The fight over the fiscal cliff was getting down and dirty, and the White House had Republicans in retreat by complaining they refused to offer any details of how they would reduce the deficit through tax reform and overhauling costly entitlement programs.
But the Republicans regained some of the high ground on Monday – in a burst of bipartisanship -- by embracing the framework of the president’s own fiscal reform guru, Democrat Erskine Bowles. Along with former Republican senator Alan Simpson, Bowles led a presidential commission to trim the deficit whose recommendations were rejected but have since taken on an almost canonical authority among Washington policy experts.
In a letter to Obama, House Speaker John Boehner, Majority Leader Eric Cantor, House Budget Committee Chairman Paul Ryan and other GOP representatives endorsed a 10-year plan to rein in the $16.2 trillion national debt with $800 billion in new tax revenue, a $600 billion cut in the growth of federal health programs and a more stringent measure of inflation in calculating future Social Security benefits, and $600 billion more in long term savings by trimming government agency spending and other mandatory programs such as farm subsidies.
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The letter didn’t address arguably the most contentious issue in the talks – President Obama’s insistence that the wealthiest Americans pay a higher tax rate, a nonstarter with the GOP. Nor did it spell out how Republicans would reform health care programs – although House Republican aides said the GOP leadership would favor raising the Medicare eligibility age from 65 to 67 to save money.
The White House quickly rejected the counteroffer as not balanced. “In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill," said White House communications director Dan Pfeiffer.
THE BOWLES IDENTITY
Yet after a weekend of sputtering over ways to avert a year end calamity of soaring taxes and deep spending cuts that likely would push the economy back into a recession, Boehner and his lieutenants wrapped themselves in the mantle of the Simpson-Bowles approach, which many policy experts and lawmakers view as the gold standard of balanced long term deficit reduction.
“It changes the narrative from not having a plan and criticizing Obama's proposal to engaging in the process of looking for a realistic deal,” said Ron Bonjean, a Washington consultant and former Republican congressional spokesman and adviser. William Galston, a former policy adviser to Democratic President Bill Clinton, described the letter as “a definite step forward.”
“I think the House Republicans were in an untenable position because Boehner was in the position of saying the president’s first bid was absurd and preposterous but not really having anything to counter propose,” said Galston, now a scholar with the Brookings Institution. “Not only are they [now] on higher ground, but I think the negotiations are on a better track than they were before.”
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The new GOP framework parries the plan that Treasury Secretary Timothy Geithner put on the table last week in a private meeting with Boehner, which was essentially a reprise of his most recent Obama budget request. While both would reduce borrowing by more than $4 trillion over the next decade, Obama’s proposal would raise $1.6 trillion in fresh revenue — double the amount in the GOP plan — and produce only about $350 billion in savings from Medicaid and Medicare, the biggest drivers of future borrowing.
Boehner and other GOP leaders angrily rejected the offer out of hand, and said in their letter to the president yesterday that if they had taken the administration offer at face value, they would counter with a House-passed resolution that called for controversial structural changes in Medicare, Medicaid and hundreds of billions of dollars in savings from other mandatory programs, including federal employee compensation and food stamps.
THE PAPER TIGER ROARS
“At the same time, mindful of the status quo election and past exchanges on these questions, we recognize it would be counterproductive to publicly or privately propose entitlement reforms that you and the leaders of your party appear unwilling to support in the near term,” the letter stated.
“With the fiscal cliff nearing, our priority remains finding a reasonable solution that can pass both the House and Senate, and be signed into law in the next couple of weeks,” the leaders said. They went on to say that Bowles’ testimony last November before the bipartisan super committee on deficit reduction offered “a good middle ground approach that garnered praise from many fiscal watchdogs and nonpartisan experts.”
The Republicans stressed that Bowles recommended $800 billion in new revenue – precisely the amount they are seeking – and that by closing special interest loopholes and deductions and then lowering rates, unlike Obama who seeks to increase rates on those making more than $250,000. Bowles also recommended cuts of more than $900 billion in mandatory spending and another $300 billion in discretionary spending.
While there would still be need for “fundamental entitlement reform”, the GOP leaders said, “The Bowles plan is exactly the kind of imperfect, but fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs,” the letter said. “We believe it warrants immediate consideration.”
Sean West, head of U.S. political risk at the Eurasia Group, a consultant, said yesterday, “The most positive thing about the GOP counteroffer is that we now know where both parties stand 28 days out from the fiscal cliff. “
“The GOP could have dragged its feet for another week, but now we have motion,” he told The Fiscal Times. “The GOP spending cuts are not acceptable to Democrats as such but are not so outlandish that they prohibit an eventual deal where spending cuts are the big win for Republicans even as they compromise on taxes. I don’t think the deal aims for bipartisanship in terms of content, but it strikes a more constructive tenor of negotiations and opens the door to an eventual compromise.”
CONSERVATIVE REACTION
But some conservatives were dismayed by the Boehner letter, saying that Republicans essentially conceded at least $800 billion in new taxes without an iron clad commitment from the Democrats for meaningful entitlement reform in the coming year.
“I wonder if they’re putting this out in order to be reasonable while desperately hoping the president doesn’t accept this, or if it’s a preemptive capitulation,” said one conservative economist speaking on background. “The sentence in the letter where they refer to the fact that they don’t see it as useful at this stage to be putting forward publicly or privately substantive reforms to entitlement programs, basically taking entitlement off the table, doesn’t leave you much hope for the kind of a deal that would be worth even negotiating.”
With the White House turning down the GOP counteroffer, it’s not clear where the negotiators go from here in trying to stave off a year-end fiscal crisis. “If the President is rejecting this middle ground offer, it is now his obligation to present a plan that can pass both chambers of Congress,” Brendan Buck, Boehner’s spokesman, said in a statement.
For several months, Obama sold his tax rate increase as a return to Clinton-era prosperity. Just as the economy didn’t stumble under Bill Clinton’s top 39.6 percent rate, it would flourish again at the same level during the Obama administration. But House Republicans undercut the Clinton comparison yesterday by endorsing the rough budgetary framework from Bowles, the Comeback Kid’s third chief of staff and budget consigliore after the GOP retook the legislative branch majorities in the 1996 election.
Bowles’ chief virtue is that both parties have jilted his past deficit entreaties. Obama largely ignored the Simpson-Bowles plan that he personally commissioned back in 2010. Ryan, the House Budget Committee chairman—later the Republican vice presidential nominee—also served on that deficit commission and voted against the plan. As recently as last March, the House spurned a budget modeled on Simpson Bowles by a 382 to 38 vote.
But since that time, Bowles’ power has grown. Corporate powers like the CEOs of General Electric and Goldman Sachs enshrined his deficit reduction plan as the ideal policy, saving it from the legislative scrapheap. The Simpson-Bowles plan essentially broke an ideological logjam by starting over with a relatively fresh tax code and taming the growth of entitlement spending. For two parties with a messy history, it was the epitome of a clean break.
WHY 67 IS THE NEW 65
The framework also shows a GOP willing to confront its perceived base—older, wealthy voters. In order to tamp down on Medicare’s growing expenses, their proposal would make 67 the new 65, bumping up the eligibility to a level that Obama has privately endorsed but that Democratic luminaries such as Illinois Sen. Dick Durbin have ruled out. The Congressional Budget Office projected last January that the higher eligibility age would save 5 percent on Medicare over the long-term, but that access to Medicare would be delayed for older Americans who would end up paying more for health treatment.
By proposing tax reform, Boehner left open the possibility that all of the Bush-era tax rates could be extended for a full year. The speaker previously pushed for a continuation of the lower rates in order to have the time to work through an overhaul of the tax code at a committee level. Both Republicans and Democrats have stated that meaningful reform cannot be achieved in a matter of weeks, so what Boehner has subtly done is suggest the removal of Obama’s biggest cudgel in tax negotiations—the automatic end of the 2001 and 2003 tax rates at the start of next year.
The House Republican letter specifically did not mention the debt ceiling increase. As part of his offer, Obama proposed that Congress forfeit its control of the government’s borrowing capacity. Boehner dismissed that idea as ludicrous, but by refusing to provide any counter to the president’s proposal hinted at his hope that additional concessions can be extracted from Democrats in return for raising the $16.4 trillion debt ceiling to avoid default.
