A lot of people on both sides of the political spectrum are grousing over resurgent talk of a Grand Bargain. That itself tells me it’s a great idea.
But here are the specifics of why the so-called Grand Bargain is a good bargain for Democrats.
Any grand bargain must contain 3 major elements: “comprehensive” tax reform, entitlement reform, and deficit reduction. Each one has advocates in one party and foes in the other. But each holds something for both.
“Comprehensive” Tax Reform
I always put “comprehensive” in quotes because that’s the conservative buzz word for “but we also have to cut rates.” Face it, Republicans are not going to do away with their cherished loopholes and deductions unless they get something in return. That’s why Obama’s original plan to avoid the sequester failed: he wanted to do away with tax deductions but leave tax rates the same. Over Boehner’s dead body. And dead Speakership.
On the other hand, the CBO estimates that there is close to $1 Trillion in new tax revenue to be had over ten years if deductions and loopholes can be paired back across all income levels.
What Obama has to do is sell the idea of removing the deductions and loopholes and using 2/3 of that new revenue to reduce rates 14% across the board - around 34% for top earners*, which is still lower than the Bush era rates, so Republicans will have something to cheer about. That would still leave 1/3, or some $330 Billion, to go toward deficit reduction over ten years.
At the same time, we could also clear out corporate loopholes, drop that rate down to 28%, and still pocket some modest new revenues.
And if conservative economists are right, all of that could help grow the economy, spur investment, create more jobs and expand the tax base. A win-win for everyone.
Entitlement Reform
Look, the right isn’t going to rest until they get something they can call entitlement reform. Liberals can huff and puff and try to blow the House of Representatives down, but conservatives there are still going to demand some changes to Medicare and Social Security.
Yet if Obama can get them to accept means testing, chained CPI, and a few other tweaks as a sensible reform package while avoiding an increase in the eligibility age**, he can sell all but the most strident on the left that he got a good deal and prevented conservatives from gutting entitlements.
That would be seen as a big win for Democrats. And though Republicans might still try to hang the cuts to Medicare around Democrats’ necks in 2014, it would not work. All most seniors care about is not raising the eligibility age and not cutting benefits. Everything else would be acceptable if it means putting the long-term viability of the programs on a sounder path.
Deficit reduction
Okay, we’ve now reformed the tax code, added some much needed tax revenue, and thrown the entitlements haters a bone. That means we can revise the sequester cuts to a more modest and well-distributed package of cuts of around $800 Billion (as opposed to the current $1.2 Trillion). Plus we can add in the reduced interest payments on the debt and the estimated increase in tax revenues from the promised explosion of new corporate spending and hiring. Consumer confidence increases, the markets soar, businesses hire and spend more, and GDP moves toward 4% or better.
And the best part: all those Glenn Beck-style fiscal survivalists who invested in gold will take a well-deserved bath.
The Grand Bargain
All this would still add up to around a $3.5 to $4 Trillion grand bargain. Erskin Bowles would be satisfied. Alan Simpson would be less crotchety. And everyone in the Congress could take credit for a resounding victory against everyone else.
And with the Grand Bargain etched in stone, D.C. could finally move on to other pressing policy issues.
Imagine an Obama second term that includes a grand bargain, immigration reform, and maybe even some sensible gun reform.
The Grand Bargain (along with healthcare reform, immigration reform and gay rights) would become Obama’s New Deal or Great Society, putting him in the upper echelon of great domestic presidencies along with Teddy Roosevelt, FDR and LBJ.
Not a bad legacy for him. Not a bad reality for us.
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* Romney-Ryan promised a 20% across-the-board cut on the Bush tax rates, dropping the top rate to 28%. That was neither realistic nor advisable. But a 14% across-the-board cut on the current rates is both.
** For those rabid entitlements police who think the programs can’t survive the baby boom without raising the eligibility age, guess what: no fix would go into effect on people currently 55 or older...and that’s the end of the baby boom generation. So raising the eligibility age does absolutely nothing to alleviate the demographic problem.
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