Bipartisan Cliff Fix Shows Why Deal So Elusive By Dec. 31

Investor's Business Daily

All the optimism that the fiscal cliff will be avoided rests on the idea that Republicans are ready to give way on tax hikes.

Yet, even if Republicans now seem more willing to meet in some undefined "middle," there is no evidence that Democrats are prepared to accept the pain of going halfway.

To get a sense of the daunting odds of reaching a fiscal compromise before year-end, it's useful to consider the Bipartisan Policy Center's framework for a deal.

Founded by ex-Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell, the group calls, first, for turning off the fiscal cliff to avoid the year-end expiration of tax cuts and deep automatic spending cuts set to take effect.

As of now, President Obama stands ready to veto such a move, insisting on an immediate tax hike on households earning at least $250,000.

Yet to understand why delaying the cliff may be the only way to avoid a New Year's confidence jolt, consider what the Bipartisan Policy Center thinks Congress and the White House should commit themselves to in 2013. It favors $4 trillion in 10-year deficit savings — half via tax reform and half from entitlements.

50-50 SplitIn the event the two parties could not agree by the end of 2013, it would automatically trigger for tax hikes and spending cuts, with half the savings from reducing tax breaks and half from entitlement programs excluding Social Security.

Minus savings from reduced interest on the debt, the deal would mean roughly $1.7 trillion each in tax hikes and spending cuts.

While this might push both sides to agree to a more desirable package, the lesson of 2011's deficit supercommittee failure to replace automatic spending cuts is that the default option, however despised, is likely to survive.

In reality, the White House has proposed about $600 billion in savings to mandatory programs. This includes $250 billion in Medicare savings, mostly lower provider payments on top of cuts built into ObamaCare. Another $70 billion would come from Medicaid and other health programs.

There are no easy answers as to how Democrats could substantially raise that $600 billion offer, particularly since Senate Majority Leader Harry Reid has ruled out including Social Security in fiscal cliff negotiations.

The Bipartisan Policy Center's approach is strikingly similar to Speaker John Boehner's number-free framework. He proposed at Friday's White House meeting that both sides agree on long-term revenue targets for tax reform and targets for entitlement savings.

"Once we settle on those targets, the Speaker proposed, we can create simple mechanisms, in statute, that would achieve those revenue and spending goals," Boehner's office explained. "They would be in place unless or until more thoughtful policies replace them.

While Republicans have signaled they'll cede ground on tax hikes — but not tax-rate hikes — there's no sign that they're willing to settle for a 50-50 split between tax hikes and spending cuts.

There's even less reason to think that the GOP will settle for less than a grand bargain. The idea has long been that in exchange for accepting more revenues, the GOP would gain the assurance that government reforms would preclude the need for a steady diet of tax hikes.

So while Democrats might, in theory, be willing to accept modest cuts in exchange for an end to the Bush top-earner tax hikes, that doesn't appear to have the makings of a bipartisan deal.

The liberal Center on Budget and Policy Priorities has said the right target is $2 trillion in deficit cuts, which would stabilize debt-to-GDP levels for a decade.

Yet deeper entitlement reforms would be needed to stabilize debt long-term. That's why what qualifies as the D.C. bipartisan consensus has a spending bar that Democrats are unable, or unwilling, to reach at present.

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