July 27 (Bloomberg) -- The debt-ceiling fight looks hopelessly gridlocked after Monday’s competing televised appeals by President Barack Obama and House Speaker John Boehner. But despite the partisan attacks, compromise is still possible.
It won’t be a transformative grand bargain. It won’t overhaul the encrusted tax system, or the big entitlement programs of Medicare, Medicaid and Social Security. It will involve mostly domestic spending cuts, and it won’t raise much-needed new revenue. And it will require yet another panel of lawmakers to find new spending cuts down the road. But it will at least avoid a U.S. government default on its obligations.
It may be unedifying, and the cuts may unfairly affect lower-income Americans more than the affluent, but an agreement could revolve around the common elements between new plans by Boehner, an Ohio Republican, and Senate Majority Leader Harry Reid, a Nevada Democrat. They both take as their starting point $1.2 trillion in discretionary spending cuts over 10 years. Both would also guarantee a vote in Congress -- amendments and filibusters would not be allowed -- on future savings that bipartisan committees recommend.
The biggest difference is that the Boehner plan would lift the debt ceiling by just $1 trillion for now. The vote would be followed by a second one next year, as the 2012 election campaigns are gearing up, and only after Congress adopts an additional $1.8 trillion in budget cuts. The Reid plan instead would extend the debt ceiling through the end of 2012 on a single vote. It promises $1.5 trillion more in spending cuts, to be approved once the congressional panel completes its work at the end of this year.
Neither proposal is likely to win the full support of lawmakers within each leader’s camp. Even if all 53 members of the Democratic caucus vote for his plan, Reid would still need seven Republican senators to get the 60 needed to cut off debate. Reid will probably need more than that to compensate for the loss of liberal Democrats unhappy that his proposal doesn’t raise taxes and cuts deeply into domestic programs.
The politics for Boehner are even trickier. He has 240 members, and needs 217 votes for passage. He can lose only 23 votes, but with some 60 Tea Party freshmen refusing to raise the debt ceiling no matter what, Boehner will have to troll for votes among House Democrats.
Sound impossible? It shouldn’t be, if each leader yields enough to pick up the requisite votes needed from the other party. Boehner, for example, could drop his demand for a two-step process. That would avoid another confrontation during next year’s election season. In exchange, Reid could grant Republicans a vote on a balanced-budget constitutional amendment, and agree to trigger automatic spending cuts if the pledged $1.5 trillion in savings don’t materialize. The panel tasked with finding those savings just may recommend closing tax loopholes and deductions, or ending costly tax expenditures like the deduction on home mortgage interest. If so, all the better.
Such a compromise may avert a downgrade of the federal government’s triple-A rating, which the U.S has had since 1917. Without that, borrowing costs could rise sharply -- and push the government further from the goal of putting its debts on a sustainable path. The Congressional Budget Office has estimated that one added percentage point in interest rates on government bonds would increase debt-service costs by more than $1 trillion over 10 years. Spending cuts might ease the burden a bit, but there’s no getting around the economic damage a ratings downgrade would cause.
A U.S. default would be even more calamitous. The House speaker and Senate majority leader each have recalcitrants in their camps. But with polls showing that Americans expect them to work this out together, they should remember that politics is the art of compromise.
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