Washington these days feels like a 1960s game show. Our lucky contestants, House Speaker John Boehner and President Barack Obama, are on the stage in front of three doors, listening intently to the audience cheer before they choose which door to open. As the President and congressional leaders meet at the White House Thursday to find common ground on a deal to raise the debt ceiling and reduce deficits, three possible “prizes” are emerging.
Door Number One: a grand bargain the likes of which is described in the New York Times on Thursday morning. Such a deal could go as high as an eye-popping $3 trillion in overall deficit reduction, but as much as $1 trillion would be in revenues: $700 billion from letting the Bush tax cuts for the highest income brackets expire and another $300 billion from increased revenues, from auctioning off frequencies, increased payments to federal pension plans and ending agriculture subsidies in addition to ending tax breaks such as deductions for corporate jets, yachts and race horses. The deal would come with a pledge, or clawback provision, to revisit comprehensive tax reform in the coming years so as to offset the higher taxes on the wealthy by eventually flattening and broadening the tax base. Such a deal would be, according to GOP House sources, very hard to get through the House in the current climate. The “Grand Bargain” would also potentially include sweeping entitlement reforms, including raising the retirement age for Medicare and cuts to Social Security, moves that would meet with Democratic resistance in both chambers.
Door Number Two: a more modest package for roughly $1.7 trillion to $2.3 trillion in cuts with upwards of $500 billion in revenue increases, including $40 billion to $60 billion from ending tax breaks for corporate jets, yachts and race horses (and, possibly, a proposal to stop taxing hedge fund managers’ income as capital gains, thus subjecting it to a higher rate); plus $150 billion to $200 billion in increased revenues from requiring more pension contributions from federal employees, broadcast frequency auctions and getting rid of farm subsidies; and another several hundred billion dollars from pegging inflation to the Consumer Price Index. All of the new revenues would be offset by a permanent or long-term Alternative Minimum Tax fix, a popular bipartisan move, thus satisfying the Grover Norquists of the world. This deal would include modest Medicare cuts, but to providers only, and could also include some short term stimulus such as an employer payroll tax holiday.
Door Number Three: A deal isn’t imminent by July 18 and the panicked markets start to freak out rank-and-file House Republicans — and Obama — who are suddenly more willing than they are now to do a short term extension in order to give negotiators more time to agree on a bigger package, whether that’s doors one or two.
We’ll see how Republicans and Democrats react to the grand bargain floated in the Times on Thursday. Entitlement reform has always been a mutually harmful proposition, and doing so much so fast might be too much to ask of many members. In the past, deficit reduction has taken months, if not years, to hammer out. Ramming it through in a matter of weeks was always going to be a tall order. Certainly, the ceiling is unlikely to lapse — unless the contestants fall asleep at the buzzer — doors one and two are both plausible, if not likely, options. So let’s listen hard to the in studio audience, which door has the most support: one, two or three?