Battle Lines Await an (Unlikely) Budgetary "Grand Bargain"

3/25/2013

With Congress and the Obama administration still divided over tax revenues, the possibility of a "grand bargain" on another major deficit reduction package seems increasingly small.

"The odds are very high that it doesn't get done," a senior White House official told the National Journal.
"It ain't happening," said a senior GOP aide on Capitol Hill.
In a meeting with House Democrats on March 14, President Obama himself assured Rep. Keith Ellison (D-MN) that the administration's proposed cuts in Social Security benefits were unlikely because a grand bargain on the budget was itself unlikely. "I haven't heard anything from Republicans on revenues," he said. "So Keith, I think you can relax."
But if it did happen, how would it happen? And what would it look like?

How Would It Happen?

According to White House aides, writes Ron Fournier in the National Journal, a grand bargain would first come together in the Senate, where Democrats would negotiate with a group of more moderate Republicans concerned about sequestration-related defense cuts, entitlement changes, and tax reform. The deal would also include new revenues derived from tax reform. Once passed in the Senate, said these aides, the deal would put pressure on the House to act and also provide political cover to House Republicans willing to cross party lines and support it.
"I do know that there are Republicans in Congress who privately, at least, say that they would rather close tax loopholes than let these cuts go through," President Obama said about across-the-board sequestration cuts that began in early March. "I know that there are Democrats who'd rather do smart entitlement reform than let these cuts go through. So there is a caucus of common sense up on Capitol Hill. It's just -- it's a silent group right now, and we want to make sure that their voices start getting heard."
"I think Republicans, if they saw true entitlement reform, would be glad to look at tax reform that generates additional revenues," said Sen. Bob Corker (R-TN) on Fox News on March 17, echoing the president's comments. "And that doesn't mean increasing rates, that means closing loopholes. It also means arranging our tax system so that we have economic growth."
Democratic congressional leaders also remain open to a deal. According to a story in The Washington Post, both House Minority Leader Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) are ready to back a grand bargain that includes both revenue increases and cuts in entitlements like Social Security.
So what are the chances this would happen? On March 20, Senate Majority Whip Dick Durbin (D-IL) put the odds of a grand bargain happening at less than 50 percent but, he said, if it gets done, it would likely be tied to a vote to extend the debt ceiling sometime later this summer.
If history is any guide, any package that reached the House and Senate floors would probably split both parties, especially in the House. A comprehensive tax package enacted earlier this year (the American Taxpayer Relief Act) passed in the House with 85 Republicans and 172 Democrats voting for it, but 151 Republicans and 16 Democrats voting against it. Similarly, the Budget Control Act enacted in 2011 passed with 174 Republicans and 95 Democrats voting for it and 66 Republicans and 95 Democrats voting against it. A similar split seems likely on any grand bargain agreement.

What Might Be In It?

The final vote, of course, would depend largely on what was in the deal. Since no deal has been struck yet, it is difficult to know what support it would draw, but it is still possible to make some educated guesses.
The starting point would probably be a $1.8 trillion proposal offered by President Obama, which currently includes $680 billion in additional taxes, $880 billion in spending cuts – including cuts in Social Security benefits and Medicare – and $200 billion in interest savings. The proposal would also eliminate sequestration.
This proposal would likely be modified, however, to gain Republican support. Entitlement cuts might be increased, for example. Sequestration-related spending cuts, meanwhile, might not be eliminated, but merely delayed a year or two.
Provisions would probably also be included to smooth the way for individual and corporate tax reform that closes loopholes and lowers rates. Differences between the two parties over net new tax revenue, meanwhile, might be papered over by an agreement that would allow such revenue but leave it unclear whether this revenue would come from loophole closures or economic growth. This would leave resolution of the matter to the House and Senate tax-writing committees.

Many Republicans Would Still Oppose It

Any deal, if it happened, would probably still face an uphill fight on Capitol Hill. According to Politico analysts Jim Vandehei and Mike Allen, House Republicans see little reason to sign off on any agreement that both raises taxes and also angers seniors with entitlement cuts.
"Can you imagine Boehner and his troops heading into the 2014 midterm elections dominated by conservative activists having to explain, not one, but two increases?" they wrote.
House Speaker John Boehner (R-OH) has echoed these sentiments. "The president believes that we have to have more taxes from the American people. We're not going to get very far," Boehner told ABC's Martha Raddatz. "The president got his tax hikes on January 1. The talk about raising revenue is over. It's time to deal with the spending problem."
Meanwhile, although the president has made a concerted effort to reach out to Senate Republicans, those same senators have said that they are not prepared to buck their party's leader, Sen. Mitch McConnell (R-KY), who said he will "absolutely not agree to increase taxes." Conservative organizations like the Club for Growth have also been warning GOP legislators to expect a primary challenge if they support a deal that raises taxes.

A Similar Split on the Left

Democrats would probably also be split on any grand bargain. But with Republicans divided, their support would be crucial, even in the House where they are in the minority.
Early signs of such division could be seen in a letter signed by over 100 House Democrats calling on the president and Democratic leaders to avoid any cuts in entitlements, including those achieved through modification of the consumer price index used to calculate cost-of-living increases for Social Security (called the chained CPI).
"If the Republicans are willing to make a major deal on tax revenues – which I doubt – but if they do, we can have a fight over chained CPI," Rep. Jerrold Nadler (D-NY) told The Washington Post.
If all of the House Democrats who signed this letter opposed the final deal, it probably would fall short. But some analysts believe that if it came to that, many would choose to support the president and the Democratic leadership. At least one Democratic leader agrees.
"If a president comes up with a reasonable approach which ends up giving years of solvency to Medicare ... I think that many Democrats will come around to that position," Durbin told The Hill. He said the president's support would provide them the cover they needed to shield them from grassroots anger.
These sentiments deeply worry some activists, including Damon Silvers, Director of Policy and Special Counsel for the AFL-CIO, who cautions Democrats not to even offer entitlement cuts. "This is an obvious trap," he told activists during a March 20 meeting. "People are forgetting how Republicans used the president's proposed Medicare cuts against him in the last campaign."
Overall, these divisions create both a challenge and an opportunity. If a deal is reached, it will probably move relatively quickly. Activists and policymakers would have little time to react and decide to either support or oppose a final package.
In the meantime, efforts like those by House Democrats to signal that cuts in entitlement benefits are unacceptable will be crucial. Their voices may spell the difference between a grand bargain that cancels sequestration and minimizes adverse impacts on the economy, and a "grand disaster" that could slow the economy, cut important investments like education, transportation, and research, and ask too little of the wealthiest among us.