Why Obama must prevail for a ‘grand bargain’

By David M. Walker
June 21, 2013

President Barack Obama and House Speaker John Boehner (R-Ohio) (R) in Washington, Mar. 19, 2013. REUTERS/Gary Cameron

It’s been a while since we’ve had good news about our economy, so the recent upbeat reports are welcome. The deficit picture for 2013 has brightened a bit, along with an upturn in the housing market. Yet those developments don’t tell the full story. Our economic horizon remains cloudy due to serious structural challenges.

In fact, this improving economic picture threatens to diminish our sense of urgency about striking the needed “grand bargain” to address our fiscal disease. That shouldn’t happen — and Washington policy makers should use the continuing talks about fiscal 2014 appropriations levels to nail down a framework for the deal we all need.

First, let’s look at the good news in context. Several weeks ago, the Congressional Budget Office reported that the federal budget deficit for fiscal 2013 will be $642 billion. That’s a substantial drop from 2012′s $1.1 trillion deficit. But several significant reasons for the decline are unusual events: large dividend payments from Fannie Mae and Freddie Mac; savings from the ill-conceived and unsustainable sequester; and accelerated tax revenues from wealthy individuals anticipating the fiscal cliff.

More good news came in recent weeks with signs of strength in the housing market — an upward trend in home sales and housing starts. Yet unemployment remains stubbornly high, at 7.6 percent, and investors are nervously wondering how much and how quickly the Federal Reserve Bank will pull back on its monetary stimulus program.

Washington policy makers, however, still haven’t addressed the three key drivers of our structural deficits: our aging population, our rising healthcare costs and our outdated, unfair and overly complex tax system.

It is estimated that our best measure of fiscal health — debt level as a percentage of gross domestic product — is on a fairly flat path for the next decade. But those three issues will cause the debt-to-GDP percentage to soar in the out years, unless we agree on serious, structural reforms.

It’s not enough to stabilize the percentage; we must get it on a downward path to prepare for the looming demographic impacts and also give Congress the fiscal flexibility to deal with unforeseen emergencies.

Above all, we need to consider economic need and political reality.

First, we need to invest more in critical infrastructure, as well as research and development, to increase economic growth, reduce unemployment and enhance our competitive posture. It’s politically unrealistic, however, to expect to be able to do so unless it is coupled with actions designed to address our structural deficit challenge.

Second, Congress will likely be focused on midterm elections next year, and then move into the intense campaign mode leading up to the 2016 presidential election. Unless we act soon, it’s possible that Washington politicians won’t get serious about grand bargain negotiations until 2017. We can’t afford to wait that long.

Agreeing on a framework is still possible this year — it can be achieved as part of congressional appropriations negotiations.

To be clear, a deal should not be pursued as part of the coming debt ceiling face-off. President Barack Obama has already said that he won’t negotiate over the debt ceiling. So it should be off the table as a bargaining tool. We should instead lift the debt ceiling through the 2014 election, and eventually replace it with statutory debt-to-GDP targets — and a constitutional amendment establishing a debt-to-GDP “credit card” limit.

What makes good sense, however, is to link a grand bargain framework to the current negotiations over next year’s appropriations. Those discussions will likely continue through at least September, and naturally have the sequester as a focal point. Neither Republicans nor Democrats want the sequester to continue — and their mutual desire to do away with this ham-handed policy may be the opening we need to reach a substantive fiscal deal.

Republicans and Democrats should now get behind replacing part of the sequester — and seek further long-term deficit reduction — through three key steps.

First, both parties should agree to specific reductions in mandatory spending, including a first step in genuine reforms to Medicare, Medicaid and Social Security. These could involve adjustments to Medicare premiums so wealthier seniors contribute more; reforms to the Medicaid provider tax that will prevent states from gaming the system; and a change in inflation indexing.

Second, Congress should set a target for further reductions in social insurance spending, and charge relevant congressional committees to come up with the savings. We don’t need to create another “super committee” — which would likely prove another super failure.

The more credible, and politically palatable, approach is to go through the committees of jurisdiction — with open hearings and complete transparency. These should be coupled with a series of fact-based and solutions-oriented town hall meetings across the country involving the president and bipartisan congressional leaders.

Third, our elected officials should set a target for additional revenue through tax reform, and assign relevant congressional committees to do this. Though both parties have expressed a desire for tax reform, the sticking point has been whether it will generate more revenue. The Republicans might agree to increased tax revenue if meaningful social insurance reforms that achieve significant long-term spending reduction are part of the overall package.

If these elements are adopted, we could reach a fiscal deal that can pave the way for long-term growth and prosperity. In this way, today’s short-term good news can result in a better and brighter tomorrow.


PHOTO (Insert A): Derailed freight train cars semi-submerged in Mantua Creek after a rail bridge collapsed in Paulsboro, New Jersey, Nov. 30, 2012.  REUTERS/Andrew Burton

PHOTO (Insert B): House Speaker John Boehner (R-Ohio) with (L-R) House Minority Leader Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) after a bipartisan meeting about the economy with President Barack Obama at the White House, Nov. 16, 2012. REUTERS/Larry Downing

PHOTO (Insert C): President Barack Obama (C) meeting with congressional leadership on deficit reduction in the White House in Washington, July 13, 2011. REUTERS/Jason Reed



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A grand bargain will only be struck by the President if Congress caves to his (always) non-negotiable demands. That means there would be legislation where the President gets everything he desires and the opposition gets nothing. He negotiating platform is an “I win, you lose” proposition.

As diminished as he is, both as a person and President, he never compromises the ultimate objective. Never (ever) lose sight of his promise to “punish our enemies”.

Posted by COindependent | Report as abusive

Your “Grand Bargain” would institutionalize annual increases in the National debt, reduce the “Debt Limit” to a meaningless outmoded idea, and again puts forth the premise that systematic theft of purchasing power from retirees and the disabled by the institutionalized inflation of OUR currency by OUR government is OK by AGAIN “revising” the statutory protections of “inflation adjustment” in a way that FAILS TO PROTECT the purchasing power those who will never again see a genuine “raise” in income.


Posted by OneOfTheSheep | Report as abusive

Conservatives, Tea Party, and Republicans could not compromise on a farm bill.

It is very unlikely they can do a grand bargain!

These people hate truth, equality, democracy, science, capitalism, etc.

They are just gangsters who want it there way only.

What rationallity does this article provide to hypothesize a grand bargain?

Posted by Flash1022 | Report as abusive

DMW has hit the three prominent nails of public policy right on the head.

But his remedy all too often asks for cuts at various aspects of a Social Contract that the government had signed a great long time ago. Some aspects of that Contract are historical in nature and should not be touched.

Especially since the Replicants are single most responsible for the doubling of the DoD budget since 2002. Note the total Defense Spending history (since post-WW2) up to today in this info-graphic here: http://www.washingtonpost.com/blogs/ezra -klein/files/2012/08/csbachartmon.png

Note how, under both the Reagan and Bush administrations, the M-I-C budget skyrockets.

Is America any more threatened today than it was in 2000? And if not, why is the annual DoD-budget almost twice that of 2000?

America is a country that knows some of the worst Income Disparity of any developed nation. It is also, with its sizable population and advanced economy, one that generates the 56% per capita income than its most comparable political entity, the European Union. Note that in the latter, spending on Social Services is far higher than in the US.

So, quite simply putting the comparison, what the EU spends on Social Services, the US spends on Defense. How does that better the well-being of Americans?

We desperately need to control Health Care spending since it is such a drag on our economy. Apparently, Americans do not understand that privatized HealthCare insurance is recuperated by the companies that pay for it by imputing the cost to the goods/services produced.

So, the American consumer pays for healthcare every time s/he goes shopping. Moreover, they pay for it whether they benefit from such insurance or not.

Pray tell, how is that fair to all Americans? And if it is not fair, then what are we going to do about – because ObamaCare will not change the numbers all that much. It is still based upon privatized insurance that gouging Americans in cost.

The total HealthCare system in the US costs twice as much as mine in France. See this OECD info-graphic for Total Costs Comparative amongst various OECD countries: http://farm3.staticflickr.com/2436/35788 06098_6571795a20.jpg – and the WHO declared, after an in-depth study in 2000, that my French system was the best in the world …

‘Nuff said … ?

Posted by deLafayette | Report as abusive

Typo: It is also, with its sizable population and advanced economy, one that generates the 56% per capita income than its most comparable political entity, the European Union. Note that in the latter, spending on Social Services is far higher than in the US.

Should read: It is also, with its sizable population and advanced economy, one that generates 56% more per capita income than its most comparable political entity, the European Union. Note that in the latter, spending on Social Services is far higher than in the US.

Posted by deLafayette | Report as abusive

About Comparative HealthCare costs, the US and the European Union, see this article here (Title, “U.S. versus European healthcare costs: the data”): http://epianalysis.wordpress.com/2012/07  /18/usversuseurope/

Excerpt from that article: “The U.S. does appear to spend more both per-person and as a percentage of gross domestic product (GDP) as compared to other industrialized nations.

In the year 2006, each American’s healthcare cost $6,714, as compared to the $2,880 median among industrialized nations participating in the Organization for Economic Cooperation and Development (OECD), after adjusting for cost of living.

As a percent of a country’s GDP, the U.S. also spent almost 16% of its GDP on healthcare as compared to between about 7% and 11% among other industrialized nations.”

And for what has the US spent 5 to 8% more than other countries? For a better and longer life?

Not really, apparently … see this Mortality Rate graphic from the article: http://epianalysis.files.wordpress.com/2 012/07/2012-07-17-03-45-51-pm.png – where the US is indicated with the highest mortality rate of the countries shown.

Indeed, the higher mortality rate is due to a lot more than just HealthCare. The high rate is also likely due to the fact that the US is suffering from an Obesity Pandemic.

Americans are literally eating themselves to a sooner death.

Posted by deLafayette | Report as abusive

Gang of 8 voted on what they call a Bi Partisan immigration bill that will destroy America if Congress passes it.
America does not want this bill and politicians are paying no attention to the people who elected them. Email,fax and cll your rep in congress. Tell them you will not forget when their election comes up.You Will NOT FORGET.

Posted by jude2007 | Report as abusive

“Washington policy makers, however, still haven’t addressed the three key drivers of our structural deficits: our aging population, our rising healthcare costs and our outdated, unfair and overly complex tax system.”
True enough, but the rest of the article doesn’t really address any of these issues either. It is mostly about nibbling away at government spending without helping on the problems at all.
At least deLafayette is addressing one of the issues.

Posted by QuietThinker | Report as abusive

Just ignore or raise the debt limit? Why would anyone think that will help the economy if we go even further in debt to foreign countries? Especially China?

We saw how China and Hong Kong replied to Obama’s threat of “Send us Snowden – or else” and it wasn’t pretty. We might be China’s main customer but we are also its biggest debtor, so we have no big stick to wave.

Posted by AZreb | Report as abusive

“Washington policy makers, however, still haven’t addressed the three key drivers of our structural deficits: our aging population, our rising healthcare costs and our outdated, unfair and overly complex tax system”
*ObamaCare can fix the “aging population” problem through rationing of care with less help for elderly, since they tend to need more at that age.
*Rising healthcare costs will also be fixed through rationing in ObamaCare.
*Overly complex tax system can be fixed by stronger socialist policies to tax the rich, those who make more than others, to bring them all in line. Someone earning $100 should pay 90% if someone else earns only $10. Simple solutions, after all.

Posted by SuReed | Report as abusive

“….open hearings and complete transparency.” In what universe?

Posted by AZreb | Report as abusive