What to Watch in the Debt Negotiations

While we await the news from today’s debt ceiling negotiations between Republicans and Democratic leaders, news outlets are already leaking and reporting on the possible contours of a deal. But which reporting is actually likely to be part of a deal and how much is smoke and mirrors? What developments would be unexpected if they become part of a final deal?

1. Medicare and Social Security are on the table.

Plausibility: Plausible, but what about Medicaid cuts?

Senate Majority Whip Dick Durbin has given reporters a broad outline of a deal: $1 trillion in revenue raising by closing tax loopholes, with the Democrats conceding cuts to Social Security and Medicare. This deal certainly looks like it could be a “Grand Bargain”.

But curiously, Durbin did not mention cuts to Medicaid. Earlier reporting had suggested that Medicaid cuts were a large part of the negotiations. Medicaid was always the more vulnerable program because the constituency that depends on it (the poor) carries less clout then the constituency that depends on Medicare (the elderly).

If Medicare cuts, and not just Medicaid cuts, are on the table, then it would be politically courageous for politicians to support them.

2. Republicans will accept revenue increase without tax cuts to offset new revenue.

Plausibility: Needs to happen if Republicans are serious about a deal, unknown how serious they are about a deal.

Several news stories are hinting that Republicans are buckling from their previous opposition to revenue increases that are not offset with tax cuts. This has been a key problem with Grover Norquists anti-tax pledge that many Republicans are committed to: it is hard to reduce government deficits over the long term if every time revenue is raised by removing a subsidy (for example, ethanol subsidies) that the revenue raised is off-set by a new tax cut.

Eric Cantor reportedly wants to “talk” about closing some of these tax loopholes which could increase revenue, but he still claims to want tax cuts to off-set them. Senator Kyl has also made comments about increasing “revenue” but its unclear from where the revenue would come.

Ultimately, if Republicans are serious, some sort of significant revenue increase that is not off-set by tax cuts will need to be part of final deal, both to get Democratic votes and to actually reduce the deficit within a reasonable time frame.

It might be that Republicans have no intention of supporting any sort of revenue increase which is what lead to David Brooks column from this week warning that the Republicans “may no longer be a normal party”.

3. Jim DeMint and Olympia Snowe will get a Balanced Budget Amendment as part of the deal.

Plausibility: No. Snowe is positioning to win reelection.

So far, the most out-of-left-field position is an op-ed by Senators Olympia Snowe and Jim DeMint arguing that any solution to the debt crisis must involve a balanced budget amendment being added to the Constitution.

You may recall that Bruce Bartlett referred to the balanced budget amendment as “quite possibly the stupidest constitutional amendment I think I have ever seen. It looks like it was drafted by a couple of interns on the back of a napkin.”

So is this meant to be a serious part of a debt deal? Probably not. What’s more plausible is that Snowe faces reelection next year and her support for the amendment coupled with an op-ed co-authored with DeMint seems designed to try and get her to run to the right of any potential primary challengers.