Published July 20, 2011
Confusion among congressional Republicans about their objectives in the debt-limit endgame has increased the possibility that they will stumble into a policy and political disaster over the next two weeks.
Only ten days ago, Republicans appeared to regain their footing when House Speaker John Boehner torpedoed the disastrous “grand bargain” that President Obama was offering. That deal would have forced Republicans to accept a massive $1 trillion tax hike and left Obamacare in place. In return, the president offered more centrally planned cuts in Medicare and Medicaid and other minor entitlement adjustments. Some deal.
But now, along comes the Gang of Six plan, and some Republicans are apparently intrigued by it. They shouldn’t be. It’s a terrible, terrible plan. It will hand the president a huge strategic victory and deliver nothing that the GOP should be seeking in this fight. It’s far, far worse than anything we have seen thus far, and certainly much worse than the McConnell plan.
In a nutshell, the Gang of Six plan would have three parts. Let’s look at each part in turn.
First, there’s a relatively small bill to supposedly save $500 billion immediately with a combination of discretionary spending caps through 2015, a move toward the chained CPI for indexing Social Security and the tax brackets, repeal of the CLASS Act, and other unspecified process provisions. Although unstated, presumably it is this bill that would carry a temporary debt-limit increase to get past August 2, and probably provide about six months of room before another debt-limit increase became necessary.
Republicans must understand that even in this small, initial part of the package, the Democrats are insisting on a tax hike. The chained-CPI proposal will increase taxes along with slowing inflation increases in Social Security.
The second part of the Gang of Six package is far worse. It’s essentially a call for a budget “reconciliation” bill, with no specifics yet available. Senate committees with jurisdiction over taxes and entitlements would be tasked with achieving targeted amounts of savings or tax increases. For instance, the Finance Committee would be charged with reporting out a tax-reform plan that increases taxes by about $2.3 trillion over a decade. That committee would also be charged with finding savings in Medicare and Medicaid, but there’s absolutely no indication of how the savings will be achieved.
Republicans would be foolish to think this process will produce anything worthwhile. The Democrats control the Senate, and all of the committees. They will write the tax and entitlement changes, and look for Republican votes. It’s a recipe for another round of useless mishmash posing as “entitlement reform.” Remember, Finance Committee chairman Max Baucus is an architect of Obamacare. If his committee were to produce any real health-care savings at all, it would be with the same kind of price-setting and central planning that was written into Obamacare. There’s zero chance this process will lead to any meaningful movement away from the Obamacare model.
If this “reconciliation”-style package of tax and entitlement changes gets supermajority support in the Senate, then the Senate would move on to the third part of the Gang of Six proposal: a Social Security reform package that closes the long-term financing gap. Again, with Democrats in control of the Senate and the writing of legislation, this almost certainly would mean another large tax increase. The Social Security plan would then be attached to the legislation containing the other tax and entitlement changes, and sent to the House (probably on a take-it-or-leave-it basis).
In short, the Gang of Six has essentially offered a plan in which Republicans would hand over control of the budget process to Democratic senators and hope for the best. Enough said.
Republicans need to quickly get their bearings and figure out how they want to play the endgame. At this stage, any version of a “grand bargain” will play completely into the president’s hands. It will lead to a massive tax increase, with nothing meaningful on entitlement reform to show for it. The president would get a strategic victory, having forced Republicans to vote for a tax increase without giving up anything real on the spending side. And the conservative coalition would be at war with itself. So drop the idea of a grand bargain.
Next, Republicans must realize that being tactically nimble in this fight will be the difference between success and failure. The conservatives in the House who say they will never, ever vote to increase the debt limit need to realize they are handing all of the leverage to President Obama. To begin with, the budget they support—the Ryan budget that the House Republicans voted for nearly unanimously in April—requires a large debt-limit increase. Indeed, there’s no conceivable budget plan out there that doesn’t require one. Moreover, there is a strong chance that going past August 2 without an increase could completely backfire on the GOP. It’s hard to predict what will happen, but it could be quite chaotic and cause real damage to real investors and businesses. It will almost certainly trigger a very negative public reaction, which will then force Congress to raise the debt limit quickly, one way or another. It’s hard to see how such a confrontation will help Republicans get a better deal.
What conservatives should be doing is seizing the initiative in the House. They should move immediately to pass a small debt-limit increase, on the order of $500 billion, coupled with a reasonable set of spending cuts, including caps on discretionary spending. They should then send that to the Senate as the starting point for discussions. Doing this now would increase Speaker Boehner’s leverage immensely, as he would become the only person in the room who had shown by his actions that he doesn’t want a default. Moreover, at this late stage, there’s a very real chance it would become the vehicle for getting past August 2.
If Republicans can’t find their way to make such a move (for whatever reason), then they have little choice but to work with Senator McConnell on his version of Plan B. But they should make it absolutely clear that no version of the Gang of Six plan will be acceptable.
James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director at the Office of Management and Budget from 2001 to 2004.
