All told, expiring tax breaks account for nearly four-fifths of the $500 billion the cliff is projected to suck out of the economy between January and September. Automatic budget cuts, known as the sequester, are almost an afterthought. According to the nonpartisan Congressional Budget Office, they amount to $65 billion in the fiscal year that ends in September, evenly split between the Pentagon and domestic programs.
Because Republicans have so far insisted on taming the debt through spending cuts rather than tax increases, the sequester was essential to winning GOP support for legislation to increase the nation’s debt limit after the Obama-Boehner talks broke down in 2011. The threat of across-the-board cuts was supposed to force a special congressional “supercommittee” to come up with a more reasonable way to save money. But the supercommittee disbanded in failure last November.
Many Republicans say Obama’s victory will serve to break the stalemate. With his post-election speech, Boehner essentially offered to reverse three decades of GOP orthodoxy on taxes.
“The movement on the part of the GOP to say that revenues are part of this mix is significant,” said Rep. Peter Roskam (R-Ill.), who as chief deputy whip will be responsible for rounding up votes. “Obama can take his victory lap on more revenue. Let’s give the GOP a victory lap on keeping rates low and call it a win.”
In return for their concession, however, Republicans say they will demand structural changes to retirement programs on the order of those Obama offered in 2011, including raising the eligibility age for Medicare from 65 to 67 and applying a stingier measure of inflation to Social Security.
Those ideas are “very constructive,” said Sen. Patrick J. Toomey (R-Pa.), an anti-tax conservative who served on the supercommittee. “The problem is big government programs are growing faster than the economy. It doesn’t matter what you do on the tax side if you have spending consuming ever more of our economy with no end in sight.”
Democrats oppose cutting benefits. But Senate Majority Leader Harry M. Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.) told Obama they would support the secret deal in 2011. If he leads them there now, they are likely to follow.
“We’ve been resisting the obvious for the past two years,” said Rep. Peter Welch (D-Vt.), a liberal who advocates compromise. “And the obvious is: There’s no grand bargain that will not cause political pain for all of us.”