Yesterday’s Washington Post has a piece with the appealing title, “Obama says he’ll renew pursuit of ‘grand bargain,’ offering specifics on agenda.” I thought this sounded great, since the president has offered very little in the way of detail how he plans to reduce the rampant government borrowing if he were to win the White House in November. Here is the plan:
“We’re going to be in a position where I believe in the first six months we are going to solve that big piece of business,” Obama said. “It will probably be messy. It won’t be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in [taxes], and work to reduce the costs of our health-care programs.”
Interestingly, the piece acknowledges that “Obama offers no details about how he would approach the negotiations with congressional Republicans.” It also rightly reminds us that this is the same deal he offers two summers ago, a plan “was roundly rejected in both the House and the Senate.” And if I remember correctly, Senate Democrats even unanimously voted against the latest president’s budget, the embodiment of this balanced approach.
Leaving politics and partisanship aside, there are very good reasons to reject this approach to reducing the debt. The most important one being that when economists have looked at what kind of fiscal adjustments successfully reduce the debt-to-GDP ratio, they have found unanimously that cutting spending, not “the balanced approach,” is the way to go. (For a list of the economic literature on the issue, see my colleague Matt Mitchell’s post and report).
More importantly, Republicans should remember that they have gone down the “balanced” path before. As I have mentioned, that’s the same deal that President Reagan made with Congress in 1982. At the end of last year, Steven Hayward gave a good account of the “$1 in revenue for $3 in spending cuts” deal the president made with congressional Democrats. According to his piece, the deal might have resulted in $1.14 of new spending for each extra tax dollar.
President Bush cut the same type of deal with Congress in the early 1990s. He made a deal to increase taxes by $1 in exchange for $2 in spending cuts; again, the tax increases were real, but it looks like spending cuts didn’t happen, at least to the level promised.
Now, I know that the balanced approach of this grand bargain may appeal to our sense of fairness and moderation. But it’s not fair and balanced if the actual deal doesn’t deliver on the spending cuts.