Parties Begin Staking Out Ground For a Deficit Deal

Stars may be aligning for politicians to get real on deficit-reduction.

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Timing is everything.

Even when it comes to solving the nation's biggest and most daunting problem—fixing the looming debt crisis, which has been a black cloud over the economy and Americans' minds for years.

But budget-writers and political leaders on both sides of the aisle are beginning to sound downright optimistic about the prospect of striking a deal that sets the United States on the path back to the black. Once they get the election out of the way, of course.

By the end of the year, Congress faces the expiration of the 2001 and 2003 Bush tax cuts tax cuts, $1.2 trillion in automatic spending cuts required from last summer's debt-ceiling deal and the need to increase the debt ceiling yet again. Democrats and Republicans alike are determined to keep the lower Bush tax rates in place for most Americans, as well as to find ways to mitigate the budget cuts, especially those that target the Pentagon.

"We're going to fix this thing, but I believe we have to get through the election to do it," said Rep. Paul Ryan, the Wisconsin Republican who crafted the GOP budget plan passed by the House this week. His plan—widely opposed by Democrats—is not expected to even gain a vote in the Senate, but the legislation does serve as a Republican wish list for any potential negotiations.

[See a collection of political cartoons on the budget and deficit.]

Speaking at a National Journal event on Thursday, Ryan outlined the Republican budget priorities—comprehensive tax reform that eliminates loopholes and lowers rates for both corporations and individuals, significant spending reductions and entitlement reforms, specifically Medicare and Medicaid. Ryan's budget calls for a reduction in Medicaid payments to states, but converts the money to block grants giving states the power to spend the money as they see fit. His Medicare proposal would maintain benefits for seniors currently enrolled, but develops a voucher system for future seniors that Democrats argue would fail to keep up with cost increases.

"Both parties made a lot of promises to people that the government can't keep," Ryan said. "We need a combination of economic growth policies and spending cuts and entitlement reforms to get debt down to get this country back on track."

Rep. Chris Van Hollen, D-Maryland, Ryan's counterpart on the House Budget Committee, agrees with Ryan's optimism and his economic goals.

The rub–and of course there is one—is that Van Hollen and most Democrats don't agree with Ryan and the Republicans' premise that by taking money generated by eliminating tax loopholes and using it to lower taxes writ large will generate the economic growth necessary to pay down the nation's debt. Van Hollen and the Democrats believe that part of that money should be used to directly pay down the debt and spare some of the cuts put forth in the GOP budget.

"There are major differences of opinion," he said, speaking at the same event on Thursday. Van Hollen said the presidential election is the perfect time to discuss those differences, but predicted Americans would again elect a divided government that would be forced to compromise after November.

[Read Why Big Oil Should Give Up Its Tax Breaks.]

"You have the ingredients for a deal that could take a balanced approach, along the lines of various bipartisan commissions. The question is whether or not in that short period of time after the election Congress would be able to deal with that," he said.

Ron Haskins, senior economic fellow at the Brookings Institution, who served as an advisor to George W. Bush and was a House Ways and Means staffer, said the timing just may be right for real work to get done.

"I do think that it is possible that they could reach some serious decisions in a lame duck session," he says. "I don't think it's likely, but it's not impossible."

Haskins says one of the keys to a deal will be tax reform. It's a heavy lift not only because of ideological reasons, but political ones.

"That's going to take some time, there's a lot of lobbying, there are going to be hearings," he says. "You can't do that in the dead of night. Democracy has got to work here. And you've got to beat down those guys from K Street."