Saturday night’s news on the debt ceiling talks is depressing even if not surprising. As the Washington Post’s Paul Kane and Lori Montgomery report:
House Speaker John A. Boehner abandoned efforts Saturday night to cut a far-reaching debt-reduction deal, telling President Obama that a more modest package offers the only politically realistic path to avoiding a default on the mounting national debt.
On the eve of a critical White House meeting on the debt issue, Boehner (R-Ohio) told Obama that their plan to “go big,” in the speaker’s words, and forge a compromise that would save more than $4 trillion over the next decade had fallen victim to the toughest ideological issues: how to raise taxes and cut spending on popular health and retirement programs…
“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase,” Boehner said in a statement released less than 24 hours before the White House meeting was to take place.
The Post story goes on with some insights as to what went wrong (emphasis added):
Obama, at least, was willing to make that leap and had put significant reductions to entitlement programs on the table. But on Saturday, Boehner blinked: Republican aides said he could not, in the end, reach agreement with the White House on a strategy to permit the Bush-era tax cuts for the nation’s wealthiest households to expire next year, as lawmakers undertook a thorough rewrite of the tax code…
In private negotiations with the White House this week, Boehner had dangled a tax deal that he thought might bridge the divide. Republicans would immediately extend the Bush tax cuts for middle-class households, leaving the cuts that benefit the nation’s wealthiest taxpayers on track to expire next year. That would have been a huge win for Democrats, whose liberal base views ending tax cuts for the rich as a top priority — and one that Obama has failed to deliver.
Democrats, in turn would agree to a rewrite of the tax code by the end of the year, to lower rates for everyone. Talks broke down, according to sources in both parties, over the terms of tax reform: The White House insisted that changes in tax law not shift the burden more heavily onto households earning less than $250,000 a year. After that, said a Democrat familiar with the negotiations, “suddenly things went dark.”
It’s probably too late to bring tax reform back on the debt-limit-negotiations table, but assuming we get past this debt-limit crisis, I think it might be time for the President to rethink (and renege on) his campaign promise about raising taxes on those people with incomes under $250,000 AND his claim that he’d “never again” extend the Bush tax cuts for the rich (those over $250,000). Perhaps it’s time we think about ways to extend all of the Bush/Obama tax-cut rates in exchange for enough base broadening (reduction of tax expenditures) to fully offset its cost. I’ve been looking at some numbers (from CBO and the Joint Committee on Taxation), and I think it could be fully doable with a more aggressive version of the limit on itemized deductions that President Obama has proposed in his own budgets (all three of them so far), combined with a reduction in (but not elimination of) the exclusion of employer-provided health benefits.
Why would the President agree to extend those high-end tax cuts he despises so much? Well, why has he agreed to them before? It was always in the name of bipartisan “compromise” but always at the cost of a higher, not lower, deficit. If this time he caves again on the upper-bracket rate cuts but holds Republicans to their claim that they’re willing to broaden the tax base as long as it pays for rate cuts, this could be a “more perfect” and truer tax policy “compromise”–which this time around would lead to deficit reduction relative to current policy, and deficit neutrality relative to current law and the CBO revenue baseline (which remember, provides a fiscally sustainable level of revenues). Then the Democrats would get their desired revenue-side solution (bringing revenues/GDP up), Republicans would get their upper-end Bush tax rate reductions paid for by base broadening rather than higher tax rates, and those truly worried about the fiscal outlook would get a strictly PAYGO-compliant version of the Bush/Obama tax cuts, for a change! And by the way, the debt-limit-and-beyond negotiators will have found another $2.5 trillion or so over ten years with this perfect tax compromise.
What am I missing other than some specific numbers to back this idea up? Don’t worry, they’ll come soon.