President Obama made two things clear in his press conference this morning: He's refusing to negotiate with Republican over the debt ceiling, but he's willing to pass $1.5 trillion more in deficit reduction to replace the so-called "sequester" cuts and stabilize our fiscal trajectory.
"We’ve already done close to $2 trillion in deficit reduction, and if you add the interest that we won’t be paying, because of less spending and increased revenue, it adds up to about $2.5 trillion," he said. "The consensus is we need about $4 trillion to stabilized our debt and our deficit, which means we need about $1.5 trillion more." That would mean that Obama would need to find about $300 billion beyond replacing the sequester to reach his own target over the next 10 years, though the White House would deny that this would be a direct tradeoff for another debt-ceiling hike.
That's more or less the same conclusion that the Center on Budget and Policy Priorities came to last week: The group calculated that Congress and the White House has done about $2.4 trillion in deficit reduction since the beginning of 2011 and recommends that lawmakers pursue about $1.4 trillion more in order to stabilize the deficit over the next 10 years.
What's less clear is how much deficit reduction that Republicans want out of all of this—expect that it'd be a figure significantly higher than $1.2 trillion sequester, which is left over from the 2011 debt-ceiling agreement. A year and a half ago, Republicans demanded dollar-for-dollar spending cuts in exchange for raising the debt ceiling. If they were to do the same this time around, it would mean about $1 trillion in addition cuts in exchange for a one-year hike, on top of the $1.2 trillion sequester or its equivalent, which would be a total of $2.2 trillion in deficit reduction. (In his speech, Obama suggests that it would be closer to $2.5 trillion.)
Republicans haven't officially committed to any target yet, whether it's a dollar-for-dollar increase or otherwise. But outside analysts like GOP economist Doug Holtz-Eakin are setting their targets as high as $5 trillion. "Both current policy and the $1.4 trillion deficit reduction target would leave the U.S. in the danger zone of chronically impaired growth and elevated risk of financial crisis," Holtz-Eakin explains.
Obama believes that any deficit reduction target of even half that magnitude would be impossible for Congress to reach given the political constraints. "They can’t even -- Congress has not been able to identify $1.2 trillion in cuts that they’re happy with, because these same Republicans say they don’t want to cut defense," he said. "They’ve claimed that they don’t want to gut Medicare or harm the vulnerable, but the truth of the matter is, is that you can’t meet their own criteria without drastically cutting Medicare, or having an impact on Medicaid, or affecting our defense spending. So the math just doesn’t add up."
Republicans obviously disagree, but so far they've held back on setting a specific target for deficit reduction, instead pushing the broader argument that entitlements and other spending cuts must be prioritized, and that the time for more tax revenue is over. And neither Democrats nor Republicans have put out any specific proposals as of yet.