Behind The Scenes At Grand Bargainville

Canadian conservative pundit David Frum worries that the hubbub over what economic terrorists call "The Fiscal Cliff" is the politics behind it.

The president’s most basic goal in these fiscal negotiations is not to extract more revenue from upper-income Americans, although obviously he’d like to do that too. His most basic goal is to force Republicans to forswear their famous no-new-taxes pledge.

That pledge is the tie that binds Republicans in Congress and Republicans in the country. Compel Republicans to recant that commitment and Republican unity suddenly dissolves. The discipline of their congressional caucus will break. Their base will rebel. Their leaders will quarrel with each other.

If a breach will so shock the Republican Party, why would Republicans ever agree to it? Here’s where the president brandishes his gun-- and his kind word.

During the election campaign, the president called for a tax increase on incomes over $250,000. As soon as he had gained reelection, however, he explained that he was not “wedded” to his number. Other Democrats have suggested a figure of $500,000. Sen. Chuck Schumer of New York has raised the bidding to $1 million.

The president has proposed to balance the tax increase with spending cuts. In what ratio? His first postelection offer was stingy to Republicans. But he is not wedded to that part of his program either. Expect him to top up that part of the offer as well.

The negotiating strategy will become plainer and plainer: (1) take advantage of the fact that Republicans now want a fiscal deal more than Democrats do; (2) set as the price of the deal a Republican surrender on the no-tax pledge; (3) enhance the presidential quid pro quo step by step until Republican resistance cracks.

Frum counsels Republicans to stall for time. "The president will never again be stronger than he is this month. The later into his presidency this deal is done, the better deal Republicans will get. And so long as the world will lend the United States government 10-year money at 1.6 percent, why the rush to balance the budget now? The job will be easier after we return to normal output than it is today. When you’ve got a big job ahead, sometimes the boldest move is to stall." That works for progressives as well, not just because momentous decisions in a lame duck session are inherently anti-democratic but because the Senate will be considerably more progressive starting in January.

• Elizabeth Warren is more progressive than Scott Brown
• Tammy Baldwin is more progressive than Herb Kohl
• Chris Murphy is more progressive than Joe Lieberman
• Martin Heinrich may be slightly more progressive than Jeff Bingaman
• Heidi Heitkamp may be slightly more progressive than Kent Conrad

Not having to face voters for six more years, red and purple state Democrats like Bill Nelson, Claire McCaskill, Jon Tester and Tim Kaine may be more likely to hold the line against an anti-family right-wing agenda than they would if they had elections coming up sooner. Angus King may be more likely to vote with the Democrats than Olympia Snowe was (we'll see) and Joe Donnelly may be more likely to vote with Democrats than Dick Lugar (though that's a real longshot). Even Jeff Flake may turn out to be more willing to make a rational deal with Democrats than someone like Jon Kyl ever was.

Meanwhile, Boehner has tasked Paul Ryan-- who hasn't emerged from the GOP drubbing as badly as Romney, even if it was his agenda that ultimately ruined Romney's chance to win-- with coming up with the Republican alternative to the deal Obama is offering in the Grand Bargain.

Boehner has tapped Mr. Ryan, who has returned to his post as the House Budget Committee chairman after an unsuccessful run for vice president, to help strike a deal to avoid big tax increases and spending cuts by the end of the year, and to bring along fellow Republicans.

“He helps us toward creating a product,” said Senator Rob Portman, Republican of Ohio, “and he helps sell the product.”

The test will be whether Mr. Ryan-- who declined last year to sit on another Congressional committee charged with taming the deficit, in large part because doing so might have hurt his prospects for national office-- can make the transition from House budget philosopher to governing heavyweight who can help negotiate a bipartisan deal and sell it to his colleagues.

While President Obama and the Democrats are expected to give ground on entitlements and discretionary spending, it is likely that Mr. Ryan will be the player under the most pressure to back away from his previous conservative positions in order to form a bipartisan agreement.

Mr. Ryan, who declined to be interviewed, was largely silent during the campaign about his call for changes to the Medicare system and for vast cuts to government services, as outlined in his House budget. But his distaste for Mr. Obama’s fiscal theories was unambiguous. At the Republican convention, for example, he called the Obama administration’s economic vision “a dull, adventureless journey from one entitlement to the next, a government-planned life, a country where everything is free but us.”

With his new muscle and increased respect from his colleagues, Mr. Ryan could conceivably scuttle any deal if he loudly opposes a solution that the speaker and the top Republican leaders embrace. But his conservative base might rebel against him if he were to endorse any deal seen as awarding too much to Mr. Obama and the Democrats, particularly on tax rates. Some Republicans think the pitfalls are dangerous enough that Mr. Ryan might consider leaving Congress altogether to work on his policy agenda without the inherent headaches of the Hill.

“He has to think about what he wants his role to be,” said Representative Tom Cole of Oklahoma. “Is he going to run in 2016, or run for something else in Wisconsin, or play a bigger role in the House? He’s going to play an outsize role here because of the national profile he now has, but on the other hand, this conference is quite happy to act independently.”

Not all Republicans are quite so charmed by Mr. Ryan. He has engendered some exasperation among appropriators and other members who have been forced to apply his stringent budget numbers to their spending bills. Further, in the first test of his postelection influence, Mr. Ryan aggressively supported two conservative candidates for House leadership roles who failed in their bids.

For all the attention it attracted during the campaign, the Ryan budget, unlike other types of legislation, is a nonbinding agreement that does not go through the rigors of a conference committee.

Mr. Ryan has returned to the Hill voicing support for Mr. Boehner, a departure from last year, when he was wary of bipartisan deficit solutions, including the one Mr. Boehner tried to negotiate with the president.

“Speaker Boehner has outlined a bipartisan way forward to avoid the ‘fiscal cliff’ and get our economy growing,” said Conor Sweeney, Mr. Ryan’s spokesman, “with common-sense entitlement reform coupled with pro-growth tax reform. We can find common ground on responsible spending restraint and greater revenue through economic growth, but we have yet to see either a serious plan or leadership from President Obama.”

But, as Sahil Kapur pointed out at TPM yesterday, House Republicans are still wedded to revenue neutrality and their support for revenue increases by closing loopholes is only in the context of lowering rates. "Having run and lost," he writes, "on their central anti-tax stance, and with an austerity bomb nearing detonation, Republicans are softening their tone on the issue. But what may appear to be a meaningful shift on taxes among GOP leaders is belied by the unchanged policy specifics within the rhetoric... [T]he impression that Republicans are willing to raise revenue by limiting deductions and loopholes" is correct "if and only if the new revenue is used to lower tax rates rather than reduce the deficit... For Democrats, revenue neutrality negates the purpose of tax reform, which is to help reduce the deficit. If President Obama refuses to back down, Republicans may be forced to swallow a bitter pill on their defining issue. But for now, the change in the way the GOP talks about taxes should not be misinterpreted as a new-found openness to raising them. The policy substance beneath the party’s gentler rhetoric on taxes is the same as it ever was."

Krugman was urging his readers yesterday to not forget that Ryan is nothing but a con man and a fraud. "His genius, if you can all it that," writes Krugman, "was in realizing that there was a role-- as I said, that of Honest, Serious Conservative-- that self-proclaimed centrists desperately wanted to see filled, so that they could demonstrate their bipartisanship by lavishing praise on the holder of that position. So Ryan did his best to impersonate a budget wonk. It wasn’t a very good impersonation-- in fact, he’s pretty bad at budget math. But the 'centrists' saw what they wanted to see."

And then there's the wonk progressive perspective, generally ignored by the media which always pits the debate over taxes as a debate between Republicans and conservative Democrats-- the Conservative Consensus. 350 American economists are urging Obama and the Democrats to refuse to give way to the failed European Austerity Agenda the Republicans are trying to impose and to which many conservative Democrats-- particularly the corporately-funded New Dems-- are enthusiastic about. This is the letter signed by the 350 economists. It makes far more sense than what's coming out of Boehner's office, Ryan's office or Obama's office:

The U.S. economy, once in free-fall toward a new depression, has begun to recover. But we are still mired in a prolonged slump marked by mass unemployment, rising poverty, and declining wages. And the fragile recovery is threatened by obsessive concern with cutting deficits that has infected both parties.

As even Federal Reserve Chairman Ben Bernanke recognizes, it is long term unemployment, not excessive deficits or debt, that is now inflicting the greatest human toll and economic damage. Polls show that voters agree joblessness and a bad economy are much higher priorities than deficits.

Yet too many in Washington are fixated on cutting public spending to balance the budget, not on how to put people back to work and get our economy going. There is no theory of economics that explains how we can deflate our way to recovery. Businesses are not basing investment decisions on how much Congress cuts the debt in 2023. As Great Britain, Ireland, Spain and Greece have shown, inflicting austerity on a weak economy leads to deeper recession, rising unemployment and increasing misery.

In a deep recession, deficit reduction is a moving target. If you cut spending and consumer purchasing power in an already depressed economy, unemployment rises and revenues fall-- and the goal of a smaller deficit keeps receding like a mirage in a desert. When private purchasing power is depressed by the aftermath of a financial collapse, only public investment can make up the gap.

The budget hawks have the sequence backwards. Public outlay for jobs and recovery come first, growth is restored, and revenues follow. Budget cuts in a deep slump lead only to a deeper slump.

The government should invest in areas vital to our economy-- to repair crumbling infrastructure, to build 21st-century smart-grid, public transportation and renewable energy systems, and to create public and private sector jobs. We should also help states prevent layoffs of teachers and other public servants, make early care and higher education more affordable, and create public service jobs throughout the nation. It can do so by borrowing at record low interest rates. We can also stimulate recovery without increasing deficits by increasing taxes on the wealthy and pumping the proceeds directly into the economy.

Both bipartisan and conservative deficit reduction plans-- Simpson-Bowles, Rivlin-Domenici, and the Republican budget-- magically assume a recovery to "normal" levels of employment. Yet, the economy is nowhere near normal growth, and budget cutting will only retard growth. At the end of the year, we face a congressionally-created "fiscal cliff," with automatic "sequestration" spending cuts everyone agrees should be stopped to prevent a double-dip recession. That threat has led to backroom negotiations, backed by a multimillion dollar public relations campaign, toward a "grand bargain" that would maintain tax give-aways for the rich; cut Social Security, Medicare, and Medicaid; and impose new, job-killing spending cuts. This is no bargain, and it should be rejected.

President Obama should be commended for proposing a new jobs program. But unless the balance of power in Congress changes dramatically, there is a serious danger that after the election the austerity lobby will prevail.

We need jobs first. With recovery, deficit reduction will come of its own accord thanks to increased revenues in an improving economy. That was the case in the three decades after World War II-- when the debt to GDP ratio declined from over 120 percent of GDP in 1945 to under 30 percent by 1978.

In 1945, our leaders placed a priority on putting people to work, not cutting spending. So government doubled down with public investments like the GI bill, housing, and highways-- and widespread collective bargaining and equal opportunity laws made sure the rewards of growth were widely shared. Today, we need the same scale of public investments that made sure the greatest generation and their children enjoyed growth, opportunity, and shared prosperity.

In the face of today's weak economy, the Federal Reserve has vowed to sustain extraordinary measures until unemployment comes down and the economy picks up. But as Chairman Ben Bernanke observed, very low interest rates alone cannot fix this economy. To make sure the American people are not crippled by another lost decade of joblessness, we need presidential leadership-- and congressional action-- to spur jobs and growth, not dangerous austerity.