Maybe the White House and House Speaker John Boehner (R-Ohio) really are getting somewhere on the “fiscal cliff” deal. Monday evening, a Boehner spokesperson released this statement: “Any movement away from the unrealistic offers the President has made previously is a step in the right direction, but a proposal that includes $1.3 trillion in revenue for only $930 billion in spending cuts cannot be considered balanced. We hope to continue discussions with the President so we can reach an agreement that is truly balanced and begins to solve our spending problem.”
We are now into a negotiation, it seems, in which there are actual trade-offs. Boehner previously indicated he was willing to let the Bush tax cuts expire for those making more than $1 million. The White House has moved up from a cut-off of $250,000 to $400,000. The Post, and other outlets briefed by the White House, suggest that the first year of the sequestration cuts could be postponed. “However, $1 trillion in future cuts to agency budgets adopted during the 2011 budget battle would remain in place. Counting around $800 billion in savings from ending the wars in Iraq and Afghanistan, the overall package would come close to reducing deficits by a total of $4 trillion over the next decade — a target that economists say would stabilize the soaring federal debt.”
It remains unclear what spending cuts are in the mix and whether they include real entitlement reform. Also unknown is whether the deal would cover the debt ceiling, which will trigger another face-off early next year and which many Republicans see as an opportunity to get significant spending reductions.
Still, many Republicans on the Hill are skeptical. Despite movement by the White House, many veterans are unconvinced that the president is serious about closing the differences. One source explains that the White House is still counting interest savings as a spending cut. Nevertheless, the White House’s willingness to move in negotiations and to brief the media are signs that Republicans were gaining the high ground by agreeing to substantial revenue, thereby meeting the president’s perpetual demand for a “balanced” deal. If nothing else, the White House is concerned enough to try to convince the press it is negotiating.
In some sense it makes more sense for the GOP to accept a smaller tax hike now (let the Bush tax cuts expire at a threshold income level, some compromise between $400,000 and $1 million) — which would be far less revenue than the $1.3 trillion currently demanded by the White House. Republicans could then go after spending reduction (and possibly tax reform) in the debt ceiling face-off. From the White House’s perspective, the president has an incentive to try to worm out of the debt-ceiling fight, where both sides know the GOP has the upper hand. What is he willing to do to avoid that fight, in which he will be at a disadvantage? There are many possibilities (e.g. means-test Medicare, change the cost-of-living formula for increases in entitlement benefits, significantly lower the tax demand), but these would require very hard choices for the White House without much preparation of its congressional allies for concessions they will have to make.
In sum, it isn’t clear if the differences can be bridged or if either side has the full support of its Senate and House allies. At this point it may be that Boehner (having crossed the Rubicon on tax hikes) has more latitude than the president. We’ll see in the next week or so. At this point I think a small deal (deferring the heavy-lifting to the debt-ceiling face-off) is still more likely than the ever-elusive grand bargain.