As Congressional leaders confer with President Obama at the White House today on the debt negotiations, they've shown their cards a bit, and there's finally some clarity to go along with the red-hot rhetoric. Obama is reportedly still thinking big, pushing a debt ceiling compromise which would cut entitlement programs such as Medicare and Social Security in exchange for raising more taxes by eliminating corporate tax preferences, other deductions, or allowing the Bush-era tax cuts to expire. Republicans, meanwhile, indicated some flexibility on eliminating distasteful corporate tax subsidies—but also publicly clarified their position that such tinkering with the tax code shouldn't raise any new taxes. There's talk of a grand bargain in the air, but the gulf between the two parties has never been more clear.
House Majority Leader Eric Cantor blasted Obama Wednesday for attributing the breakdown of negotiations to tax breaks for things like corporate jets. "We've said all along that preferences in the code aren't something that helps economic growth overall," Cantor said. "But, listen, we are not for any proposal that increases taxes, and any type of discussion should be coupled with offsetting tax cuts somewhere else." Although ostensibly indicating a willingness to deal on tax breaks, Cantor's comments—echoed by other GOP lawmakers throughout the day--made it even more clear that Republicans won't allow any federal revenue enhancements through overhauling the tax code. Both sides may well back down and compromise before letting the nation go into default, but it will take a lot of face-saving spin.
According to Cantor, the bipartisan talks with Vice President Joe Biden produced a plan with the "potential" to cut $2 trillion off the deficit over 10 years. the discretionary spending cuts agreed to could become the basis for a shorter term deal which would entail the debt ceiling issue being revisited again next year, though neither side likes the idea. In fact Cantor joked with reporters Wednesday that the only thing he and the president agree on is that a short term deal would be a nonstarter.
For his part, Obama is looking to deal with the issue for good, with a $4 trillion deal which would both raise taxes and slash entitlement programs. It's an ambitious goal, but even if the deal is finalized with party leaders, it will likely be met with strong opposition from rank-and-file Democrats looking to guard social programs, and Republicans opposed to any type of tax increase.
No one on Capitol Hill wants to relive this fight again next year. There will be fewer options left to cut a deal, and the election season will make compromise harder. There's plenty left to fight over this year--sometime this fall, lawmakers will have yet another showdown over the federal budget, with yet another threatened government shutdown on the horizon.
Whereas this showdown has, so far, avoided rattling the market or panicking Americans, an election-year showdown adds an element of uncertainty to the equation.
It's an option that everyone would like to avoid, but it may be the only way out.