A potential deal to avert the so-called fiscal cliff could be undermined by the Democratic Party’s refusal to come to terms with the unsustainability of federal entitlement programs and acknowledge that the government is spending too much.
Conventional wisdom in Washington suggests that Republicans, humbled after their defeat in November, are willing to compromise on taxes and may even vote so that tax rates on the wealthy increase automatically on January 1.
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Republican aides argue that a compromise could be easily agreed if the White House stopped stonewalling on specific spending cuts and entitlement reforms.
House GOP leaders have formally offered $800 billion in new revenue, combined with spending cuts and entitlement savings, a proposal that was loudly criticized by some conservative pundits and lawmakers. The White House immediately rejected the offer.
"We’re still waiting for the White House to identify what spending cuts the president is willing to make as part of the balanced approach that he promised the American people," House Speaker John Boehner (R., Ohio) said Tuesday. "The longer the White House slow walks this process, the closer our economy gets to the fiscal cliff."
If Congress fails to act by the end of the year, a combination of tax increases and automatic spending cuts are scheduled to go into effect. The Congressional Budget Office warned this could lead to another recession and a surge in unemployment.
Republicans are in the difficult position of being forced to compromise on a politically popular policy—raising tax rates on high-income earners—that would have little substantive impact (about $40 billion a year) on the national debt and deficit, while seeking concessions from Democrats on an a less popular issue—entitlement reform—that nearly every independent economists agrees is essential to the long-term fiscal health of the country.
Standard & Poor’s downgraded the U.S. credit rating last year in part because the budget agreement passed by Congress at the time called for "only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability."
Erskine Bowles, the Democratic co-chair of the president’s 2010 fiscal commission, has urged members of his party to accept the necessity of spending cuts and entitlement reform.
"Even if you raise the top rates back to the Clinton rates, that only creates about $400 billion over 10 years. That’s $40 billion a year. We have a trillion dollar a year deficit," Bowles said on Sunday. "We have to cut spending. … We have to slow the rate of growth of healthcare [spending]."
Boehner echoed this sentiment Tuesday during a speech on the House floor.
"Let’s be honest, we’re broke," he said. "Even if we did exactly what the president wants, we would see red ink for as far as the eye can see. That's not fixing our problem either."
Former Obama economic advisers Austan Goolsbee and Peter Orszag have also argued that spending cuts and entitlement reform must be part of any meaningful budget deal.
Democrats, many of whom have expressed a willingness to "go over" the fiscal cliff, do not appear too eager to compromise on spending or entitlements.
"We are winning," a senior Democratic aide told Politico. "We don’t have to give up on anything yet."
President Barack Obama has at least given the impression he is willing to accept some changes to entitlement programs. Senior adviser David Plouffe has said Democrats "are going to have to do some tough things on spending and entitlements that means that they'll criticized on by their left."
However, the president has rarely backed up such rhetoric with substance.
Many of the proposals the White House has put forward are drawn from Obama’s most recent budget, which not a single Democrat supported.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, and other independent experts panned that budget for failing to address adequately the nation’s debt problem and deal with entitlements.
"[The president’s] proposals would barely stabilize the debt—and at too high a level," MacGuineas said in a statement. "I also worry that this plan doesn’t contain enough deficit reduction or entitlement reform."
The White House has all but admitted it has no viable solution to reform programs such as Medicare and Medicaid, which are primary drivers of the long-term debt problem.
"We’re not coming before you today to say we have a definitive solution to that long-term problem," Treasury Secretary Timothy Geithner told House Budget Committee Chairman Paul Ryan (R., Wis.) in February. "What we do know is, we don’t like yours."
Even if Obama really was eager to reform entitlements, he faces strong opposition from members of his own party and an army of left-wing client groups such as labor unions and the AARP, many of which were represented as the first White House meeting the president hosted following his reelection.
"We urge you to reject changes to Medicaid, Medicare and Social Security that would cut benefits, shift costs to states, alter the structure of these critical programs or force vulnerable populations to bear the burden of deficit-reduction efforts," a group of Democratic Senators wrote in a letter to the president.
Some Democratic lawmakers are beginning to voice their opposition to various entitlement changes, such as means-testing and an increase in the Medicare eligibility age, rumored to be on the table in the fiscal cliff negotiations.
Others, such as Rep. Raul Grijalva (D., Ariz.), appear unwilling to admit that entitlement programs are even a problem.
"To blame the three programs that we’re talking about, Medicare, Medicaid and Social Security as the drivers of this deficit [is] a mistake," Grijalva said on Sunday.