Democrats pull entitlements off the table in “fiscal cliff” talks

United States Capitol

During the debt ceiling debate last year, House Speaker John Boehner made a compromise on tax revenues, offering the White House $800 billion by closing tax loopholes, rather than raise tax rates. Boehner and at least some House Republican leaders saw the offer as necessary to reach a broader agreement on spending cuts. President Barack Obama played along, but eventually told Boehner, according to Bob Woodward, that he needed an additional $400 billion in tax revenue to make a deal work.

Boehner backed down and eventually all sides agreed on the sequestration deal — $1.2 trillion in automatic spending cuts over the next 10 years — that make up part of the “fiscal cliff” scenario that the White House and Congress are now trying to avoid.

The lesson for Boehner and Republicans should have taken from that particular situation is that when you show that you’re willing to compromise on a core economic principle, you’re almost always going to be asked to go another step. And now with many Republicans in Congress signaling their willingness to break their pledge not to raise taxes, provided that it is coupled with other fiscal reforms, Democrats are seizing the opportunity, according to The Hill, by raising their asking price in fiscal cliff negotiations by taking entitlements off the table:

Senate Democratic leaders signaled Tuesday they would not agree to any entitlement reforms before the end of the year that cut spending on Medicare and Medicaid beneficiaries.

They also said that any year-end deal to avoid the expiration of tax cuts and implementation of spending cuts — known as the fiscal cliff — must include a provision to raise the debt ceiling, which would otherwise have to be addressed early next year.

The White House and Reid have indicated they will not consider cuts to Social Security, a notable change from 2011, when President Obama said “everything is on the table,” including entitlement programs dear to his party’s base.

“Progressives should be willing to talk about ways to ensure the long-term viability of Social Security, Medicare and Medicaid, but those conversations should not be part of a plan to avert the fiscal cliff,” Senate Majority Whip Dick Durbin (D-Ill.) said in a speech at the Center for American Progress Action Fund on Tuesday.

A Senate Democratic aide said Durbin believes Congress should look at Medicare and Medicaid reforms as part of long-term deficit-reduction talks, but separately from a short-term deal to avoid the cliff.

If you give a mouse a cookie, he’s going to want a glass of milk. Republicans compromised because they believed that the White House and Senate Democrats were willing to look at other fiscal issues that pose a threat to the fiscal health of the United States. They got suckered, but they asked for it.

Republicans aren’t going to go along with raising taxes — and closing loopholes without reductions in tax rates is indeed a tax hike, regardless of what some GOP apologists may say — unless there are some big items on the table, such as tax reform or dealing with entitlements. The “fiscal cliff” has nothing on what is ahead of us in the next 25 years if Congress doesn’t do something to rein in entitlement spending.

The federal government currently spends around 24% of gross domestic product (GDP). Entitlements alone are around 10% of GDP. But according to the CBO’s alternative baseline scenario, entitlements will account for 16.6% of GDP by 2037. That’s just entitlements. Discretionary spending, including defense, is another 9.6% of GDP. Interest on the national debt adds in another 9.5%.

By 2037, the government will spend 35.7% of GDP and the national debt will be nearly 200% larger than the economy.

You may say that these problems are 25 years away and Congress will eventually tackle the problem. Look, we’ve kicked the can down the road on entitlements for years, despite knowing that there were long-term problems.

The error in what Democrats are saying is that the “fiscal cliff” is a short-term issue that requires a smaller patch as opposed to broader reforms and that there isn’t enough time left on the clock to iron out such an agreement. Keep in mind that this is what they said last year when they reached a deal on spending cuts — the same deal both sides are currently trying to undo.

If there isn’t enough time to do something big right now, Congress should agree to extend current tax rates for another year and then start working out a plan that reforms the programs that are really driving out deficit and debt problems. That’s the responsible path that should be taken.

 
 


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