl left the Biden talks forswearing any and all tax hikes). Stage 3: The other side thumps their chests too, rallies the base and says, “We will never agree to Y” (Obama was combative in his June press conference). Stage 4: Disaster looms, an agreement looks increasingly bleak. Stage 5: The right people get into a room, hammer out a deal, usually at the last possible minute.

Washington now seems to be between stages 4 and 5, where the right people are in the room, and each day the news vacillates between hope and despair, depending on which side’s base needs a little extra convincing. But more importantly, Washington has stopped asking if the two sides will reach an agreement, and started asking what the agreement might look like. How much spending will be cut? How long will the debt ceiling be extended by?

While the leaders may be drawing stark lines in the sand, rank-and-file members are coming around to a compromise. In the last week, several Republican Senators, including Lamar Alexander, the No. 3 Senate Republican, and John Cornyn, the head of the National Republican Campaign Committee, have said they’d accept ending some corporate tax breaks. On background, Some House aides have said they expect that some small snips to the tax code– such as the corporate jet subsidy named six times by Obama at his press conference – could get through the House. And while House Minority Leader Nancy Pelosi and Senator Chuck Schumer have dug their heels in on Medicare, other rank and file members on background have conceded that if Republicans can swallow some revenue increases, modest Medicare cuts could be on the table.

These concessions may seem slight – only hundreds of billions of dollars in a deal worth trillions – but they are the most politically difficult of the package. Democrats cannot raise revenues – even if they’re ending unpopular corporate subsidies – without GOP support in the House. Meanwhile Republicans are clamoring to include some Medicare cuts, however small and symbolic, so that Democratic cooperation can help protect them from lingering anger over Paul Ryan’s voucher proposal. Bipartisan cuts would provide Republicans with a much-needed retort to accusations that they want to do away with Medicare.

So, what might a deal look like? So far, Obama and House Speaker John Boehner are resisting Senate Minority Leader Mitch McConnell and former President Bill Clinton’s suggestions to do it in several small bites. They’re aiming for a grand bargain and one big vote. A longer-term deal on the debt ceiling will mean more spending cuts to win over Republicans, and more revenue increases to coax Democratic support. “We’ve made progress, and I believe that greater progress is within sight,” Obama told reporters at the White House onTuesday. “But I don’t want to fool anybody, we still have to work through some real differences.” Here’s a look at what is on the menu:

Cuts:
-$1-1.3 trillion in cuts to discretionary spending, including $400 billion from the Pentagon’s budget
-$150-275 billion: cuts to farm subsidies, spectrum sales and other mandatory spending, such as requiring federal workers to put in more toward their pensions
-$200-$400 billion: cuts to Medicare and Medicaid providers
-$325-$350 billion: interest savings

Total: $1.7 trillion to $2.3 trillion

Revenues:
-$290 billion: capping mortgage and charitable deductions at 28% for individuals who make more than $200,000, or couples who make $250,000
-$60 billion: eliminating last-in-first-out (LIFO) accounting for businesses
-$45 billion: eliminating oil and gas subsidies
-$20 billion: treating as regular income the “carried interest” rate most hedge fund managers are taxed at
-$3 billion: eliminating tax breaks for corporate jet owners
-$2.5 billion: eliminating ethanol subsidies
-$1 billion: eliminating tax deductions for yachts and vacation homes
-$162 million: eliminating tax break for racehorse owners

Total: $422 billion

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