New York Times: For Republicans, Incentives to Strike a Budget Deal With Obama

New York Times - John Harwood

Ask around the White House and the Capitol, and you will quickly find reasons to doubt that Republicans will compromise with President Obama on a budget deal that includes more tax increases and entitlement spending cuts.

So why does Mr. Obama keep talking to Republicans about a deal? Because Republicans still have powerful incentives to strike one.

Delaying steps to rein in Social Security, Medicare and Medicaid, the subjects of Republican doomsday warnings for years, means delaying significant attempts to curb the size of the government. The longer the delay, the sharper and more immediate the changes Washington eventually must make to ease the long-term fiscal squeeze.

Even if Republicans take control of Congress and the White House in the next two elections – allowing them to put in place a budget plan without major compromise – they would then shoulder political responsibility for the inevitable pain that comes from curbing those huge and popular programs. Much as Republicans may dislike Mr. Obama and his policies, a Democratic president can provide them a measure of political cover.

“There are Republicans who believe that we should wait,” Senator Rob Portman, Republican of Ohio, told a fiscal meeting held by the Peter G. Peterson Foundation last week. “If we wait until 2017, which in essence is what they’re saying, I think we’re taking a huge risk.”

That may be precisely what happens, as events of recent years would suggest. President George W. Bush tried in 2005 to restructure Social Security through partial privatization, and a Republican Congress, frightened of political fallout, refused.

After Republicans fueled by Tea Party fervor recaptured the House in 2010, conservatives had new hopes of trimming entitlement programs.

But Congressional Republicans, while winning cuts in “discretionary” spending, failed to strike a “grand bargain” curbing entitlements. Mr. Obama won re-election over a Republican ticket that, as Mr. Bush had done, proposed a fundamental restructuring in the nature of a major entitlement program benefiting older Americans.

This time it was Medicare. Mr. Obama derided the Republican proposal as a “voucher” plan that would shift financial burdens onto elderly beneficiaries.

“The notion of large-scale entitlement reform has lost its appeal,” said Douglas Holtz-Eakin, a Republican economist, citing a shift in attention toward overhauling the tax code. “You can’t fix it with this Congress and this president.”

President Obama, having accepted many more spending cuts than tax increases since Republicans won the House in 2010, has set additional tax increases as the price of an entitlement deal. The House speaker, John A. Boehner of Ohio, and the Senate Republican leader, Mitch McConnell of Kentucky, having acquiesced to end most of the high-end Bush tax cuts late last year, have ruled out further tax increases.

Substantively, opponents of a compromise argue further tax increases would harm the economy. Mr. Obama and Senate Democrats, the opponents say, will never accept the structural reforms needed for the government’s long-term solvency anyway.

Politically, resisting tax increases would shield Republican incumbents from primary challenges. A recovering economy is already shrinking near-term deficits. And deferring unpopular cuts on entitlements could help Republicans win back the Senate in 2014 and the White House in 2016.

Yet other Republicans fear stepping away from the bargaining table could saddle the party with a different problem. Without cuts in entitlement programs, which can only come through a deal with Mr. Obama, Republican leaders will have trouble making Congress do something they acknowledge it must do – raise the debt limit.

Two years ago, Republicans approached a similar moment lifted by two significant tail winds. Jittery financial markets joined voters in backing Republican demands for spending cuts. President Obama needed to negotiate deep ones – now known as the budget sequester – to defer the threat of government default past his re-election campaign.

Those winds have shifted. Safely re-elected, Mr. Obama vows not to negotiate any further over the debt limit. He and his advisers believe House Republicans, who face re-election next year, have more to lose politically over a showdown.

Some Republicans agree with them.

“The president’s not at risk – our majority’s at risk,” warned Representative Tom Cole, an Oklahoma Republican who serves on the House Budget and Appropriations Committees. “You plunge the country into economic crisis, you lose your majority.”

He predicted “a very substantial” compromise with the White House this year, pushing debt limit votes beyond the 2014 election.

Many Republicans fault Mr. Obama for resisting structural changes to entitlements as well as lesser changes, like raising the Medicare eligibility age, which he entertained in 2011. But Mr. Cole, like Mr. Portman, credits the president for proposing or signaling that he will bargain on reduced inflation adjustments for Social Security benefits and other government programs; additional “means-testing” for Medicare, which would reduce benefits for high-income recipients; and increasing out-of-pocket costs for some beneficiaries.

“Those are all worthwhile steps, and we should grab every one of them,” said R. Glenn Hubbard, who advised Mr. Bush’s administration and Mitt Romney’s 2012 campaign.

Having seen both fall short in seeking far-reaching entitlement changes, Mr. Hubbard endorsed the idea of a narrower compromise so long as the tax increases it contained did not raise marginal rates, which he considers most harmful to economic growth.

“This notion that you’re going to wait for a grand bargain – in our process, you could wait an awful lot of time for that to happen,” said Mr. Hubbard, now dean of Columbia University’s Business School. “The longer we wait, the greater the risk that current beneficiaries will have to be cut.”

As for the political calculus of entitlement curbs, he added, “It’s much better for Republicans to have it happen on President Obama’s watch.”

Representative Paul D. Ryan of Wisconsin, the House Budget Committee chairman and a leading Republican advocate of entitlement changes, appears to be trying to keep the possibility of such a limited deal alive through slowly developing negotiations with his Senate Budget Committee counterpart, Senator Patty Murray of Washington. It hinges on tax code changes – and politically consequential word-parsing over whether additional revenue would come from tax increases or economic growth.

“The question is, can we make divided government work?” Mr. Ryan asked at the Peterson Foundation session. “Can we get a down payment on the problem?”

For all the resistance on the right to compromise, some conservative economists still hope so.

“The problem will be so much worse in four years,” said Joseph Antos, a former official in Ronald Reagan’s administration now at the American Enterprise Institute. He predicted Congressional Republicans would ultimately accept a bargain including modest additional tax increases, but only after “the maximum amount of political hell.”

But to call this approach a strategy, Mr. Antos added, is “very generous.”

Online: New York Times