Democrats Set High Goal Of Sweeping Fiscal Reform

By Lori Montgomery
Washington Post Staff Writer
Monday, February 2, 2009

It's the holy grail of Washington politics: a federal budget that generates ample funds through a simpler and fairer tax code, defuses the spending time bomb for health and retirement programs, and supports the nation's economy during the worst downturn in generations.

President Obama and congressional Democrats have high ambitions to chart such a course, and say that they hope to strike a grand bargain with Republicans to bring taxes and government spending back into balance over the next few years, taming budget deficits that threaten to spiral out of control.

That goal has never been more urgent. The Senate opens debate today on a nearly $900 billion plan to pull the nation out of recession. If passed, it would send this year's budget deficit -- the annual gap between spending and income -- soaring toward a record $1.4 trillion, or nearly 10 percent of overall economic output, a level not seen since the end of World War II. The growing gap is rapidly driving up the national debt, causing lawmakers and budget experts to fret that the nation could be overwhelmed by mounting interest payments to private creditors even as it struggles to cover the skyrocketing cost of caring for retiring baby boomers.

But fixing the budget would require a kind of joint political suicide, with Democrats agreeing to trim costly social programs and Republicans acquiescing to a major tax hike. That kind of bargain has eluded previous administrations and seems highly unlikely now, even for a hugely popular new president.

Though key Republicans in the Senate say they are ready to work with Obama, House GOP leaders last week orchestrated a lock-step rejection of his economic stimulus package, signaling their intent to oppose rather than cooperate with the new president. Meanwhile, progressives in the Democratic party are preparing a major push for a big permanent increase in social spending, beyond the expiration date of the stimulus bill.

Obama and his allies nonetheless have said that they view a grand bargain as a political imperative. Anxious moderates in both parties have made clear that their support for some of the president's most significant campaign promises hinges on having a plan to pay for them. In recent weeks, the White House has responded with a pledge to simultaneously tackle all the long-standing problems that have been driving the nation deeper into debt, from escalating health-care costs to a byzantine tax code that doesn't generate enough cash to meet the nation's needs.

"The president wants to make very clear that he is absolutely committed to a medium and long-term fiscal policy that will get us back to balance," House Majority Leader Steny H. Hoyer (D-Md.) said after a meeting at the White House last week. "The fact that we are in crisis gives an added impetus to solve big problems."

No decisions have been made about how to fix those problems. But White House officials are talking to lawmakers about setting up a process to tackle the issues within a matter of months and plan to hold a "fiscal responsibility summit" by early March.

Revamping entitlement programs and the tax code would be a stunningly ambitious undertaking. Former presidents Bill Clinton and George W. Bush tried and failed to overhaul the nation's retirement and health-care systems; the U.S. tax code hasn't been refurbished since Ronald Reagan was in office in 1986. But lawmakers said the soaring deficit is finally helping forge a consensus for action.

"I want a process that leads us to a conclusion this year," said Sen. Kent Conrad (D-N.D.), the chairman of the Senate Budget Committee and an outspoken deficit hawk. "It's essential that we do this now."

At the moment, discussions are focused on whether to name a special panel to make the difficult decisions that would be required to right the nation's finances. Key senators in both parties are backing a plan put forward by Conrad and the Budget Committee's senior Republican, Sen. Judd Gregg (N.H.), that would create a task force of lawmakers and administration officials. The task force would wrestle with the details of Social Security, Medicaid, Medicare and the tax code, and deliver a reform plan to Congress for a vote later this year.

Under the proposal, the task force's recommendations could not be amended; the House and Senate would be required to accept or reject them without changes or additions, similar to the process lawmakers use to close military bases.

Obama specifically mentioned the Gregg-Conrad proposal when he met with Senate Republicans last week. Several senators told him they would like to see such a task force created as part of the economic stimulus bill, saying the promise of a fiscal reckoning would make the massive measure easier to swallow.

But Obama "was not supportive" of that idea, said Gregg, whom Obama may tap to join the administration as Commerce secretary. "I think they think it's just too big a lift for the stimulus package."

In addition to Obama's apparent reluctance, the idea faces opposition from House Speaker Nancy Pelosi (D-Calif.), who has argued that no special group is needed to sort through problems that already are well understood. Instead, Pelosi and some House leaders say the existing congressional committees have the expertise to handle the delicate task of rewriting tax provisions and social programs with large and avid constituencies.

Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee, has already crafted a plan for tackling the tax code that would increase levies on the wealthy while lowering the corporate tax rate and sparing middle-class taxpayers from the bite of the alternative minimum tax. Aides said that proposal, which the House rejected in 2007, offers a good starting point for any effort at tax reform.

But Rangel's tax bill is reviled by Republicans, who say it is mathematically impossible to balance the budget on the backs of a very small group of wealthy taxpayers. Fixing the problem, they say, is going to force Obama to abandon one of his central campaign promises: cutting taxes for 95 percent of American families.

"It isn't just magical. Somebody's got to pay for this at the end of the day," said Sen. John Ensign (R-Nev.). "You're talking about a middle-class tax increase to pay for this."

That's one reason why a growing chorus of lawmakers is clamoring for a process specifically tailored to the gargantuan task of combing through a tax code that runs to 60,000 pages and reexamining social programs that consume hundreds of billions of dollars a year. Advocates say such a process could bring Republicans more fully to the table, assuring that Democrats and Republicans would be jointly responsible for the painful sacrifices that are likely to be required.

"Some people have said we don't need a commission. But you know and I know it's never going to happen" without one, said Sen. George V. Voinovich (R-Ohio), a longtime champion of overhauling the budget who is still smarting from Bush's failure to push comprehensive tax reform.

Voinovich said some lawmakers want to introduce legislation to mandate a budget task force or commission without Obama's blessing. "But I figure, let's trust him," Voinovich said. "He has made a public commitment to us that he's going to do something about it. And I'm hoping, within the next month or so, they're going to come to us and say: We're going to tackle this."

Staff writer Shailagh Murray contributed to this report.

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