The President meets with Congressional leaders today in the first formal bargaining session since the election, aimed at averting the fiscal slope and reaching a mutually agreeable deal on fiscal policy. As I noted yesterday, Democrats come into the negotiations seeking some form of up-front stimulus to smooth the transition to deficit reduction, while Republicans are mainly concerned about tax rates.
What about the other element of this: the sequester? That’s the $1.2 trillion in discretionary and defense budget cuts that begin January 1 with roughly $55 billion on each side, pretty much across the board of those line items. The fiscal slope was originally called “Taxmageddon,” and because Washington thinks that Americans only care about taxes and spend their lives obsessing about April 15, taxes stays the hot topic. But there’s ample reason to suspect that the spending cuts will end up having a greater impact. So what’s being done on this front?
The White House is on it, apparently:
White House officials are in advanced internal discussions about a plan to replace the sweeping spending cuts set to begin in January with a smaller, separate package of targeted spending cuts and tax increases, people familiar with the planning said […]
The discussions are just one part of a complicated set of possibilities as Washington deals not only with the looming spending cuts but also the expiration of the Bush tax cuts and other traditional year-end priorities, such as finding a way to halt the scope of the Alternative Minimum Tax. While moving along separate tracks, it is also possible these three policy issues could be wrapped up into one universal deal.
White House officials are also expected to ask Congress to increase the country’s borrowing limit as part of the talks.
This brings up what I’ve noticed as the trend of talking about these issues separately rather than as one big deal. So we have not a cliff or a slope but a series of mini-cliffs and mini-slopes. The tax rate deal may extend beyond January, because then Republicans need only vote on a tax cut of varying size; but the sequester may get done early, to avoid the cuts (though OMB has tactics available to them to avert virtually all sequester effects in the first several weeks of next year).
I think what’s being hinted at here is a “down payment” on deficit reduction. If Congress and the White House can find, say, $55 billion in ten-year budget cuts or tax rises, they can cancel the first six months of the sequester. That kicks the can to a framework for a larger deal, including some manner of tax reform, a substitute for the rest of the sequester and even safety net programs. This is a very likely scenario. John Boehner has already said that lame duck sessions shouldn’t lead to big deals. If we’re going to see a grand bargain, we’ll see it next June.
Of course, both sides have to find the $55 billion. And Democrats want tax increases in there, while Republicans don’t even want to replace the discretionary side of the sequester.
We should know a bit more after the end of the first session today at the White House.