Since I put forward
my own planfor a “grand bargain” on fiscal policy last week, I’ve had a lot of people tell me it’s a nonstarter — but relatively few tell me that they, personally, wouldn’t take the deal.
I’m pretty sure I’ve found the only way to break the impasse in Washington and make our government work again.
I was struck to see that my plan meets all the major specifications that House Budget Committee Chairman Paul Ryan (R-Wis.) laid out in his Wall Street Journal op-ed last night, describing the deal Republicans want:
- “Structural reforms to entitlement programs”? My plan has that: chained CPI to reduce the growth of Social Security benefits and a Medicare reform in line with Ryan’s campaign plan from 2012. It also cuts the cost of Obamacare benefits (more on that later).
- Tax reform to “broaden the base, lower rates, and simplify the tax code”? My plan does that: Limiting tax exclusions for health insurance and tax deductions for high earners, and using the proceeds to repeal nearly all the tax provisions of Obamacare, which would mean a cut in the top tax rates on both ordinary income and capital gains. My plan also adds $US500 to the Child Credit, helping middle-class families. And my plan is a net tax cut overall.
- “Get a down payment on the debt.” My plan does that, too, cutting the deficit by $US200 billion over 10 years.
Here’s the key insight behind my plan. We haven’t gotten a “grand bargain” because Republicans will not raise taxes. A grand bargain will only happen once Democrats come up with a way to do it without raising taxes.
A lot of Democrats think this year’s fiscal cliff deal showed that Republicans can be cornered into backing a tax increase. They’re wrong. Republicans agreed to a tax-increasing deal because they were trapped by the law and had no option that didn’t involve a tax increase. If taxes aren’t already scheduled to go up without congressional action, Republicans will block any grand bargain that raises taxes.
Democrats usually say that a grand bargain has to raise taxes. This has turned almost into a psychodrama. Democrats don’t just want higher taxes, they want Republicans to admit that higher taxes are necessary for the long term fiscal outlook.
That’s a failure of creativity. The public debt is scheduled to stabilise over the next 10 years as a share of the economy, and we don’t need a lot more deficit reduction. In that environment, aren’t there any other deficit reducing measures that liberals really like, that they could take in lieu of a tax increase?
I can think of at least two. Comprehensive immigration reform would reduce the deficit by about $US200 billion over 10 years. A Medicare-based public option in the Obamacare exchanges would save about $US150 billion. Liberals often advocate these ideas, but never as part of fiscal negotiations. Why? Aren’t they even better for serving progressive goals than a tax increase on the rich?
If the grand bargain includes those two measures, the resulting $US350 billion in deficit reduction creates room for tax reform to achieve both Democratic goals (increased progressivity, middle-class tax relief) and Republican goals (lower tax rates, less revenue).
Would Republicans go for immigration reform and a public option? I think they might. A lot of parts of the Republican establishment, including Ryan, already favour immigration reform on its own terms. It would look even better if they got other polices they want in exchange.
Republicans strongly dislike the public option, but they’d be getting something major in return: Medicare reform that increases the private role in that program. Effectively, Medicare and Obamacare would become programs offering similar public and private insurance products at different levels of subsidy. Either side can spin this as an advancement of their ideological agenda.
And that last part is the key. If we get a four- to six-week delay of the debt ceiling and a temporary reopening of the government, both sides will be looking for a way to save face and cut a deal they can call a win. My plan offers that.
Speaker John Boehner has presided over a shambles of a legislative body for the last three years. He would probably like to have some actual conservative policy accomplishments to show for his efforts, and my plan would give him three: Medicare reform, the repeal of almost all Obamacare taxes, and a much higher child credit.
President Obama would like to do something other than lurch from fiscal crisis to fiscal crisis; this plan would finally establish some bipartisan agreement over fiscal policy and allow him to focus on other things. And it would get Republicans to buy into the idea that Obamacare is sticking around.
My plan might sound crazy. But it’s not as crazy as what we’re doing right now.
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