New Hope for a Grand Bargain

Washington was abuzz this week about the possibility of a grand bargain, and although most people, not just cynics, will dismiss all this as posturing, there really is some basis for optimism this time.

Senate Democrats released their first budget since 2009, even if it was more than a little vague. The chairman of the House Budget Committee, Paul Ryan, revived his ideas for shrinking the size of government, while leaving open a tiny space for compromise; as he told Fox News Sunday, cuts to entitlement programs, short of his own radical ideas, would be acceptable in the interim because they would move the country closer to “balancing the budget.”

President Obama also made some gestures. He invited 12 Republicans to dinner at the swanky Jefferson Hotel. And he left the White House bubble for Capitol Hill, where he attended four separate meetings with Democrats and Republicans on their own turf. Members say the president listened to their concerns in those sessions, and for Republicans, he outlined the Medicare and entitlements cuts he would accept even if they caused heartburn among liberal members of his party.

“I think the fact that he has kept his offer to [Speaker John] Boehner on the table makes clear that he is willing to stand by very difficult long-term entitlement savings,” says Gene Sperling, one of the president’s top economic advisers. “This can give more confidence to people on both sides that he will be there completely with them, if Democrats and Republicans are willing to find a reasonable compromise.”

It’s too soon to tell if budget resolutions and schmoozing can lead to breakthroughs on health care spending or taxes, the main ingredients for a grand deal. But, if nothing else, the past week eased tensions and showed that the government was functioning in a way it hasn’t in several months, from attempting to avoid a federal shutdown to preemptively looking ahead for a deal that coincides with the need to raise the debt ceiling this summer.

The week also left the impression of a mood much improved since the fiscal-cliff deal. In the days following that last-minute compromise, Republicans sulked over the ideological beating they took from raising taxes, and Democrats privately wondered if extending the majority of the 2001 and 2003 tax cuts was actually a victory.

“This is the first step that the president has made to really reach out and do like other presidents in the past—develop relationships and build confidence and build trust,” Sen. Tom Coburn, R-Okla., said after the dinner with Obama. “If they continue to do that, that’s how you set up to get something done.”

The path to a grand bargain now seems to lie either through the regular congressional budget process or through the president’s private talks with Republican senators.

On the first path, the budget can function as the architecture of a deal, said one Senate Democratic aide involved in budget issues. House Republicans and Senate Democrats both produced their budget this week. Now the two sides need to pass budget resolutions in their respective chambers. Then they can see about reaching a compromise during conference. Agreement seems unlikely, given the different worldviews they’ve outlined, but at least the blueprints lay down parameters.

While the budget committees’ put down those markers, the president is pursuing a second path with Republicans. “I’m not one who thinks this is all optics,” says Robert Greenstein, executive director of the liberal-leaning Center on Budget and Policy Priorities. “I think we will look back four or five months from now and think, ‘This was the main act.’ ”

The administration’s goal in following this route is to woo enough Senate Republicans so the White House and Senate can cut a bipartisan fiscal deal that’s more centrist than the Senate Democrats’ budget and contains deeper entitlement cuts. Then the hope would be that Obama’s deal with the Senate would be enough to pressure House Republicans to come around. That path also avoids the strained relationship between the administration and Boehner’s office.

Both sides have political incentives to act. The White House is unlikely to make the headway it wants with other major initiatives such as gun control and immigration reform if the fiscal impasses keep tripping everybody up. The president’s approval rating has slipped since late December, according to a handful of recent polls, and Republicans cannot convince voters they are concerned about economic and pocketbook issues such as job creation if they keep harping on austerity, taxes, and balancing the budget.

The major impediments to a deal remain taxes and health care cuts. On taxes, Republicans believe they resolved the revenue side of the equation when they agreed to raise rates on high-income households and earners at the end of 2012. Democrats, meanwhile, want more revenue for deficit reduction and stimulus-like programs. Those points are driven home in the latest budget proposals in which Senate Democrats call for $975 billion in new revenue and House Republicans seek to reduce tax rates to just two brackets: 10 percent and 25 percent.

The House Democratic Caucus remains split over the need for entitlement cuts, but Minority Leader Nancy Pelosi hinted at a willingness to compromise Thursday, when she said she would be open to changing the cost-of-living calculations for federal benefits, including Social Security, as part of a deal.

Still, if there’s a compromise to be had, this spring seems like the “last best option,” as GOP Sen. Rob Portman of Ohio has called it—the final act in a series of mini-cliffs. Or at least the final act until Congress and the White House manufacture another deadline for yet another fiscal battle. There’s no faster way to slam the window on a possible deal.

This article appeared in the Saturday, March 16, 2013 edition of National Journal.