What a ‘grand bargain’ might look like

WHAT A ‘GRAND BARGAIN’ MIGHT LOOK LIKE…. Informal, bipartisan talks began in December over some kind of “grand bargain” on the budget. Elizabeth Drew wrote this week that such talks are progressing towards “a sweeping deal that could include entitlements and tax reforms as well as budget reduction.”

I found it hard to believe these talks would gain any real traction, at least anytime soon, but I may have underestimated matters. The Wall Street Journal has a front-page piece today suggesting the “grand bargain” is getting closer to a reality.

A bipartisan group of senators is considering legislation that would trigger new taxes and budget cuts if Congress fails to meet a set of mandatory spending targets and other fiscal goals aimed at reducing federal deficits.

The plan would break the task of deficit reduction into four pieces: a tax code overhaul; discretionary spending cuts; changes to Medicare, Medicaid and other entitlements; and changes to Social Security, aides said. The Social Security system is on firmer financial footing than other major entitlement programs and raises political sensitivities that lawmakers want to deal with separately.

The exact details, not surprisingly, are still a little vague, but the WSJ reports that the overall plan would include separate caps on security and non-security spending, with deep automatic cuts in the event budget targets are missed. On entitlements, Social Security would be treated differently, but other entitlements “would also have to meet fixed targets,” or face automatic penalties.

Taxes are part of the mix: “The tax-writing committees would be given two years to overhaul both the individual and corporate tax codes, with general instructions to close tax breaks and minimize or eliminate tax deductions while lowering tax rates. The committees would be given a target for additional revenues to be raised by the new code. The deficit commission’s version of tax reform would net $180 billion in additional revenues over 10 years.”

The negotiations, according to the article, are being spearheaded in the Senate by Democrats Mark Warner (Va.), Kent Conrad (N.D.), and Majority Whip Dick Durbin (Ill.), and Republicans Saxby Chambliss (Ga.), Mike Crapo (Idaho), and Tom Coburn (Okla.).

Durbin told the WSJ, “We’re getting close. We understand that if we’re going to do something that’s important, it has to be timely.” He said the group hopes to reach agreement “in a matter of weeks, or months.”

I can’t speak to whether the article is correct. There are obviously talks underway, but whether the outline presented by the Wall Street Journal is accurate is entirely unclear.

But if the article is even close to being right, and the leak is some kind of trial balloon to gauge public reactions, let me be clear: I’m reaching for the slingshot. Indeed, I had the same reaction to this as Jon Chait:

This is actually hard to believe. According to this story, the deal calls for nearly ten times as much spending cuts ($1.7 trillion) as higher revenue ($180 billion.) Do you know how little $180 billion over ten years is? It’s essentially nothing. It’s one-quarter as much as the cost of extending the Bush tax cuts only on income over $250,000. […]

The worst possible course of action would be to agree to the token $180 billion/ten year revenue hike instead of the partial or complete repeal of the Bush tax cuts. Democrats would be better off negotiating a deal that consists entirely of spending cuts, and leave themselves the flexibility to use the expiration of the Bush tax cuts as leverage. Giving up the $700 billion of revenue from the Bush tax cuts for the rich, and quite likely the $3.9 trillion from the total expiration of the tax cuts, in return for $180 billion would be nuts.

It’s so nuts I’m tempted to assume this story couldn’t possibly be correct.

I can only hope it’s not.