Hear me out on this for a second.
Yesterday, I wrote that House Speaker John Boehner’s new search for a “Grand Bargain”on fiscal issues makes little sense as a way to resolve the government shutdown.
Republicans don’t want to pass a continuing resolution that reopens the government without disrupting Obamacare. They don’t want to raise the debt ceiling without concessions. They don’t want a fiscal reform deal that raises revenue. How does combining those three efforts together make things any easier?
But I had a thought last night. What if the Grand Bargain is a net tax cut? What if it repeals nearly all the taxes in Obamacare? Then, Republicans might actually be persuaded to think of it not just as a victory, but a victory big enough to justify reopening the government and raising the debt ceiling.
The obvious problem with that is that President Obama has repeatedly said that he wants new revenue as part of any fiscal reform package, and he needs revenue from the Obamacare taxes to pay for Obamacare. But I think there is a way around that.
Here’s what Democrats would get in my version of the grand bargain, with 10-year deficit effects in parentheses:
- Public option in the Obamacare exchanges based on Medicare rates. (-$150 billion, per CBO score estimating -$15 billion per year as of 2020.)
- Limit the value of tax deductions for high earners, along the lines of previous Obama Administration proposals. (-$423 billion)
- Comprehensive immigration reform. (-$197 billion)
- Use the chained consumer price index to set tax brackets, with the effect of imposing a modest across-the-board income tax increase. (-$110 billion)
- Partial rollback of sequestration spending cuts (say +$500 billion, but adjustable.)
- Government reopens and debt limit is raised substantially.
And here’s what Republicans would get:
- Repeal most of the tax provisions in Obamacare, including the medical device tax, income and capital gain surtaxes on high earners, fees on insurance premiums, the tanning tax, and the employer coverage mandate. (+$666 billion). Partially offset this by replacing the Cadillac tax on expensive health insurance plans with the Bipartisan Policy Center’s plan to limit the tax exclusion for employer-provided health insurance (-$262 billion). Note that the individual mandate stays, as it cannot be repealed without hampering implementation of the law.
- Increase child tax credit by $US500 per child per year. (+$300 billion)
- Romney-Ryan-style Medicare reform: Have traditional Medicare and private insurance plans bid against each other and require seniors to take the lower-cost option or pay extra. You can think of this as a “private option” in Medicare to offset the “public option” in Obamacare. (This is the most difficult provision to estimate as the Ryan Medicare plan has never been properly scored, but my placeholder figure is -$300 billion. Other Medicare-cutting approaches can be added if the target isn’t met.)
- Use chained CPI across various spending programs, with the effect of modestly cutting Social Security benefits and various other programs. (-$216 billion)
All that adds up to $US200 billion in deficit reduction, and $US170 billion in net tax cuts.
Usually, Grand Bargains are framed as a spinach-eating exercise. The sales pitch is that you’ll have to eat spinach, but your opponents will have to eat spinach too, so it’s all fair. And then the plans fail because everybody hates spinach. And Republicans especially hate the tax-increase type of spinach.
This plan is different because everybody gets something to brag about as their big policy victory.
Republicans, after losing the 2012 election, get to implement two policies they ran on: Converting Medicare to a premium-support program and repealing the “job-killing” taxes in Obamacare. They also get a big increase in the child tax credit, which gives them something they can point to as a way they helped middle-class families struggling in the weak recovery.
Democrats get four big things: Immigration reform, a public option, partial relief from sequestration, and Republican acquiescence to the idea that the benefit side of Obamacare will continue.
It’s easy for me, at least, to imagine a lot of different kinds of people getting behind this deal. For Grover Norquist, it cuts the top tax rates on both ordinary and capital gain income and cuts taxes overall. For liberal Democrats like Rep. Raul Grijalva (Ariz.), it’s immigration reform and a public option. For John Boehner, it repeals some of Republicans’ most-hated parts of Obamacare. For Paul Ryan, it provides a signature legacy item in Medicare reform. For the president, it makes the tax code more progressive and solidifies Obamacare benefits as something that will stick around.
Obviously, some groups lose in this deal. The limitation on deductions would mean a net tax increase for high wage earners, especially in blue states. The plan would put downward pressure on medical costs, hurting doctors and hospitals.
Democrats also have deep-in-the-bones opposition to Medicare privatization, partly because the original versions of the Ryan Medicare plan really would have caused the program to wither on the vine by providing “premium support” that wouldn’t have been sufficient to buy a real health plan.
But the latest version of the plan, which I use as the basis for this proposal, is essentially similar to the Obamacare exchange plus a public option. Traditional Medicare would be retained. Seniors would remain entitled to traditional Medicare on the same terms as today unless private insurers offer comparable benefits more cheaply. There’s no reason to think of this as “gutting Medicare.”
Of course, seniors probably wouldn’t like the Medicare changes, and they especially wouldn’t like the fact that chained CPI would cut Social Security benefits. But there’s a political offset to likely opposition from seniors: The Child Credit increase, which makes winners out of tens of millions of middle-aged Americans with dependent children.
Too often, fiscal reform plans take exactly the wrong approach on Medicare: Proposing cuts far in the future which scare and annoy seniors without producing savings within the budget window that can be used to buy off another constituency. Better to cut Medicare now and give the savings to parents to get them on board with the bargain.
I realise this plan still probably won’t work. It has a lot of pieces and Congress is not very good at doing complicated things right now. But if John Boehner is really looking for a “grand bargain” to sell his caucus on, this offers him one that he can sell as a tax cut and a partial rollback of Obamacare, which makes it better than the other ideas on offer.
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