5 Keys to a Debt Deal

Areas where Obama, Republicans, and Democrats might find enough common ground to avoid a national default

Obama Boehner shaking hands - Larry Downing Reuters - banner.jpg

At times like this, it's tempting to recall the 1987 movie No Way Out and a deliciously biting Beltway line from that movie.

It's when a beautiful but cynical Washington party girl, Susan Atwell (played by Sean Young), first meets handsome Navy Cmdr. Tom Farrell (played by Kevin Costner):

Susan Atwell: Are you one of them?

Tom Farrell: One of what?

Susan Atwell: These hypocrites. All posh and shiny getting ready for four more years of ramming it to the rest of us.

Right now, Washington looks and feels stuck in No Way Out syndrome. It has nothing to do with that Cold War celluloid thriller and everything to do with ideology and inertia in the debt-ceiling debate. By all outward appearances, the dominant caucuses in Congress can be named "I Won't" and "I Can't."

But is there room for an 11th-hour compromise? Is the glue available, possibly even visible, to patch together a deal?


First, of course, the existing plans have to die their inevitable legislative deaths. House Speaker John Boehner's $900 billion debt-ceiling increase, now redrafted with $917 billion in cuts certified by the Congressional Budget Office, will pass the House on Thursday. It will then die when the Democratically controlled Senate tables it. Senate Majority Leader Harry Reid's $2.7 trillion debt-ceiling increase will not surmount a GOP filibuster and therefore will die as well.

After swift burial, Congress will have four days to work out a deal to avert the default that Treasury says will begin on August 2. The key sticking point and the must-have for President Obama and Reid is an increase in debt authority of at least $2.7 trillion--enough to last until early 2013. When Reid sent a letter to Boehner on Wednesday signed by all 51 Senate Democrats and the two independents promising to kill his bill, the only reason cited was that it lacked a debt-limit increase past the 2012 election. This is Obama and Reid's irreducible minimum. Democrats cannot and will not back away from it--not for economic or political reasons which, for all Democrats, are tightly intertwined. Republicans must reconcile themselves to this fact. The question, therefore, is this: can both sides strike a deal and avert a default? It won't be easy. To do so, Obama and Reid will have to give House Republicans additional concessions--compared to where things stand now--to draft a bill that can pass in both chambers. Boehner might have to give a thing or two as well.

Based on National Journal's reporting, a smidgen of tea leaf reading, and a careful look at the underlying numbers and policy, here are five areas of possible compromise.

1. Balanced Budget Amendment: House Republicans desperately want a vote in both chambers on a balanced-budget amendment to the Constitution. It's required in the Boehner bill but Reid's bill doesn't address it. Adding a balanced-budget amendment vote in the Senate (where Democrats would offer an alternative version) could mollify some House Republicans.

2. Tax increases: The Boehner bill establishes a 12-member congressional "Super Committee" to draft $1.8 trillion in deficit reduction this year and gives the committee's recommendations an expedited path to the House and Senate floor with no opportunity for amendments. For some mysterious reason, Boehner's bill does not tell the committee it can't raise taxes--even though Reid has offered $2.7 trillion in deficit reduction without tax increases. If the committee mandate was to pursue tax reform in the context of deficit reduction (a stated goal of both parties) but do so without a net tax increase, Boehner might be able to sell House Republicans on a longer debt-ceiling increase.

3. Defense spending: The Reid bill seeks much less in security spending (defense and veterans) than House Republicans and Obama. The numbers appear artificially low, seeking defense cuts that Reid might not get through the Senate when considered in isolation. The apparent artificiality of the numbers suggests they might be fodder for compromise. Reid, for example, seeks $31 billion less for security than Obama in fiscal year 2012 and $49 billion less than Obama in 2013 ($29 billion in 2012 and $47 billion less in 2013 when compared to the budget authored by Rep. Paul Ryan, R-Wis.). If Reid agreed to higher defense numbers, that might prove attractive to House Republicans--but he would have to give a lot, thus jeopardizing non-defense discretionary spending. At this late hour, these trade-offs will almost have to be zero-sum maneuvers.

4. Discretionary spending: When Boehner and Reid introduced their original bills, the numbers for overall discretionary spending were almost identical--oddly so. There was only $1 billion separating the budget authority numbers for fiscal years 2012 and 2013. Beneath that, Boehner's first bill cut $7 billion from last year's budget and Reid cut $5 billion. Boehner's redrafted bill seeks $22 billion in cuts (compared to the Ryan budget that sought $31 billion in cuts). If Boehner started at $7 billion and has jumped up to $22 billion, a middle number would be $15 billion. And that would be half as much as Ryan's budget. That's a first-year discretionary spending cut that might work for both sides and reflect a true middle ground.

5. Other entitlement savings: Reid's bill is very specific (or at least more specific than Boehner's bill) about the $70 billion in savings it envisions from changes to non-third rail entitlements. Exempting Social Security, Medicare, and Medicaid, the Reid bill counts $40 billion in savings over 10 years from the elimination of waste, fraud, and abuse in Medicare and Medicaid (and hires the investigators to do it--along with agents to tighten up tax enforcement). It also counts $15 billion in broadband spectrum sales and up to $15 billion in savings from agriculture price supports. All of these ideas were passed back and forth during the earlier budget talks with Obama and Vice President Joe Biden. They are low-hanging fruit. Boehner's bill refers to them opaquely but doesn't' count them. If Boehner agrees to count them, that could give Reid and Democrats some breathing room when considering the implications of the super committee's future deficit-reduction proposals--a $70 billion buffer, if you will, to protect Social Security, Medicare, and Medicaid.

Without question, each of these areas of possible compromise is fraught with peril. For every reason why a compromise might work and is even apparent, there are probably five or 10 reasons why Republicans and Democrats would rather not. But the time for rather not is dwindling. Default is drawing closer and economic anxiety is growing.

No Way Out isn't just a movie title. It's becoming a legislative way of life in this saga. Perhaps the items listed above may prove to be a way out. Quite possibly, there are others. Either way, Congress doesn't want voters to conclude lawmakers are all "posh and shiny" and just spent their summer "ramming it to the rest of us."