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Saturday, October 25, 2014         

NEW YORK TIMES


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A dirty little secret lurks in the struggle over a fiscal 'grand bargain'

By JACKIE CALMES

New York Times

POSTED:



WASHINGTON » The long-sought bipartisan "grand bargain" on the nation's fiscal future is not going to happen this year, and probably not for the rest of President Barack Obama's term. There is the simple, familiar reason. And then there is the dirty secret.

The simple reason is evident in the all-but-moribund budget negotiations in Congress, where Republicans and Democrats agreed that they would not even try for a long-term deal to reduce the growth of debt in an aging nation. Republicans oppose further tax increases on the rich, as Democrats demand, so Democrats will not support major changes to Medicare and Social Security, as Republicans insist.

But the dirty secret — a phrase used independently, and privately, by people in both parties — is that neither side wants to take the actions it demands of the other to achieve a breakthrough.

That is, many Republicans are no more interested in voting to reduce Medicare and Social Security benefits than Democrats are, lest they threaten their party's big advantage among the older voters who dominate the electorate in midterm contests like those in 2014.

And Democrats are no more eager than Republicans, with control of both houses of Congress up for grabs, to vote for the large revenue increases that a grand bargain would entail. They do not want to limit popular but costly deductions, as Obama and past bipartisan panels, like his Simpson-Bowles fiscal commission, have proposed. That is especially true for Democrats from states, like California and New York, where affluent voters value deductions for mortgages on first and second homes, charitable giving, and state and local taxes.

"It's a lot harder than you'd think to find Republicans who'd actually want to cut entitlements, or Democrats who want to raise taxes," said Jared Bernstein, a former economic adviser to Vice President Joe Biden and now a senior fellow at the liberal Center on Budget and Policy Priorities. "The only person who seems to have consistently been interested in a grand bargain is the president, and frankly I'm not even sure about him."

Obama has not pressed the negotiators from the Democratic-controlled Senate and the Republican-led House to aim higher. It would not matter if he did, lawmakers say, particularly given his diminished political standing after weeks of controversies over his Affordable Care Act.

But even a stronger president would be virtually powerless to engineer a multiyear grand bargain now. Negotiators are struggling just to keep alive their talks for a minimalist compromise, one that would replace the arbitrary across-the-board cuts known as sequestration for the next year or two.

In his budget this year, Obama outlined specific long-term trade-offs on taxes and the entitlement programs — chiefly Medicare, Medicaid and Social Security — to save about $1.8 trillion over a decade. The savings would come on top of the roughly $2 trillion in 10-year spending cuts and tax increases that both sides have agreed to since 2011. Taken together, the deficit reduction package proposed by Obama is roughly in line with the Simpson-Bowles recommendations for a 10-year mix of tax increases, reduced spending on entitlement programs, and cuts in military and domestic programs that are budgeted annually.

Obama put the proposed changes to entitlement programs in his budget, including one that would reduce annual cost-of-living benefits for Social Security, over his party's opposition. His hope was to entice Republican leaders back to the bargaining table, or at least to expose their unwillingness to compromise. Republicans were not enticed.

"One of the big differences between budget discussions now and previous ones back to the '80s is that I'm not sure anyone here really wants to cut a deal," said Stan Collender, a longtime fiscal policy analyst and the national director of financial communication at Qorvis, a public relations firm.

"Do Republicans want to propose changes in entitlements?" he added. "Basically you're talking about Medicare and Social Security, which a lot of Tea Party folks get, given their ages. Do Democrats want to propose changes in taxes for upper-income individuals? Well, given the support they're getting from upper-income individuals, I'm not sure they want to take the lead on that."

A recent sharp drop in the federal deficit has also taken away urgency from making a deal.

"When is the last time you saw Congress do something before it had to?" Collender said.

The declining deficit reflects economic growth as well as the spending cuts and tax increases that Obama and Congress have previously agreed to. It is not expected to begin climbing again until about 2018, as more baby boomers draw from Medicare, Medicaid and Social Security.

With the unemployment rate still higher than 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs.

The only effort this year toward a long-term bipartisan deal was a sputtering series of meetings and dinners, from last winter into the summer, between a group of about a dozen Republican senators and either Obama or his chief of staff, Denis R. McDonough. But while the Republican senators repeatedly called for entitlement savings, they never proposed specific ideas or embraced Obama's, leaving the president to suggest that Democrats were not the only hurdle to curbing the unsustainable growth of entitlement spending.

David Winston, a Republican pollster close to House leaders, said that especially in a slow-growing economy, lawmakers have a hard time selling voters on proposals like fixing Social Security to avoid shortfalls in the 2030s.

"That pressure isn't there," he said. "People are more like, 'I'm in a job where I'm clearly underemployed. How did this happen? How do we resolve underemployment as a problem, as opposed to dealing with Social Security in 2033.'"






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