In Search of Debt Deal, Obama Walks a Narrow Path

From The New York Times:

President Obama will go to Capitol Hill this week to try to salvage a big deficit-reduction deal, battling not only Republican resistance but also complaints from Democrats that he mishandled his last attempt.

 

The president’s outreach to rank-and-file lawmakers, like the discontent of liberal Democrats, is the result of Republicans’ refusal to accept any additional tax increases to avert the automatic spending cuts that are beginning to affect the government and the economy. It could meet the same failure as Mr. Obama’s earlier bids to work privately through Congressional leaders and then to apply public pressure.

Hopes now rest on finding a narrow path through the ideological and political imperatives of both parties. White House aides have not ruled out some money-saving structural reforms to Medicare that Republicans favor, notably an idea promoted by the House majority leader, Eric Cantor, to combine the program’s doctor and hospital components with a single deductible for beneficiaries. Using savings from entitlement shifts like that to replace sequestration, as the automatic cuts are called, would meet Republicans’ demands not to use tax increases for that purpose.

At the same time, some Republican senators and aides, publicly and privately, have expressed an openness to accepting revenue increases as part of a loophole-closing overhaul of the tax code. Rolling together budget and tax agreements along those lines would allow Mr. Obama to complete the “grand bargain” that he has sought to tackle the nation’s long-term budget imbalances as the baby boom generation retires.

 

Mr. Obama has signaled a willingness to reduce cost-of-living increases for Social Security by using a less-generous measure of inflation. He has indicated openness to imposing means-testing on Medicare beneficiaries so that high-income retirees would pay more for their medical care, and he has put on the table $400 billion of cuts in Medicare over the next decade.

 

But Mr. Cantor raised an idea last month that had been endorsed by the Bowles-Simpson deficit-reduction commission: merging Medicare’s hospital and doctor coverage into one program in a way that could generate savings. Some Democrats also see that kind of proposal — in which Medicare is left fundamentally intact but is overhauled to become more efficient and which could potentially charge the affluent elderly more — as the basis for negotiation.

With all the familiar obstacles looming, however, Democrats are increasingly looking at the previous round of negotiations — at the end of 2012, as the Bush-era tax cuts were scheduled to expire — and concluding that Mr. Obama flinched, leaving tax revenue on the table that would have ended the budget standoff on more favorable terms to Democrats.

 

But Mr. Cantor raised an idea last month that had been endorsed by the Bowles-Simpson deficit-reduction commission: merging Medicare’s hospital and doctor coverage into one program in a way that could generate savings. Some Democrats also see that kind of proposal — in which Medicare is left fundamentally intact but is overhauled to become more efficient and which could potentially charge the affluent elderly more — as the basis for negotiation.

With all the familiar obstacles looming, however, Democrats are increasingly looking at the previous round of negotiations — at the end of 2012, as the Bush-era tax cuts were scheduled to expire — and concluding that Mr. Obama flinched, leaving tax revenue on the table that would have ended the budget standoff on more favorable terms to Democrats.

 

Moreover, White House officials said their negotiating position had been undercut by calls at earlier points from prominent Democrats like Representative Nancy Pelosi, the House minority leader, and Senator Charles E. Schumer, the No. 3 Democrat in the Senate, for tax increases that would affect only families with incomes of at least $500,000, rather than Mr. Obama’s preferred $250,000 threshold. (The deal raised the top rate on income over $450,000 for couples and $400,000 for single people). And had they failed to reach a quick deal, White House officials said, they could have lost the opportunity for progress on the rest of the president’s second-term agenda.

Some former members of Mr. Obama’s economic team said the White House could have gotten more. Jared Bernstein, a former adviser to Vice President Joseph R. Biden Jr., faulted the administration for agreeing to extend the bulk of the Bush-era tax cuts rather than raising more tax revenue that could be used to pay for other priorities.

Peter R. Orszag, who was Mr. Obama’s first budget director, said, “By making the middle-class tax cuts permanent, we’ve unfortunately locked into a revenue base that is inadequate.”