House Republicans are in a tough spot. If they do nothing, the federal government will go over what Federal Reserve Chairman Ben Bernanke first called the "fiscal cliff." In 2013, taxes will automatically rise by more than $450 billion, defense spending will be ratcheted down by $24 billion, and the U.S. economy will likely slip into recession. To make matters worse for the Republicans, current polling indicates that the American public will probably blame them if it happens.
But to prevent that economic and political disaster, President Obama is asking Republicans accept a $1.6 trillion tax hike over 10 years, $400 billion in Medicare cuts and abolition of the federal government's borrowing limit.
When Senate Minority Leader Mitch McConnell, R-Ky., first heard Obama's offer, he reportedly laughed out loud. Speaker John Boehner, R-Ohio, apparently took Obama's offer quite seriously.
On Monday, Boehner countered Obama's plan with his own plan for $800 billion in tax increases and $1.2 trillion in spending cuts. The trick is that, unlike Obama's tax hike, which raises revenue through higher tax rates, Boehner's tax hike would come from closing tax loopholes. Boehner sold his offer as "the Bowles plan," a reference to President Clinton's chief of staff, Erskine Bowles, who first outlined a similar compromise during the debt-limit talks in 2011.
But if Boehner was counting on Bowles to lend some bipartisan credibility to his offer, he miscalculated. Hours after Boehner released his plan, Bowles released a statement stressing that "circumstances have changed since" he outlined his compromise. "It is up to negotiators to figure out where the middle ground is today," he said. In other words, "Thanks for caving, Republicans. Now get ready to cave some more."
By responding to Obama's fantasy plan with a serious offer, Boehner played right into Obama's hands and set the terms of debate in Obama's favor. The "reasonable" middle ground between the two sides now appears to be a $1.2 trillion tax hike paired with just $800 billion in spending cuts.
This is far to the left of where the American people believe a final deal should be. According to a new National Journal poll, 38 percent of Americans believe a debt deal should be two-thirds spending cuts, one-third tax hikes. Another 38 percent believe a deal should be one-half spending cuts, one-half tax hikes. But only 16 percent believe a deal should be two-thirds tax hikes and one-third spending cuts.
At this point, it would be better for Republicans just to give Obama the higher rates he wants on families making more than $250,000, and then leave town.
Such a move would neutralize Obama's favorite tax talking point ("if we're serious about the deficit, we've also got to ask the wealthiest Americans to go back to the tax rates that they paid when Bill Clinton was in office") while also preserving the possibility of real tax reform (closing loopholes and lowering rates) once Obama leaves office and we get a president who is serious about it.
No, Republicans would not get any meaningful cuts to the true drivers of our national debt, our four entitlement programs: Social Security, Medicare, Medicaid and Obamacare. But meaningful entitlement reform is never going to happen while Obama is president anyway. The last thing Republicans should do is pass some minor tweaks to these spending programs and then pretend it's real reform.