A grand bargain on debt has been elusive for understandable reasons.
First, it will require actions that voters, and therefore politicians of both parties, dislike intensely: raising taxes and cutting popular programs. There’s a reason neither President Barack Obama nor Republican presidential nominee Mitt Romney levelled with voters during the campaign.
Second, it is tricky to fashion a policy that safeguards a weak economy in the short term while guaranteeing a reduction in debt over the long term.
Nevertheless, there are grounds for optimism. Obama and House Speaker John Boehner, R-Ohio, both have committed themselves since election day to a bipartisan search for a deal. Key players, such as Sen. Dick Durbin, D-Ill., and Sen. Bob Corker, R-Tenn., have signalled a willingness to move beyond party orthodoxy.
And there is a broad understanding of what a deal will require. It must be "balanced," as Obama reiterated Friday, with both spending cuts and revenue increases. All the serious people who have looked at the problem, including the Obama-appointed Simpson-Bowles commission and the equally expert Rivlin-Domenici panel, agree that the math won’t work any other way. Given rising inequality, much of the revenue must come from the wealthy.
And given the swelling share of the pie being grabbed by programs for the elderly, at the expense of education, scientific research and infrastructure — at the expense of the future, in other words - medicare and social security must be reformed. This doesn’t mean cuts in these essential programs; it means that their expected rate of growth has to be slowed.
Obama has considerable leverage in the negotiations to come. He campaigned on a promise to raise income tax rates for the wealthiest two per cent. And tax rates for everyone are scheduled to rise Jan. 1, if no deal is reached. That would set back economic recovery, but it also would put the new Congress in a position to argue about how much to cut rates, rather than how much to raise them — a political advantage for Obama and maybe a face-saver for some Republicans.
But it would be far better to reach a deal before then that would allow a more rational, less sudden reform. That’s why Obama was wise, in his first White House statement, not to insist on higher tax rates. There are other ways to raise revenue. Capping deductions offers a different way to target the rich; taxing carbon would have huge collateral benefits. Along with rates, these should be part of any negotiation; both offer potential room for Republicans and Democrats to find common ground.
— The Washington Post