As near as I can tell from piecing together the news fragments leaking from the usual anonymous sources on both sides of the debt debate, Boehner and Obama had a framework for a significant budget deal in place along the lines I had predicted a week back. The deal went like this:
Republicans get between $3 trillion and $3.5 trillion in spending reductions. In return, they agree to nearly $800 billion in revenue increases over 10 years, but not through a tax rate increase. (In other words, not by rescinding the Bush tax cuts for upper-income earners.) Instead, the revenue would come through closing tax loopholes, exemptions, etc. To insure that real tax reform took place, however, the deal would include a legislative “trigger” that would automatically rescind the Bush tax cuts if real tax reform didn’t occur. Republicans countered with their own trigger: no tax reform would mean no individual mandate for health insurance. The White House resisted this, and it probably would have been dropped, but the framework of a deal was still in place and negotiations still ongoing.
Note that this plan included significant entitlement reform. The spending cuts included more than $1 trillion in cuts to discretionary spending, both domestic and defense and $650 billion in cuts to Medicare, Medicaid and Social Security. Evidently Obama had signed on to a plan to reduce Medicare spending by gradually raising the eligibility age to 67 – a significant concession given the virulent opposition to this from the Democratic Left. In short, spending cuts outweighed revenue hikes by more than 4-to-1. That’s what 2010 and the Tea Party did to the context of budgetary negotiations.
So what happened? On Tuesday, the Senate “Gang of Six” – three Democrats and three Republicans – proposed their own deficit reduction proposal that included a bigger tax revenue increase than Obama had already agreed to, in principle. Meanwhile, Senate Democrats in his party, who were largely bystanders in these negotiations, were already complaining about a deal that essentially traded spending cuts today for a proposed increase in tax revenues down the road. Obama’s political cover with the Left was suddenly pulled out from under him when the Gang of Six came out with their more generous tax revenue plan. At this point he really had no choice but to come back to the table to ask Boehner for an additional $400 billion in revenue, to essentially match the Gang of Six plan.
Although talks continued for a couple of more days, this additional request is evidently what led to the current impasse. So, who is to blame?
Again, speculating between the lines, it is not clear to me that Boehner appreciated the box Obama was in with his Senate party’s left wing once the Gang of Six proposal came out. At that point he had to at least go through the motion of asking for additional revenue. I think Obama fully expected to get rejected, but at best he hoped Boehner might make a counteroffer, and at the worst negotiations would continue. In a couple of days, if no progress was made, and with the August 2 date looming, Obama could then tell Senate Democrats there was no give on the revenue side from Republicans, and he was going to take the deal on the table.
Instead, Boehner surprised Obama and walked out – for now. I think he misread Obama’s sudden counteroffer as a sign that the President really wasn’t serious about striking a deal – but I think that was an incorrect read of Obama’s intention. In fact, I think Obama’s 2012 reelection depends in large part on striking a deal, and he’ll make considerable concessions to get one. In short, a misreading of intentions led Boehner to overreact here. It is unfortunate that both sides went public with the dispute, as that may make it harder to get back to the table. Harder – but not impossible.
Contrary to media reports, then, I don’t believe the “grand bargain” is done. It is quite possible, with a deal this close that Obama will agree to a short-term increase in the debt ceiling while negotiations continue. I continue to believe that he is willing to move as far right as Republicans insist is necessary to strike a deal – but to do so he needs political cover with the Left in the Senate. In the end, however, his political interests in striking a deal are going to trump their policy preferences.