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Two triggers, one GOP nightmare

Imagine if the Democrats offered Republicans a deficit deal that had more than $3 in tax increases for every $1 in spending cuts, assigned most of those spending cuts to the Pentagon, and didn't take a dime from Social Security, Medicaid or Medicare beneficiaries. Republicans would laugh at them. But without quite realizing it, that's the deal Republicans have now offered the Democrats.

In August, Republicans scored what they thought was a big victory by persuading Democrats to accept a trigger that consisted only of spending cuts. The price Republicans paid was 1) concentrating the cuts on the Pentagon while exempting Social Security, Medicaid and Medicare beneficiaries, and 2) delaying the cuts until Jan. 1, 2013. That was, they figured, a win, as it eschewed taxes. Grover Norquist's pledge remained unbroken.

But 12 years earlier, George W. Bush had set a trigger of his own. In order to pass his tax cuts using the 51-vote budget reconciliation process, he had agreed to let them sunset in 2010. A last-minute deal extended them through 2012.

So now there are two triggers. One is an extremely progressive spending trigger worth $1.2 trillion that goes off on Jan. 1, 2013. The other is an extremely progressive tax trigger worth $3.8 trillion that goes off on … Jan. 1, 2013. If you count reduced interest payments, the two actions alone would reduce future deficits by about $6 trillion. That's far more than anything the "supercommittee" came close to discussing. It's distributed far more progressively than anything the Democrats have even considered proposing. And all that needs to happen for it to pass is, well, nothing.

Republicans can't stop these triggers on their own. They need Senate Democrats and President Barack Obama to join them in passing an alternative, or they need House and Senate Democrats to join them in overturning Obama's veto of their alternative. So the only way for Republicans to avoid this dual-trigger nightmare is to somehow persuade Democrats to bail them out.

For that, they have two points of leverage.

The first is political: Democrats don't want to raise $3.8 trillion in taxes, much of which will fall on middle-class households. Already, Democrats have said that their preference is to make the Bush tax cuts for income under $250,000 permanent. That means making 80 percent of them permanent.

The second is that this particular deficit-reduction plan could be devastating for the economy. Rather than phasing in slowly over the course of the next decade, it would all hit at once. If the economy was stronger, that might be fine. But in a recovery this weak, it could lead to another contraction.

So the GOP is not without options. But the Democrats are in the driver's seat. Gridlock means a deficit deal that they could never have imagined getting any other way. Basic negotiating theory would suggest that whatever the Republicans offer them must somehow be better even than that. And yet, that's not how either party is acting. Republicans don't seem particularly worried about the triggers, and Democrats don't seem particularly interested in pressing their advantage. At least for now.

Talk to people at the White House, and you'll hear that they fiercely oppose permitting the Bush tax cuts to expire, and that they would prefer to see the spending trigger replaced with a bigger, more thoughtful deficit-reduction plan. But then, they would say that, wouldn't they?

Letting the Bush tax cuts expire is not a popular policy. Nor do crowds cheer for automatic sequestration. If they happen because of Republican obstruction, that's one thing. If they happen because Democrats don't want to make an alternative deal, that's quite another.

So I take the folks at the White House at their word when they say they want to extend most of the Bush tax cuts. But it's hard not to wonder. Their economic policy team can run the numbers as well as anyone else. They know the revenue levels they're talking about are completely insufficient to deal with the retirement of the baby boomers.

And if they try their hardest to come to a deal with the GOP, but it, like so many other deals over the past year, falls apart at the last minute because the Republicans won't break their tax pledge and let the upper-income cuts expire, do they really think that would be a bad outcome? Or is it a better one than they could have imagined?

© 2011 Washington Post

Two triggers, one GOP nightmare 11/28/11 [Last modified: Monday, November 28, 2011 3:37pm]
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