The Inside Story of the Big Deficit Deal That Never HappenedBy
Matt Bai has a terrific piece in Sunday’s New York Times Magazine on how last year’s negotiations between Barack Obama and John Boehner fell apart. This story is important not only because these failed debt talks drew Washington’s attention away from pressing issues like the economic recovery (as Peter Coy and I write about this week), but because the matter of long-term deficit reduction and tax reform is going to come up again, at the end of the year, just before the Bush tax cuts expire and the supercommittee sequester kicks in.
Bai’s article is a deeply reported, moment-by-moment account that reveals just how far Boehner and Obama were willing to go in pursuit of an agreement—much further, it turns out, than their party’s bases were inclined to go, and, in Boehner’s case, further than his second-in-command, Eric Cantor, would allow. I came away with the impression that no agreement was possible, despite both principals’ apparent conviction at several points during the process that one was. The first reason is that Democrats wouldn’t have assented to the initial “handshake” deal that Boehner and Obama struck in early July that would only have raised about $800 billion in new revenue* (whether or not this was an actual deal is in dispute), not after a competing outline by the “Gang of Six” senators materialized, promising $2 trillion in revenue.
The second reason is that Republicans plainly would not have supported this latter deal, and probably would not have supported the first one, either. A wave of Tea Party extremists had just delivered them control of the House and essentially mandated that they cut government spending or go down trying. Nothing was compelling them to consider raising revenue; almost every incentive cut the other way.
But that’s about to change. Later this year, Republicans and everyone else will have to face the specter of what Washington insiders have begun referring to as “Taxmaggedon”: the sudden tax increase that will hit in January if the Bush cuts aren’t extended, coupled with the $1.2 trillion in cuts from the sequester (the defense portion of which Republicans are already trying to undo in their new budget). Simply letting the cuts expire and the sequester kick in will do as much to cut the deficit as anything Boehner and Obama discussed last summer. That ought to finally supply the one ingredient that has so far been missing from the negotiations: a reason for the Republican rank-and-file to come to the table.
*One hurdle the two sides don’t seem to have cleared is whether this $800 billion would be revenue as the government defines it—tax increases, spending cuts, etc.—or “revenue” as defined by some Republicans who rely on extra-rosy growth estimates to simply assume revenue gains that the government considers bogus, a practice called “dynamic scoring” that New York magazine’s Jonathan Chait does a good job of explaining here.