The bipartisan deal on the debt ceiling that makes sense is the same one that has made sense all year: The debt ceiling ought to be increased, because there is no responsible way to bring the deficit to zero this summer. But the increased debt ceiling should be accompanied by spending cuts and pro-growth reforms to address the underlying causes of the growing debt burden. For both political and ideological reasons, the Republicans were bound to be more reluctant than the Democrats to increase the debt ceiling this year. But they ought to be willing to do it in exchange for a significant rightward shift in budget policy.
Raising the debt ceiling and increasing taxes in return for spending cuts is a less attractive offer, and Speaker John Boehner was right to reject that deal. The constant media-Democratic drumbeat for a “balanced” package of spending cuts and tax increases ignores two important facts. The first is that Washington has repeatedly shown that legislation to increase spending is easier to enact than legislation to cut taxes — indeed, legislation is not even necessary to increase spending, because existing law allows it to grow automatically. So the ratio of spending cuts to tax increases in any deal is likely to deteriorate as time passes. The second is that taxes are already scheduled to increase, albeit not as much as spending is. The scheduled expiration of the Bush tax cuts, the incomplete indexation of the tax code to inflation, and the long-run effect of growth on tax brackets will all see to that. Both spending and taxes are on their way up, and the balance we need is spending cuts and tax cuts to counter that upward pressure on the budget.
The Democrats say that tax increases have to be part of any “big” deal. If Republicans refuse to raise taxes by $1 trillion, the Democrats say they will not offer $3 trillion in spending cuts. If the Democrats will not reconsider that unfortunate decision, the way forward becomes clear: a smaller, but still substantial, deal that consists of spending cuts, an equivalent increase in the debt ceiling, and changes to tax policy that leave the overall level of taxes unaffected. Other issues involving the future of American tax and entitlement policy can then be deferred until after the 2012 elections.
Any such deal will create a moral obligation for the parties to disclose their plans on those issues during the campaign. House Republicans have of course already voted for the budget plan drawn up by Rep. Paul Ryan (R., Wis.). President Obama has proposed a budget as well, but it was unanimously rejected by Senate Democrats and Republicans alike. It is hard to resolve a dispute when one side will not commit to a position. Perhaps a medium-sized deal will give the Democrats some time to sort themselves out.