The discussions over pairing an increase in the debt limit with austerity budgeting took a turn into the stratosphere this morning, with a series of articles detailing President Obama’s offer, to be presented to Congressional leaders today, of a broader deficit reduction plan than previously discussed, with major cuts to all areas of government and a repeal of the Bush tax cuts for the wealthiest 2%. This is the grand bargain, the “something big” deal that the President has clearly favored since perhaps before he entered office, when he set up a fiscal responsibility summit and invited Pete Peterson to keynote it.
Let’s begin with what we know about this latest proposal. Here’s Lori Montgomery, who headlines her story “In debt talks, Obama offers Social Security cuts”:
At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.
As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending.
Rather than roughly $2 trillion in savings, the White House is now seeking a plan that would slash more than $4 trillion from annual budget deficits over the next decade, stabilize borrowing, and defuse the biggest budgetary time bombs that are set to explode as the cost of health care rises and the nation’s population ages.
So, $4 trillion in deficit reduction, Medicare cuts, Social Security changes.
How is this different from what we have known to be in the discussions for the past three weeks? I’m not seeing it. Yes, $2 trillion was the target number for agreements on cuts, but there was also this “trigger” formulation that would have forced automatic reductions if the deficit were above a certain level. In other words, that would have enforced a deficit reduction at a level at or near $4 trillion over 10 years. So the only change there is that the elements of the deal will be labeled immediately.
We already knew that Medicare was in the deal, and the same with Medicaid and Social Security. In fact, the only reason Social Security factors in at all is because the method used to affect the cost of living adjustment – known as “chained CPI” – would also impact other mandatory programs with COLA changes and tax brackets, saving government funding that way. If it was just a Social Security change, it would score as $0.00 toward the deficit. It’s a stealth tax increase more than anything.
What about the New York Times writeup of this development? Anything new there? Well, there is this.
The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare and Medicaid and Social Security — programs that had been off the table.
The intensifying negotiations between the president and the speaker have Congressional Democrats growing anxious, worried they will be asked to accept a deal that is too heavily tilted toward Republican efforts and produces too little new revenue relative to the magnitude of the cuts.
Actually, if we’re talking about $1 trillion in revenue now as part of a $4 trillion deal, that’s actually more balanced than it was before, with $300-$400 billion as part of a $2.4 trillion deal. This spending/revenue ratio of 3:1 is still worse than any deficit reduction plan of the past 30 years, including ones presided over by Ronald Reagan. But it’s very much in line with the numbers from Obama’s April fiscal policy speech.
This would also accomplish a clear goal for Obama – cleaving off the Bush tax cuts for the wealthy from the rest of the Bush tax cuts. He’s wanted to do this for some time. He wanted to do it last December, and when he didn’t have the option, he extended them all. He said yesterday in his Twitter townhall that he wanted to extend the Bush tax cuts for everyone’s first $250,000 of income. That’s what he wants to do. It’s a clear policy goal. He’s using the debt limit negotiations to try and get it.
And he’s dangling $3 trillion in spending cuts in order to secure it. The Wall Street Journal says means testing of Medicare is on the table, as well as folding in a broad overhaul of corporate taxes, closing loopholes and lowering rates. This is several years’ worth of legislating in one deal.
To believe this deal has a chance of happening, you have to believe that Republicans will agree to significantly increase taxes – $1 trillion over 10 years is no slouch – particularly on the rich. Eric Cantor said yesterday that he would agree to certain closures of tax loopholes, but only if the total tax package were deficit neutral. While all the stories labor to discuss this secret meeting between Obama and Boehner, apparently to discuss this deal, they really only say that Boehner offered a range of options and committed to none. Jon Kyl said on the Senate floor last night that Republicans have agreed to $150-$200 billion in increased revenues, but only through increased user fees and government sales. And Mitch McConnell remains completely adamant that there’s no revenues on the table at all. There’s nothing to suggest that, out of nowhere, any Republican would agree to $1 trillion in tax hikes, including increases on tax rates for the wealthy.
So this is one of two things. Either A) it’s a coordinated PR campaign to show the country that only the President is serious about a deal, leading to some kind of positioning when the whole thing falls apart, or B) it’s a calculated bluff to make everyone thing that there’s been some kind of agreement, when the details are far less clear.
But regardless of this, I think you have to agree with Kevin Drum, that this deal, or at least what we can see of it, represents a virtual wish list for the President, that he actually views the long-term deficit as a problem, that he wants to rectify it through some shared sacrifice, but tilted toward the spending side, and that he’s using the debt limit to leverage a deal as much as the Republicans are.
Needless to say, I think he’s wrong. I think he’s wrong that austerity will have anything but a negative near-run impact on the economy. I think he’s wrong about the political implications, because taking the most potent issue off the table for Congressional Democrats – Medicare – will leave them with literally nothing to run on. I think he’s wrong about the importance of a deficit reduction deal to the political picture and winning over independents – tangible economic realities will trump the “deficit,” which is frequently in polling a stand-in for the “economy.” I think he’s wrong to assume that poor people and old people can shoulder the burden of more cuts to the safety net that sustains them. They could maybe pay a couple hundred bucks a year extra in taxes, but not the kind of medical premiums required if their health insurance goes away, or their food stamps, or their retirement security, or whatever other supports. I think this is a really bad set of choices that will hurt people for decades. I think the entire way the President talks about the economy is ahistorical and deeply damaging to the liberal project generally.
But I see nothing in the evidence to suggest that Republicans will accept this deal any more than they accepted the other ones.