Debunking 2 Myths: GOP Won't Raise Taxes and Budget Deal Is Dead

Republicans are open to tax hikes as part of a narrow path to bargain with the White House.

The Republican Party's tactical victory on sequestration spending cuts has created a narrow opening for a budget deal that could loosen Washington gridlock to the benefit of both the White House and the GOP. The outlines of an agreement have long been clear.

Now, finally, there may be shared will to compromise.

President Obama needs fiscal peace to stop his slide in polls, which suggest that voters blame both parties for dysfunction in Washington. After winning re-election, overconfident White House aides assumed that Obama was immune from fallout.

Persistent budget fights also threaten the president's domestic agenda, including immigration, gun safety and climate change, according to Democratic operatives inside and outside the White House.

Liberal commentators, who for months cheered the White House's no-surrender stance with House Republicans, are now signaling retreat or retrenchment. Greg Sargent of the Washington Post, one of the keenest observers of the budget process, wrote Wednesday that Obama's allies face a tough question: "Which is worse, indefinite sequestration or a grand bargain that includes serious entitlement cuts?"

Liberal activists and Senate Democrats have had little stomach for the type of entitlement reform that House Republicans are demanding. They had hoped that sequestration would be extraordinarily unpopular, forcing the GOP to replace it with a package combining new taxes and targeted spending cuts that didn't touch the runaway spending for Medicare or Social Security.

The outrage has not come. Instead, as Brian Beutler reported for the left-leaning Talking Points Memo, "lawmakers have reacted to the bad news with a collective shrug." Sequestration, Beutler writes, may be the new normal.

Back to Sargent: "That means that at some point, liberals may well be faced with a choice "“ should they accept the grand bargain that includes Chained CPI and Medicare cuts, and join the push for that, or essentially declare the sequester a less awful alternative, and instead insist that we live with that?"

And there you have it -- a point of view, shared by some in the White House, that bargaining with the House GOP may be Obama's smartest path.

Suddenly, the president has political incentive to begin an honest and sustained conversation with Americans about the hard truths of deficit reduction: Longer life expectancies justify increases in the eligibility ages of Social Security and Medicare; wealthy retirees can pay more and receive fewer benefits; and health care costs need to be driven down, a process that requires broad sacrifice.

To his credit, the president has proposed adjusting the inflation formula for Social Security and increasing Medicare premiums for the wealthy. While open to other Medicare savings, he has withdrawn his support of increasing Medicare's eligibility age. "But Obama hasn't put these modest steps into the larger context of social change," Washington Post columnist Robert J. Samuelson writes, "nor is it clear how much the administration supports them."

Obama insists that the entitlement reform must be accompanied by new revenue, and he has good reasons. First, the president needs political cover: Senate Democrats and liberal activists would revolt if he gave entitlement reform without getting new revenue. Second, meaningful deficit reduction requires new revenue to avoid draconian cuts to important federal programs.

House Speaker John Boehner has stubbornly insisted he will not bargain with Obama one-on-one. He also says the House, after increasing taxes by $600 billion last year, will not raise new revenue.

Don't believe him. Don't mistake a negotiating position for reality. House Republicans tell me they are open to exchanging entitlement reform for new taxes -- $250 billion to $300 billion, or approximately the amount that Republican Sen. Pat Toomey of Pennsylvania proposed raising over 10 years under the guise of "tax reform."

That may not be enough new revenue to satisfy Obama, but it's a start. As part of a deal, Democrats possibly could curb the worst of the sequestration cuts.

What is the GOP incentive to deal? First, getting the signature of a Democratic president on a bill reducing entitlements would be a victory for a generation's worth of Republican candidates. Casting GOP politicians as Granny-bashers would be harder to do after a Democratic White House tweaks Medicare and Social Security. Second, even token reforms by Obama in 2013, opens the door to deeper entitlement changes in the future.

Finally, while most GOP House members are virtually immune to electoral pressure because they face easy re-election campaigns, Republican Party leaders want them to broker a fair deal with Obama that helps the party's horrible image problem.

The best time for a deal to occur is this summer when the debt ceiling is approaching. We might see House Republicans break the ice by offering a package of entitlement cuts that include much of what Obama has proposed "“ plus some they know he would reject. It would be interesting to see which bait Obama takes: Would he embrace the reasonable reforms and move toward a deal? Or condemn the onerous provisions and walk away?

A few months ago, Obama missed a historic opportunity to deal with Republicans from a position of strength. After a decisive election victory, he squeezed a $600 billion tax increase out of the House but could not strike a so-called grand bargain with Boehner, a fact that both sides blame on the other.

Now he's a bit weaker but a bargain is still in reach. Entitlement reform and $300 billion or more in new revenue"“ coupled with the 2012 tax hikes and some measure of the sequestration cuts -- could be a rare moment of pride and accomplishment for Washington.