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A (Non-)Grand Bargain?



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NR’s Bob Costa, whose reporting on Congress has been second to none, has been reporting all week that John Boehner thinks the CR and debt-ceiling mess could end in a meaningful budget deal. Others have now confirmed his reporting, and apparently Boehner has been making the case to members and brought it up at yesterday’s White House meeting. 

Could it work? Stranger things have happened, though I can’t think of very many right now. But I think the term “grand bargain,” which Bob and others have been using, isn’t right to describe what Boehner and some other House Republicans seem to have in mind. From what has been reported so far, it seems like they’re talking about a fairly modest deal to move some of the sequester caps upward and replace the savings (which come from discretionary cuts) with equal savings that come from entitlement cuts. What might that look like?

The Republican version of such a deal would presumably look like the kinds of sequester-replacement proposals the House Republicans have offered this year, maybe together with some pro-growth measures. In other words, it would look a fair bit like parts of the much-maligned “wish list” that Republicans proposed as their opening debt-ceiling offer last month, which had its roots in their sequester-replacement ideas. It wasn’t nuts as an opening move, and it still isn’t, though obviously some of the bigger elements (like the delay of Obamacare and the Ryan budget tax framework, which they tacked on to that list) wouldn’t survive negotiations or be part of a small deal. A pared down list would be a logical starting place for Republicans. 

A Democratic version of such a deal, meanwhile, would presumably look like the sorts of sequester-replacement proposals the White House offered this year and last, which included some very modest entitlement reforms of a Democratic sort and a significant tax increase. 

It is not actually that difficult to see a plausible middle ground between those approaches — a small deal that takes just a little from each side’s list: raising the sequester caps, enacting more modest entitlement reforms than Republicans would like, and increasing revenue through those reforms rather than with another explicit tax increase. The chained-CPI reform the parties have discussed before, for instance, would increase revenue by $100 billion over a decade while reducing spending by about $130 billion. Add another $170 billion in ten-year spending cuts and you’ve got a $400 billion deal at a 3-to-1 ratio of spending cuts to revenue increases. 

Republicans would probably be open to a different balance of revenue and spending if some meaningful Obamacare concessions were possible — like a delay of the individual mandate — but if Obamacare is off the table at this stage then this could be as far as it goes. The additional $170 billion could then come from other health-entitlement reform, like restructuring Medicare’s deductibles and limiting supplemental “Medigap” coverage (as Senators Coburn, Burr, and Hatch have proposed in recent years). Some additional means testing of Medicare could also be part of such a package, and means testing as it has generally been done in that program has involved revenue (charging wealthier seniors higher premiums) rather than spending reductions (like a means-tested increase of the age of eligibility). I think the latter approach would be better, but the former is a revenue-raising approach Republicans have long been open to, and they would probably be willing to count it as a spending cut if that were necessary. If not Medicare, those additional savings could come from non-health entitlement reforms — selections from the lists put forward by the White House and the House Republicans could yield that amount. 

The substantive appeal of this kind of approach is that it replaces short-term sequester cuts with entitlement reforms that add up to much more over time. In terms of near-term deficit reduction, Republicans and Democrats have actually made a fair bit of progress in the past few years. In 2010, the Simpson-Bowles commission proposed a combination of reforms that they projected would bring the deficit down to 2.3 percent of GDP in 2015. CBO now projects that, with the spending cuts achieved by House Republicans in the last few years and the tax increase the Democrats got in the fiscal-cliff deal, the deficit will actually be lower than that, 2.1 percent of GDP, in 2015. But because it involved entitlement reforms that yielded cascading savings and not just crude discretionary-spending cuts and tax increases, the Simpson-Bowles approach would have kept bringing the deficit and debt down after that, while on our current course CBO projects the deficit will be back to 3.2 percent of GDP by 2020 (Simpson-Bowles projected their reforms would have it at 1.2 percent of GDP in that year) and rise from there, and that over the coming decade we will add $7 trillion to the debt. Replacing sequester cuts with entitlement reforms will help far more with our horribly daunting medium-term fiscal problem. 

The political appeal of this kind of approach, meanwhile, is that it offers each party a way out of the corner it’s in. But I think those corners aren’t exactly what they seem.  

Republicans right now don’t seem to think they need a way out of the shutdown so much as they need a way to get something for a debt-ceiling increase. They could after all end the shutdown at any time and still get a small Obamacare concession by sending the Senate a short-term CR with just the Vitter amendment attached to it (which undoes the special relief Congress got from the administration from the provision of Obamacare that requires members and staff to be dumped into the exchanges). The Democrats could not defend keeping the government shut just to protect their own health coverage from their own law. Republicans know how much the Democrats hate the Vitter amendment: Their extremism in opposing it, from drafting proposals to deny health coverage only to senators who solicited prostitutes (as Vitter did) to leaking private e-mails among leadership staff to embarrass Republicans over the amendment, is a plain sign of desperation. But Republicans haven’t pulled this card yet in part because many of them don’t think the shutdown is hurting them (I think they’re wrong about that) and in part because, as those leaked emails showed, many of them hate the Vitter amendment too (I think they’re wrong about that too). It may yet come if Republicans decide they need a quick end to the shutdown, but at the moment they seem more focused on the debt ceiling. 

The Democrats, meanwhile, have locked themselves into a position of total intransigence on the debt ceiling and say they will only negotiate on the budget if Republicans send them a clean one (in other words, one that involves no negotiation). They’ve been confident that they can sustain the argument that Republicans won’t compromise even as Democrats refuse to compromise. They know they can count on a friendly media narrative, and it has mostly succeeded so far, but they also know they are vulnerable on the Vitter amendment, that the House’s small-bill strategy is cracking their wall a little, and that at the end of the day there really has to be an increase in the debt ceiling. They have been very poorly served by their leadership, especially Harry Reid’s bizarre repressed rage; they began their negotiations at the Republicans’ budget numbers and so have never had anything substantive to win in this process; and they risk losing any symbolic victory if they can’t back down from their total obstinacy.    

The way out of this jam (which is a much bigger jam for Republicans than Democrats, let’s be clear) would therefore need to be an agreement that Republicans can honestly present as a debt-ceiling deal that involves a budget compromise and Democrats can honestly present as a budget deal that involves a debt-ceiling increase. That’s what the outcome Boehner seems to envision would offer. In the process, some portion of the sequester caps would be lifted without increasing overall spending and some modest entitlement reforms would be enacted without fundamental changes the Democrats detest. 

Could it work? Maybe. But the political system that could pull it off would probably not have gotten into the situation that requires it. 



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