I’m hearing that Democrats last night rejected a framework for compromise that would have included significant new revenues. They had sounded amenable to the possible deal, but their position suddenly hardened after going back to their caucus. It is almost surely an indication that they want to do everything they can to validate President Obama’s line of attack on a “do nothing” Congress. Sen. Pat Toomey had worked out a framework that he considered pro-growth and a reasonable first step toward fiscal restraint, while making a major concession to Democrats on revenue in the interests of getting a deal. Max Baucus especially had sounded open to it and a sub-group of the supercommittee had been discussing it seriously–but no more.
According to multiple sources familiar with the deliberations, Toomey’s framework would have lowered and locked in the top individual rate to 28 percent and lowered other rates commensurately. It would have (the numbers are rough) offset the revenue loss and raised $250 billion in new revenue by limiting the value of deductions, especially on the high end. It would have gotten another $40 billion with an adjustment to the CPI, moving to “chained indexing.” It would have raised another $110 billion through growth effects of the lower rates and another $100 billion through asset sales and the like. That’s about $500 billion in revenue.
It would have been matched by $700 billion in cuts, which, when the supposed interest savings of $200 billion are counted, would have slightly exceeded the supercommittee’s target, clocking in at $1.5 trillion. (Again, the following numbers are rough.) The Toomey framework on spending was worked out with Baucus staffers and would have gotten $225 billion from Medicare savings (means testing and the like), $50 billion from Medicaid, $185 billion from reductions related to the chained CPI, $100 billion from other mandatory spending, and $190 billion from reduced discretionary spending (achievable through freezing the federal workforce). Republicans had raised more serious reforms, like premium support for Medicare and block-granting Medicaid, but it was clear those were non-starters.
There had also been discussions about reforming corporate taxes to go to a 25 percent top rate and a territorial system. John Kerry, Max Baucus, and Chris Van Hollen had initially seemed open to the idea. That’s dead, too.
With the framework rejected, the operative word you hear from people familiar with the deliberations is “impasse.” Republicans are hoping Democrats come back to the table, but no one is betting on it. President Obama is probably going to get the optic he wants.