the national interest

Yes, There’s a Budget Deal in the Works. Here’s What It Will Look Like

WASHINGTON, DC - OCTOBER 07: Lights are on at the U.S. Capitol on October 7, 2013 in Washington, DC. Democrats and Republicans are still at a stalemate on funding for the federal government as the shut down goes into the seventh day. (Photo by Mark Wilson/Getty Images)
Photo: Mark Wilson/2013 Getty Images

Last Friday, signs suddenly emerged that Republicans and Democrats want to complete a budget deal, or so I argued. Josh Barro disagrees — or, at least, thinks he disagrees. The whole discussion is enshrouded in terms with specific meaning to the negotiators, but with a vagueness meant to protect them from fallout, enveloping the debate in confusion. Let me simultaneously correct Barro’s confusion while explaining the state of play.

For years now, pundits and deficit scolds have demanded a Grand Bargain that would reduce long-term deficits by several trillion dollars over a decade through a combination of cuts to spending and higher tax revenue. That bargain is dead because Republicans refuse to go along with higher revenue. What is alive is a smaller deal.

Weirdly, when Brian Beutler explained the distinction between a big and a small deal to Barro on Twitter, Barro agreed:

That scenario — the small deal — is exactly what I argued is developing (to quote myself: “The long deficit scold dream of a huge Grand Bargain with trillions of dollars in savings is off the table. Instead, both parties are negotiating a smaller deal to replace sequestration.”) So I don’t understand what he thinks he disagrees with. But Barro is a highly intelligent guy, so if he’s confused, most of my readers are probably confused, too. Let me try to clarify where the negotiations stand now.

The small deal would aim to replace the automatic cuts (sequestration) that both parties hate for a couple of years, with deficit reduction spread over a longer time frame. This would spare program cuts that have caused bipartisan dismay, and also alleviate the pressure immediate deficit reduction is placing on the recovery. Making a deal like this would require a much lower target of agreed-upon long-term deficit reduction. While success is far from certain, it’s a much more achievable goal than a Grand Bargain.

Both parties have sent out signs of flexibility. Barro misses them. For instance, Gene Sperling failed to insist that any agreement must include higher tax revenue. Barro argues that the administration has already “walked back” from Sperling’s comments. He’s not reading them carefully enough. Here is the passage Barro quotes:

Gene was reiterating what our position has been all along: that any big budget deal is going to have to include significant revenues if Republicans insist on entitlement reforms. And any budget deal needs to have first and foremost the goal of creating good jobs for middle class families and growing the economy — that’s our north star in any budget deal, big or small.

You know what happens to people who don’t follow my “suggestions”? Ask Bob Woodward. Oh, wait, you can’t because HE’S DEAD. Photo: Chip Somodevilla/Getty Images

Here is the crucial modifier: “big.” The administration is saying that any “big” budget deal must include significant revenue. That means a deal with the cuts to Medicare and Social Security that Obama offered in his budget must have higher tax revenue alongside it. But the next sentence refers to “any budget deal” — no “big” — and makes no demand about revenue. That’s a coded way of saying a non-big-budget deal does not necessarily have to have “significant revenues.” It’s the opposite of a walk back.

Politico likewise reports that Obama told Republicans he doesn’t need revenue as part of a sequestration fix:

At the end of a long White House meeting between Senate Republicans and President Barack Obama during the government shutdown, Sen. Bob Corker (R-Tenn.) threw out a question: Would the president insist on raising tax revenue as part of a deal to soften the sequester?

Obama’s surprise answer: No, according to senators who were present and aides briefed on the discussion.

Now, that is a one-sided reporting account from (possibly optimistic) Republican sources. I think the better guide to Obama’s position is the official statement above. And the key qualifier is “significant.” Obama hopes to fudge the revenue question. You can’t fudge the several hundred-billion dollars he proposes to raise, but the lower the target, the easier it is to fudge. Ronald Reagan signed small tax increases every year that he pretended didn’t exist by using this kind of budget method.

I find it significant that Tom Cole — a key member of the pragmatic Republican wing — said, “We’re willing to put more revenue on the table.” Barro attempts to refute this by quoting Cole saying, in 2011, “Tax rates simply can’t be part of the equation.” But nobody is talking about tax rates. Even Obama’s proposed grand bargain leaves tax rates in place, and raises revenue by reducing tax deductions. The plausible small deal would probably entail something even smaller — a user fee here or there, perhaps a couple of high-profile tax loopholes. As I pointed out, it’s notable that Cole and Obama have not only moved toward each other’s position on revenue but crossed over, with Obama seeming to demand even less revenue than Cole is now offering.

Don’t make me start quoting this thing. Photo: Alex Wong/2013 Getty Images

Obama’s budget offers $200 billion in mandatory budget savings that are not major safety-net programs. It’s all completely boring stuff, that doesn’t touch major cornerstones of the New Deal, but adds up: cuts to farm subsidies, cuts to retirement benefits for federal workers, aviation fees, higher contributions for unemployment insurance, selling off under-utilized federal property — I’d go on, but you’re probably already half asleep. This is the tedious guts of the likely agreement that will take shape.

As I wrote, plenty could go wrong. A conceptual agreement between the main negotiators is only the first step. Then we get to the conservative freak-out. Failure remains a highly plausible outcome, but, if you look closely enough, the signs of a desire on both sides to make a deal are there.

Yes, There’s a Budget Deal in the Works