Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal on Thursday to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits.In all, the administration's fiscal plan would cut $4 trillion from from the deficit over the next decade, the vast majority of it coming from increased revenue, cuts agreed to last year during the debt limit fiasco, and drawdowns in military spending from ending the wars in Iraq and Afghanistan. But the plan isn't just about deficit reduction: it also includes immediate stimulus measures to boost the economy and protect the jobless and it seeks to end the debt limit charade by eliminating the archaic rule altogether.
The proposal, loaded with Democratic priorities and short on detailed spending cuts, met strong Republican resistance. In exchange for locking in the $1.6 trillion in added revenues, President Obama embraced the goal of finding $400 billion in savings from Medicare and other social programs to be worked out next year, with no guarantees.
In other words, this is the kind of offer you'd expect from someone who just won reelection after debating these very issues. And, as you might expect, Republicans are already saying no, even though they lost the election—including losing more than a million more votes than Democrats in House races, only retaining their majority thanks to redistricting. As Boehner put it yesterday:
“The Democrats have yet to get serious about real spending cuts,” Mr. Boehner said after the meeting. “No substantive progress has been made in the talks between the White House and the House over the last two weeks.”We can speculate until we're blue in the face about what will ultimately happen, but two big things are clear. First, the White House is not negotiating this deal like it's 2011. It's not that they aren't willing to compromise—it's that they aren't going to negotiate against themselves. Second, Republicans don't have the leverage they did in 2011. That's partly a result of the White House negotiating posture, but it's also because the key elements of the deficit reduction plan are already law.
For example, when it comes to revenue, the question isn't whether we're going to raise taxes—it's whether we're going to extend middle-class tax cuts. Under current law, the tax cuts are going away. And when it comes to spending, the sequester is also already on the books. The question isn't how to find more cuts, it's how to soften the impact of the sequester.
Republicans want to frame this as a debate over how to cut spending, but the reality is that under current law, the deficit is going to shrink dramatically—too dramatically. So the real question is how to change current law so we don't cut the deficit too quickly, because cutting the deficit too quickly would tank the economy. And if Republicans refuse to cooperate, they are the ones who will get blamed. And the sooner they realize they lost the election, the better.