In a letter to President Obama, House Speaker John Boehner has proposed a combination of tax increases and spending cuts to avert the “fiscal cliff.” The offer, based around a proposal by co-chair of Obama’s deficit commission Erskine Bowles, would represent a bad deal for conservatives if it actually were accepted by Obama. But if Obama refuses the offer, as I’d anticipate, then it helps Republicans make the case that they’re making a good faith effort to reach a reasonable compromise, and Obama is the intransigent party in negotiations.
In the letter, Boehner argues that Obama’s latest offer, presented by Treasury Secretary Tim Geithner last week, was unreasonable. It asked for $1.6 trillion in tax hikes, new stimulus spending, effectively infinite debt ceiling increases and offered only modest spending cuts. At the same time Boehner acknowledges that Obama would never sign into law the entitlement reforms in the Republican budget authored by Rep. Paul Ryan. Instead, Boehner argues that the parties should agree to a “middle ground” approach that Bowles advocated when he testified before the Congressional “super committee” on Nov. 1, 2011. This was proposal is a pared down version of the well publicized one he proposed with Alan Simpson when the two men chaired Obama’s deficit commission.
The broad outlines of Bowles’ proposal, documented at the time by the Committee for a Responsible Federal Budget, would be to raise taxes by $800 billion, cut $600 billion from health care programs, $300 billion from other mandatory spending and $300 billion from discretionary spending. Together, this would trim deficits by $2 trillion, with an additional $400 billion coming from the resulting lower interest payments on the national debt.
Things get a lot trickier when it comes to figuring out the composition of those spending cuts and tax increases. In Boehner’s letter, he said that “revenue” would come from “pro-growth tax reform that closes special-interest loopholes and and deductions while lowering rates.” But Bowles does not favor the use of dynamic scoring, a practice that accounts for revenue generated by projected economic growth. That means for Republicans to lower rates and still raise $800 billion in revenue, they’d have to get rid of loopholes and deductions exceeding $800 billion — at least if they want to be faithful to the Bowles proposal.
The $300 billion of discretionary spending cuts Bowles called for would create caps on both defense and non-defense spending. But Boehner said that the cuts he was endorsing were “over and above the spending reductions enacted in the Budget Control Act.” That act — passed as part of the compromise to raise the debt limit — already has caps on defense spending. It also originated the sequester cuts that Republicans have wanted to undo. Boehner spokesman Michael Steel said in an email that when the letter says “over and above” that means, above the caps on defense spending, but not above the sequester cuts.
On mandatory spending, the Bowles plan called for gradually raising the Medicare retirement age, cutting payments to Medicare providers, malpractice reform and tweaks to Medicaid that were a part of the original Simpson-Bowles plan. The problem is, Republicans have been arguing that Obamacare payment cuts to Medicare providers are so deep that many will drop out of the program, hurting access for seniors. The Bowles plan would mean further cuts along the lines that Republicans have opposed.
Defenders of Boehner may argue that Obama has the leverage and if tax rates are going to go up no matter what, Republicans may as well extract some form of entitlement cuts out of him. The problem with this logic is that passing such changes — which can easily be undone by future Congresses — will allow Democrats to claim that they already addressed entitlements, thus further delaying the more structural reforms that will be necessary to avert a fiscal crisis.
Boehner’s offer may well be an effort to call Obama’s bluff even if he doesn’t have the votes to pass it. For two years, and throughout the election, Obama has said he’d be willing to discuss entitlement reforms if Republicans were willing to yield on taxes. Should he reject this offer, it will expose the fact that Obama was never really serious, and make it harder for Obama to blame Republicans if the nation goes over the fiscal cliff.
UPDATE: In a statement, Bowles distances himself from Boehner’s proposal:
While I’m flattered the Speaker would call something “the Bowles plan,” the approach outlined in the letter Speaker Boehner sent to the President does not represent the Simpson-Bowles plan, nor is it the Bowles plan. In my testimony before the Joint Select Committee on Deficit Reduction, I simply took the mid-point of the public offers put forward during the negotiations to demonstrate where I thought a deal could be reached at that time.
The Joint Select Committee failed to reach a deal, and circumstances have changed since then. It is up to negotiators to figure out where the middle ground is today. Every offer put forward brings us closer to a deal, but to reach an agreement, it will be necessary for both sides to move beyond their opening positions and reach agreement on a comprehensive plan which avoids the fiscal cliff and puts the debt on a clear downward path relative to the economy.