The Spectacle Blog

The Emerging Senate Deficit Deal

By on 2.17.11 | 10:27AM

In today's Wall Street Journal, Jonathan Weisman reports that key senators are working on a deficit plan compromise. According to Weisman, the group working on the deal includes Democrats Dick Durbin, Kent Conrad, and Mark Warner, and Republicans Tom Coburn, Mike Crapo, and Saxby Chambliss. The outline of the plan includes four parts: "a tax code overhaul; discretionary spending cuts; changes to Medicare, Medicaid and other entitlements; and changes to Social Security..." The tax code overhaul would be similar to the one proposed in the Simpson-Bowles deficit commission recommendations: the tax base would be expanded by limiting or eliminating tax deductions and breask, and tax rates would be lowered. 

The proposal would establish minimums for cutting discretionary spending and raising tax revenues over the next 10 years -- $1.7 trillion and $180 billion, respectively. If Congress failed to find ways to meet those goals, the plan would provide for automatic spending cuts and tax hikes.

Just as with the Bowles-Simpson recommendations, the political prospects and policy worth of this possible plan would depend on the particulars. The most important, of course, would be the changes to Medicare and Medicaid. Not only are those the most important programs for fiscal reform by a wide margin, they also leave little room for agreement between Republicans and Democrats. Rep. Paul Ryan was able to join with liberal policy expert Alice Rivlin to propose one plan for containing the costs of Medicare by introducing consumer choice into the market for health care for seniors. But Rivlin doesn't have the same priorities and constituencies that, for instance, Dick Durbin does. It's hard to imagine what would have to be bargained away to get the final vote of a senator like Durbin. 

Similarly, a deficit-closing tax code overhaul would be politically very hard to engineer. The Simpson-Bowles plan included a very similar proposal. The plan would have lowered personal income and business tax rates, while closing deductions and loopholes such as the mortgage interest deduction. Although most policy experts favor that general approach, the tax provisions were a deal-breaker for both Republican and Democratic members of the commission. Conservatives, especially, were wary of the trillion-dollar-plus revenue increases that the reform would have generated. 

As for the Social Security provisions, Democrats would face enormous pressure from their base not to reduce benefits. However, according to Weisman the plan would mandate that in the event of a failure to reach a compromise on Social Security reform, the Simpson-Bowles recommendations for Social Security, "a mix of raising the level of wages subject to Social Security taxes, slowly increasing the retirement age and other smaller changes—would go to Congress for an up-or-down vote." That would be an extremely tough vote for most Democratic senators. 

The deficit commission failed because it was unable to find an acceptable compromise set of recommendations. Without knowing the specific details, it's impossible to see how this bipartisan group of senators plans to thread the needle. But it will be modeled on the deficit commission. In retrospect, that was already decided when the deficit commission came closer to success than was predicted. As the commission's plan failed, Conrad already was looking to revisit it in the Senate: the Washington Post had Conrad saying at the time, "I never thought there was much prospect of getting 14 votes. But we're gonna get 11.... I believe we've crossed an important hurdle here, and laid out a plan that will be resurrected. Because it must be." And the commission's co-chairman Alan Simpson made a similar claim: "Whether we get two votes or 18, this baby ain't goin' away.... Oh, sure, it may be buried in an unmarked grave soon, but when the votes for the budget and to extend the debt limit and the debate on that comes up in the spring, this cadaver will rise from the crypt."

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