Beware the Pivot to a “Grand Bargain”

Published October 9, 2013

National Review Online

It would appear that one of Washington’s tried-and-true political maneuvers — the “pivot” — is now actively underway in the unfolding budget drama. For those who may not be familiar with the pivot, it’s a sophisticated tactic employed by skilled political pros that might go by the name of “changing the subject” in the rest of America. The basic idea is to get everyone talking about something that they weren’t talking about just a few days ago so that they will stop talking about what they were talking about a few days ago.

In this case, the pivot is being orchestrated by House speaker John Boehner. He has everyone talking about the possibility of striking a “grand bargain,” or at least a “down payment on a grand bargain,” as the GOP’s condition for keeping the government open and for raising the debt limit. This “ask,” floated late last week in the press and then confirmed by Boehner himself over the weekend, comes after key Republicans, including the speaker, had spent weeks and months letting it be known that the No. 1 fight underway this fall would be over the future of Obamacare. Which is why “defunding” and then “delaying” the implementation of the health-care law were the critical provisions attached by the GOP to the first versions of the continuing resolution (CR) passed by the House in September. The GOP has been demanding a significant concession on Obamacare — not on the budget in general — as its key objective in the political struggle of recent weeks, and the Senate and the White House have been refusing to cede any ground. Hence the week-long — and counting — partial government shut down.

The speaker’s most recent comments, at least on the surface, would appear to suggest that at least some in the GOP are now ready to move from a focus on Obamacare to the broader topic of deficit reduction and spending restraint, which may or may not include changes to the health-care law.

Let’s start by acknowledging that the speaker’s concerns about the condition of the government’s fiscal position are not misplaced. From 1789 to 2008, the federal government accumulated $5.8 trillion of debt. Over the four-year period from 2009 to 2012, the government added another $5.1 trillion to the national debt. Moreover, because of the aging of the population and rising health-care costs, federal deficits and debt are set to soar in the next three decades, as the latest projections from the Congressional Budget Office confirm. According to those projections, federal debt held by the public, measured as a percentage of GDP, will never again recede to the levels preceding the financial crisis of 2008. It will instead steadily rise from today’s 73 percent of GDP (after a brief reprieve over the next decade) until it reaches 100 percent in 2038. And that’s the optimistic scenario. A more realistic set of assumptions – which, among other adjustments, does not include some of Obamacare’s cuts to Medicare that are unlikely to be implemented — shows federal debt soaring to more than 150 percent of GDP in 25 years.

And the source of the problem, as the speaker has noted, is uncontrolled entitlement spending. CBO projects that spending on Social Security, Medicare, Medicaid, and Obamacare’s entitlements will rise from 9.6 percent of GDP today to 13.1 percent in 2030. And that’s after a four-decade run-up in spending has already added nearly 5 percent of GDP to what is spent on the major entitlements every year.

So, on substance, the speaker is exactly right.

But there’s a history here that cannot be ignored. President Obama and the speaker famously engaged in “grand bargain” talks for several weeks in the summer of 2011, only to fall short of reaching a deal when the president demanded, at the last minute, more tax hikes than the speaker could swallow. Moreover, during the 2012 campaign, the president campaigned relentlessly on the mega-theme that, in any budget deal, the rich would have to pay a lot more in taxes — even beyond the tax hikes included in the “fiscal cliff” deal of early January 2013.

It is therefore inconceivable that, in the current environment, the speaker could secure a budget agreement with the White House and Democrats that did not include significant concessions on taxes — concessions that would badly divide the GOP.

Moreover, it is also a real stretch to assume that budget talks would ever produce the kind of entitlement reforms that might make swallowing another tax hike worthwhile. The entitlement problem is largely a Medicare and Medicaid problem, and both of those programs need fundamental reform, not tinkering. Medicare needs to be restructured into a competitive marketplace through a “premium support” reform plan, and Medicaid needs to be converted into a much more flexible program for the states, with more predictable and fixed levels of federal spending. These are the kinds of changes that the president and his allies have sworn never to embrace. Indeed, it is clear that the administration will fight enactment of even small steps in this direction out of fear of paving the way for more significant reforms later.

No doubt the speaker and his allies are looking for an end-game strategy on the CR and debt-limit fights that has a chance of producing a modest victory for the GOP. That’s understandable. But, at this point, they are better off sticking with the fight they already started over Obamacare than with pursuing broader budget talks that could easily backfire.

Ironically, the odds have improved in recent days for extracting concessions on Obamacare from the White House and Senate Democrats. This has nothing at all to do with the shutdown and its political effects and everything to do with the slow-motion fiasco that is the Obamacare rollout. The continued dysfunction at the website is confirmation that the law was not ready to be implemented. And the problems are not limited to the inability of curious citizens to see the insurance options. It is also apparent that the systems are not properly transmitting the required data to the insurance companies to successfully enroll people in coverage. If these problems persist, there could be thousands of people come January 1 who think they have signed up for insurance but have not yet successfully done so.

And that’s not even Obamacare’s biggest problem. An even more potent backlash is building as Americans see clearly for the first time the premiums they will be paying for coverage in the exchanges. The administration has tried to downplay the prospect of “premium shock,” but it will be very real for many millions of relatively healthy people who are today enrolled in the individual insurance market. Unless they have very low incomes, they will see sizeable premium increases averaging around 30 to 50 percent next year. And it will be for coverage that still has very high deductibles, in the range of $2,000 to $2,500 for the “silver” options.

As this plays out, calls for delay are sure to intensify, and from all quarters, not just the GOP. Public opinion could easily swing more heavily in the GOP’s favor based on voters’ getting a clearer look at what Obamacare will mean for them. In this environment, it will be very difficult for Senate Democrats and the White House to sustain the position that it makes sense to implement the individual mandate in 2014. Certainly the vast majority of voters will be ready to suspend it for at least a year.

None of this is to suggest that the GOP should stand pat in the current standoff over the CR and the debt limit until the White House makes substantial concessions on Obamacare. Rather, Republicans should instead reopen the government and raise the debt limit, but only on a short-term basis and only to use the time available until the next deadline to increase the pressure on Democrats to agree to a delay of some sort, most especially of the individual mandate.

The biggest domestic-policy issue over the next year will be the implementation of Obamacare. All signs indicate that the collision of Obamacare with reality is going to leave a lot of Americans even less enthused about it than they are today. Therein lies a large political opportunity for the GOP. Which also means now’s not the time for a “pivot.”

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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