Blog No. 16 The Patty and Paul Show: Let’s Make a Deal?

Senator Patty Murray and Representative Paul Ryan have drawn the short straws: they chair the Conference Committee that is charged with reaching a budget agreement that will avert a second round of crises over a government shutdown (January 15) or a collision with the debt ceiling (February 7). The entire committee, totaling 29, consists of the entire Senate Budget Committee  (12 Democrats and 10 Republicans) and 7 House members (4 Republicans, 3 Democrats).

No one, it is fair to say, is overly optimistic about the outcome. If the Grinch does not steal Christmas, he will be hovering not far away. It is a positive sign that Senator McConnell has expressly ruled out the use of a shutdown, and by implication a threat of default, as bargaining chips. As he put it rather colorfully, “One of my favorite sayings is an old Kentucky saying, ‘There’s no education in the second kick of a mule.’ ”  Nevertheless, Ted Cruz and his cohorts in the Senate, and the Tea Party Oozlums in the House appear to have an appetite for mule kicks that is not easily satisfied. Moreover, the Conference Committee itself is hardly lacking in gritty conservatives: 9 of the 14 Republicans, including Ryan, voted against the bill that ended the just concluded crisis. (As noted in a prior blog, however, their votes were “free” in the sense that they were not required for the passage of the bill and may not reflect a tolerance for shutdown or default.)

In many respects, the Democrats appear to have the upper hand in the current budget negotiations. While the recent debacle may have left the Tea Party stalwarts feeling cheerfully bloodied but unbowed, reality must intrude. The fact is that for most of the public–including many who don’t like Obamacare and who do worry about the federal debt–the shutdown/default exercise was at best a waste of time and at worst a reckless and costly adventure. The result was to bring the approval rating of the Republican Party to a historic low. As the Washington Post-ABC News poll showed, “ Perceptions of the way Republicans handled the budget negotiations grew steadily worse through the weeks of confrontation, rising from 63 percent disapproval on the eve of the 16-day shutdown, which began Oct. 1, to 77 percent disapproval by the time it ended. Nearly three in five Republicans disapprove of their party’s handling of the negotiations.” The ongoing relevance is that if a new crisis should develop, the public is almost certain to place the blame with the Republicans—whether they deserve it or not.

Republicans are also at a disadvantage because of public attitudes with respect to the issues that most fundamentally divide the parties.  A principal goal of the Republicans is the reform of entitlement programs, most prominently Medicare and Social Security. This is a goal that RINOcracy.com strongly supports. Nevertheless, it must be recognized that the public appears to remain distinctly unenthusiastic about reining in such entitlements.  For example, the Pew Research Center reported in April of this year that “[T]he public continues to say it is more important to keep Social Security and Medicare benefits as they are than to take steps to reduce the budget deficit.” Maintaining benefits was favored by 55 % of the public, which included 73% of Democrats, 49% of Independents and even 37% of Republicans:

In a sense, the results are not surprising. Reductions of any sort to Social Security or Medicare, and the consequences that may follow, are not hard to grasp, while the debt and deficits remain an abstraction to many. And under even the most pessimistic of projections, financial disaster is not imminent. Nevertheless, Republicans should not abandon the goal of entitlement reform; rather they must pursue it adroitly, seeking to make a clearer case that entitlement reform need not mean hardship and that failure to reform will indeed have dire consequences. Republicans in Congress are not unaware of the difficulty of making their case, which is why they have consistently urged the President to “lead.”

For his part, the President has shown some recognition of the need to reform entitlements, but no passion and little leadership. He has tended to regard entitlement reform not as an imperative in its own right, but more as a bargaining chip to gain Republican agreement to tax increases. He does not appear to have accepted the logic of the recent advice from the Washington Post: “Democrats should not think of entitlement reform as a “concession” to the GOP, no more than Republicans had a right to think of raising the debt ceiling as some sort of favor to Mr. Obama. Indeed, if anyone should be eager to secure Medicare and Social Security for the long term, it is the heirs of the party that created them.”

Whatever President Obama’s own convictions may be, his reticence toward entitlement reform no doubt reflects the passions of his own constituency. As indicated in the chart above, some 73 per cent of Democrats believe that preserving entitlement benefits unchanged is more important than reducing the deficit. Unless this perception changes, it means that, as a practical matter, there is little chance of achieving significant reform of entitlements at least so long as Republicans remain dug in to rejecting any and all increases in tax revenues.

Notably, the Republican position with respect to taxation, and taxing the “rich” in particular, seems to enjoy only limited public support. A Gallup Poll, also taken in April of this year, found that 52 per cent of the public favors redistribution of wealth by “heavy taxes on the rich.”  Most Republicans (72%) disagree with such a policy–as does RINOcracy.com.  Nevertheless, support for it from Democrats (75%) and Independents (50%) creates a headwind that cannot realistically be ignored.  Moreover, apart from perceptions of “fairness,” there is a strong economic argument that reducing the national debt requires both spending cuts and increased tax revenue.

This case for increasing revenue as well as reducing spending was made in the 2010 Report of the National Commission on Fiscal Responsibility and Reform  (popularly known as “Simpson-Bowles after its co-chairs, Alan Simpson and Erskine Bowles). Although Paul Ryan, a member of the Commission, did not sign the Report, it was endorsed by Simpson and four other Republican members. A similar case was made in a modified proposal made by Simpson and Bowles as individuals earlier this year. Their proposal estimated that closing loopholes and eliminating “tax expenditures” could not only allow a reduction in rates (to a top rate of 28%) but could yield a contribution of $585 billion toward debt reduction.

While there is broad bipartisan support for a tax reform that reduces or eliminates deductions and preferences, many Republicans insist that the resulting savings be devoted only to rate reduction, i.e., that it be “revenue neutral.”  That position, however, undermines the credibility of Republicans’ commitment to debt reduction. Apart from economic arguments, rigid opposition to any increase in tax revenues will make any major reform of entitlements difficult or impossible to achieve.

The distance between the Republican and Democratic positions, and the vehemence with which they are held, suggests that the elusive “grand bargain” is likely to remain elusive for the foreseeable future. Reaching a more limited agreement, however, may be within reach.  The principal leverage the Republicans hold in such negotiations is in the sequester, the spending limits imposed by the Budget Control Act, which curb both defense spending and discretionary domestic spending. While the sequester causes discomfort among both Democrats and Republicans, the discomfort of the former seems more acute.

An op-ed article by Paul Ryan in the Wall Street Journal while the shutdown was still in place, did not mention either the sequester or the issue of increased tax revenue, but suggested a few ideas for reaching a budget agreement:

We could ask the better off to pay higher premiums for Medicare. We could reform Medigap plans to encourage efficiency and reduce costs. And we could ask federal employees to contribute more to their own retirement.

The president has embraced these ideas in budget proposals he has submitted to Congress. And in earlier talks with congressional Republicans, he has discussed combining Medicare’s Part A and Part B, so the program will be less confusing for seniors. These ideas have the support of nonpartisan groups like the Bipartisan Policy Center and the Committee for a Responsible Federal Budget, and they would strengthen these critical programs. And all of them would help pay down the debt.

It is difficult to appraise suggestions presented in summary form and it is impossible to know how much traction Ryan’s will find in the Committee that he chairs with Senator Murray. The Washington Post, however, found Ryan’s piece an encouraging sign of a genuine desire to reach an agreement short of a grand bargain. Indeed, the paper was encouraged to suggest a compromise of its own, “a deal in which Mr. Ryan gives relief on the sequester for domestic programs and Ms. Murray accepts entitlement reforms, including measures—such as a more accurate inflation adjustment—that President Obama has already, at least tentatively embraced.”

The Post also recognized the need for additional tax revenues over the long term, but urged Democrats to defer their demands for revenue in hope of reaching at least a short term agreement. RINOcracy.com believes that is sound advice. The hope here is that both Democrats and Republicans will demonstrate a measure of flexibility not only sufficient to avoid near term crises but also to fashion long term solutions to our fiscal problems.