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Wednesday, March 13, 2013  

Why Republicans Should Say Yes to a Grand Bargain (and why liberals should probably say no)

With budget notions being produced by Paul Ryan for the Republicans and Patty Murray for the Democrats, the attention has momentarily shifted from the president's so-called charm offensive and his Ahab-like quest for a "grand bargain" on taxes and retirement spending. In a way this is a good thing, because it highlights the serious differences in policy priorities between the parties (even if Ryan's effort is not really a budget in any meaningful sense), and thus the unlikeliness of any actual agreement.

On the other hand, the dueling blueprints have distracted people from the truly remarkable structure of the grand bargain being offered by Obama. It has often been said, apparently in deliberate ignorance, that the president hasn't offered "entitlement reform" as part of a deal, and in actual fact he has. That is the remarkable thing--he has put ideas like chained CPI and the utterly dreadful increase in Medicare eligibility age on the table. He has not accepted them as proposed by the other party, he has offered them on his own initiative in exchange for some more revenue.

Republicans have of course been unwilling to offer the revenue. They are also, apparently, unwilling to make any changes to Social Security or to Medicare for their own constituencies, which is understandable enough. But they would be wise to consider taking a deal that exchanged big cuts in retirement security for revenue.

The basic structure of American politics over the last thirty-two years is that when Republicans win elections, they enact big tax cuts for wealthy people. They do this in fair weather and foul, in 1981 and in 2001, in 1995 and in 2010. When Democrats win elections, they tend to focus on fully-funded expansions of the welfare state (think Obamacare in 2010) and on moving the budget toward balance (1993, 2011-present).

So let's imagine Boehner somehow manages to get a Grand Bargain along the general lines discussed through the House. This means a dramatic cut, over time, in retirement spending and a substantial increase in tax revenue from higher income earners. Then, in 2016, we have an election. This can have two outcomes. If a Republican wins, he will move to cut taxes for higher income earners, which recent experience suggests he will do regardless of the budgetary picture and without effective resistance by Democrats. Some or all of the new revenues Obama bargains for will be given back through tax cuts (though presumably not simply by re-opening tax loopholes). Meanwhile, the chained CPI cut to Social Security will stay in place, and voila--four years after the Grand Bargain you have a shrunken social safety net and a tax base roughly similar to what you had in 2013.

If a Democrat wins, on the other hand, he or she will presumably want to take on some new spending initiative--universal preschool, infrastructure investment, environmental remediation and protection (intensely disruptive climate events will be costly and frequent by this time). And in order to do this, he or she will have to either cut spending somewhere else in the budget or get some new revenues. There is no prospect of a 1999-style surplus, so the fiscal tradeoffs facing the next Democratic president will be pretty similar to what faced Bill Clinton in 1993 and Barack Obama in 2009. But at that point, the Grand Bargain will have already gotten the revenues to be gotten through tax reform, and chained CPI will already be implemented and written into the budget baseline. The next Democratic president will have to attempt a grinding battle to get either higher tax rates or some alternative revenue source (carbon taxes would be an excellent idea, but no doubt still a difficult haul in 2017). And of course a Republican will at some point win the presidency, whether in 2016 or 2020 or 2024, so the above scenario simply takes place whenever that happens.

The president and his closest advisors evidently believe in fiscal consolidation for its own sake. But this is not a position shared by most liberals. Liberals should be pressuring the president to put something like chained CPI on the table only in exchange for another programmatic goal--infrastructure or preschool, for instance. As it stands, the president's idea for a Grand Bargain puts progressive politics in a serious bind.

Since anything a president proposes defines the position of his party and ideology, the badness of this deal for liberals has gone pretty much unmentioned. All the attention is on Republicans and whether--as you choose--they will compromise, or the president will somehow "lead" them to accept a compromise. But recent history suggests that Republicans should really take the deal, and liberal Democrats are the ones who should be trying to sabotage it.

posted by Benjamin Dueholm | 11:16 AM

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