Debt Negotiations: When Compromise Isn’t Compromise

As debt negotiations continue in Washington, the political games and spin have already taken the place of cooperation in the name of the American people. From MPR:

The meeting Monday was expected to focus on potential debt savings identified by Vice President Joe Biden and lawmakers during earlier talks. But that group, too, was bitterly divided over taxes, and the amount of savings they found elsewhere still falls short of what all sides agree must come together quickly.

For his part, Boehner told reporters that he agreed with Obama that the nation’s borrowing limit must be raised, but he said revenues can be raised without hiking taxes. Boehner said Obama insists on raising taxes but the White House isn’t serious enough about reforming entitlement programs.

Here, too, there was an enormous gap in how both sides described the state of play.

“I am prepared to take on significant heat from my party to get something done,” Obama said, contending he has “bent over backward” to work with Republicans.

But the Wall Street Journal points out that President Obama hasn’t bent over at all:

But we’re told that the essence of the deal is that Mr. Obama is willing to put larger cuts in Medicare and Social Security and the promise of tax reform on the table, if Mr. Boehner agrees to let the current tax rates on capital gains, dividends and the top two tax brackets expire after 2012.

More troubling than these details is the staggered timing. Republicans would be putting their fingerprints on a tax increase in return for spending cuts as a first order of business, which would raise the dividend and top income tax rates to 39.6% (from 35%), or 41% if you include the phase-out of deductions. (Plus the 3.8% payroll tax hike baked into ObamaCare.) Only then would Mr. Obama and the Democrats negotiate the details of tax reform and lower overall rates.

But why at that point would Democrats want tax reform? They’d have achieved their main political goals of a huge debt-reduction deal, getting GOP cover for a tax increase, and putting Republicans cross-wise with the tea party. Raising tax rates first also makes the math of tax reform that much harder to negotiate on both revenue and income-distribution grounds. Under the Beltway’s scoring rules, cutting rates would look like an even bigger gain for higher-income folks and an even bigger revenue loss for the Treasury.

Far from bending over backwards to work with Republicans, the President has slyly crafted a proposal that would have the GOP break their campaign promises in return for a hollow promise – while making the GOP look like the bad guys for not taking his “compromise.” It’s no wonder that Speaker Boehner rejected the President’s proposal in favor of the compromise reached with Vice President Biden. As I previously said, if President Obama was serious about promoting his deficit commission’s report, he would have done so when it was released instead of waiting for the right political opportunity.

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