We know that Republicans desperately want to avoid the defense side of the trigger cuts. We know that Democrats, at least at the leadership level, want to revert the top two marginal tax rates back to the Clinton-era levels. There’s a way in which this can resolve itself in a mutually satisfying way.
Lindsey Graham is already talking about a “mini-Bowles-Simpson” to deal with the defense trigger:
But two leading GOP voices on the Armed Services Committee, Sens. Lindsey Graham of South Carolina and John McCain of Arizona, are heading up a bipartisan group of senators working to reach a deal before the November election and punting sequestration for another year. To do so, the group, which meets again next week, is trying to find $110 billion in offsets for fiscal 2013, including “revenue” that many in the GOP have scoffed at in the past.
That could come in the form of closing loopholes, selling federal property or increasing fees, Graham said. A potential agreement would resemble a “mini-Bowles-Simpson deal,” modeled off a plan produced by President Barack Obama’s fiscal commission that called for a 3-1 ratio of cuts to revenue increases.
“I think we can do a one-year fix if Republicans can put some revenue on the table,” said Graham, an Air Force reservist who declined to identify members of the “small but growing” working group. “Once we do that, it will become easier to get Democrats to help with the $60 [billion] or $70 billion [in cuts] that we will have to find throughout the other parts of the government.”
That would actually do away with all the trigger cuts on the defense and the discretionary side. But clearly the likes of Graham and McCain are more concerned with the defense cuts. And I think Politico is right in expressing the conventional, but not inaccurate, wisdom that the defense cuts will never happen.
And that’s where the Obama tax plan to let the tax cuts above $250,000 in income expire comes in. You would get $850 billion over ten years from that. The trigger cuts cost $1.2 trillion, but that’s split equally on the defense and discretionary sides. You could absolutely see those tax cuts for the wealthy expire to pay for the avoidance of the defense trigger. Which I don’t really find a palatable scenario, to take a pot of money that could be used for anything and put it toward the creation of weapons. But it’s entirely plausible, as Brian Beutler points out.
So far, nobody’s budging. But if Democrats win the election, and the top bracket tax cuts expire, they can use the fresh revenue to pay for wiping the sequester off the books [...]
Democrats aren’t explaining Obama’s plan this way. At least not yet.
“It’s all kind of a mix,” said Senate Majority Leader Harry Reid at his weekly Capitol briefing Tuesday.
Obviously, a 100% tax scenario to pay off the trigger cuts would be anathema to the right. But they wouldn’t necessarily have to agree with it. This is squarely within the realm of reconciliation, for one. Democrats would probably have to win both houses of Congress and the Presidency to get it done. And it’s predicated on getting those high-end tax cuts to expire on schedule which means passage of the Obama plan, a virtually impossible scenario.
You could see this work another way, however. If ALL the Bush tax cuts expire in December, then you’d have a pot of $4.4 trillion to play with, enough to eliminate the trigger AND give back some substantial amount in new tax cuts. The trigger reversal would be the pre-requisite for the tax deal. But that assumes that everyone jumps down the fiscal slope, so the strategy would be high-risk.