How the Political Gridlock in Washington Might End

(Editor's Note: This version updates the 10th graf to add details on a proposed higher tax rate for capital gains.)

In Washington's current state of dysfunction, everyone has a favorite hyper-partisan moment. House Republican Whip Eric Cantor's moment came at a White House meeting with congressional leaders on day three of the new Administration. He handed President Barack Obama a list of ideas to fix the economy. Pointing to a small business tax-cut item, Obama said: "We disagree on tax policy." When Cantor tried to justify his own position, Obama responded: "Elections have consequences, and at the end of the day, I won."

Since then, Republicans have made it their mission to prove that Obama's 53% popular vote may have put him in the White House, but it didn't give him the final word on fundamental economic policy debates. The GOP's coordinated resistance has derailed treasured Obama legislative priorities such as financial regulation, carbon credits, and, above all, health care.

The resulting gridlock has cost the President much of his popularity, particularly among independents. A Jan. 31-Feb. 3 Iowa Poll, conducted for the Des Moines Register by Selzer & Co., has Obama's approval rating among Iowa independents at 38%, down 10 points since November. Remember that it was Iowa independents whose support for Obama in the 2008 caucuses vaulted him to the front of the Presidential pack.

Confronting an inflection point in his Presidency, Obama has begun to recalibrate. He put in an appearance at a retreat of House Republicans in late January and set the table for the bipartisan health summit on Feb. 25 with a plan that omits the public option much loved by liberal Democrats. Over some of his own party leaders' objections, he used executive power to create a deficit-reduction commission, naming a moderate Democrat (Erskine Bowles) and a former Republican senator (Alan Simpson) as co-chairs. And Eric Cantor, take note: Obama even backed tax cuts for small business in the scaled-down $15 billion jobs bill the Senate passed Feb. 24, with the support of 13 Republicans.

Such moves have had the intended effect. On Feb. 22, in a rare show of bipartisanship, five Republican senators crossed the divide to join Democrats in agreeing to debate the jobs bill, a real achievement in this climate. "In campaigning, every day you have to get up and destroy your opponent," says Kenneth M. Duberstein, who was White House chief of staff under President Ronald Reagan in 1988-89. "In governing, every day you have to get up and make nice to your opponents."

Bipartisan Partnerships

Of course, building bipartisan coalitions also requires lawmakers willing to buck their parties. Luckily for Obama, a handful of Republicans—mindful that rejecting every White House idea is not an effective campaign strategy—have started to work with Democrats on issues ranging from tax policy to education reform to financial regulation overhaul. They may have political motivations, but that doesn't mean Obama can't exploit them.

Consider Senator Bob Corker, the first-term Tennessee Republican who rocketed out of back-bench obscurity last year when he tried to forge a deal with Democrats on a rescue package for Detroit automakers. That effort failed, but Corker is at it again, working with Senator Chris Dodd, the retiring Connecticut Democrat, on financial regulation reforms after the Senate Banking Committee's senior Republican, Alabama Senator Richard Shelby, failed to find common ground. Now that Corker has stuck his neck out, the White House may need to compromise over its demands for a stand-alone consumer financial protection agency and a new out-of-court, wind-down process for failing institutions, both of which Corker opposes.

Of the five Republican senators who voted to allow debate on the jobs bill, it's noteworthy that two are retiring after this year—Kit Bond (Mo.) and George Voinovich (Ohio). Their parochial interest was the bill's reauthorization of the highway trust fund, freeing up billions of dollars for construction projects. But they're proof that it's a lot easier to be bipartisan if you're no longer running for office.

And therein lies an opportunity. Senator Judd Gregg, the New Hampshire Republican who at first accepted and then rejected Obama's offer to be his Commerce Secretary, is also standing down—and reaching out to Democrats. Working with Senator Ron Wyden, an Oregon Democrat, Gregg is pushing a tax reform proposal two years in the making. A central element would be a flat corporate tax rate of 24%, down from the 35% top levy now, and the elimination of special tax breaks. At the same time, Gregg and Wyden would put a halt to the indefinite deferral of U.S. taxes on overseas income by multinationals and simplify personal income taxes by reducing the number of brackets from six to three and allowing most Americans to file a one-page form.

Gregg said he and Wyden "negotiated this endlessly" and, in the end, he agreed to a higher capital-gains tax rate—35% vs. today's 15%—but because some income would be excluded from taxation, the top effective rate would be only 22.75%. In exchange, Gregg got Wyden to agree to lower personal and corporate income tax rates. That's the kind of give-and-take the Obama Administration has not engaged Republicans in, Gregg says, especially on health care. "With super-majorities in the House and Senate, they made a conscious decision to run the government like a parliamentary system and went aggressively to the left. It turned out some of their own members couldn't accept that."

Process Matters

As the Administration is learning, process matters. Early on, Obama mistakenly shied away from participating in the drafting of health-care legislation, says Robert D. Reischauer, president of the left-leaning Urban Institute and a former Congressional Budget Office director. In nearly a year of debate and trench warfare, it was not until Feb. 22 that Obama put his name on a health measure. Until that point, the process resulted in unsavory backroom deals and "gave sausage-making a bad name," Reischauer says.

Alan Simpson also blames mistakes in process for the sclerotic pace of partnership. Presidents Jimmy Carter, Ronald Reagan, and George H.W. Bush "always sent up a draft" for new initiatives, said the blunt-speaking former senator who hung up his spurs in 1997. "Turning over the management to liberals in Congress" was Obama's biggest mistake, Simpson says. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are his friends, he says, "but all they wanted to do was ram legislation through. No one on the other side is going to accept their proposals any more than liberals would from arch-conservatives."

Still, there are budding signs that some conservative Republicans are willing to deal. The late Senator Edward M. Kennedy often co-sponsored health-care bills with Senator Orrin Hatch, the Utah Republican. While Hatch refused to play ball with the Democrats on health reform, he just paired up with Senator Chuck Schumer, the New York Democrat and one of the Senate's more partisan warriors. Together they devised the small business tax breaks in the jobs bill, including the Social Security tax holiday through December for companies that hire the unemployed.

Then there's Senator Scott Brown, whose upset win in the Massachusetts special election to fill Kennedy's seat left Obama without a filibuster-proof majority in the Senate. Brown, who never identified himself as a Republican during the campaign yet is revered by the Tea Party movement, said he planned to be an independent voice in Washington. So far at least he seems to have meant it; he voted for the jobs bill.

Obama can continue to tack toward the middle, and electoral-minded Republicans in moderate states may well try to meet him there. On the other hand, the President could throw up his hands and invoke reconciliation on health reform, a budgetary maneuver that would allow congressional passage with a simple majority vote. While that would enable Democrats to bypass Senate Republicans, it risks setting off a nuclear winter.

It would certainly make life a lot easier for all if there were more legislators willing to follow Simpson's example. He often worked across party lines on budget accords in years past. But at the White House on Feb. 18, as he stood behind the President at the announcement of the deficit commission, wearing a big smile and a purple Jerry Garcia necktie (one of Simpson's first campaign co-chairmen was a Grateful Dead lyricist), he seemed oddly out of place, a throwback to an era when gridlock was the exception, not the rule.

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