Obama Breaks 3:1 Cuts-to-Taxes Promise

Can the President possibly believe that the Grand Bargain he proposed less than two years ago is somehow a raw deal? He is acting as if that’s the case.

Progressives are once again claiming the problem in deficit negotiations is intransigent Republicans. But looking back at the outlines of the deal the President himself proposed, it’s Democrats who are not negotiating in good faith. This is true in at least two important ways.

First, the President is not abiding by the balanced approach of spending cuts to taxes he identified. In April 2011 the President published his Framework for Shared Prosperity and Shared Fiscal Responsibility, also known as the April Framework. The document defines what the President meant by a balanced approach as follows:

Balance Between Spending Cuts and Tax Reform: The President’s framework would seek a balanced approach to bringing down our deficit, with three dollars of spending cuts and interest savings for every one dollar from tax reform that contributes to deficit reduction. This is consistent with the bipartisan Fiscal Commission’s approach. [Emphasis in original]

So the goal was 3:1 cuts to new revenue. But that’s not where we are now. In July 2011 the President and the GOP agreed on the so-called debt limit deal which put in place $917 billion in cuts (and interest savings). And last December the parties once again agreed on a deal to raise taxes on top earners. The so-called fiscal cliff deal is expected to raise $617 billion, $917B in cuts and $617B in new taxes. That’s 1.5:1 or exactly half the ratio Obama proposed in his April Framework.

The parties are now negotiating a replacement for the $1.2 billion automatic sequester cuts. If he still wants balance, the President should offer $1.125 trillion in cuts in exchange for $75 billion in new revenue. That would bring the total deal–all of it since 2011–to a 3:1 ratio of cuts to revenues, exactly as he proposed.

Second, the President hasn’t kept his part of the bargain with regard to entitlements. When the White House announced the debt ceiling deal in July 2011, it made clear that an important feature was “a bipartisan process to seek a balanced approach to larger deficit reduction through entitlement and tax reform.” A bit further on the announcement gets even more specific:

To Meet This Target, the Committee Will Consider Responsible Entitlementand Tax Reform. This means putting all the priorities of both partieson the table – including both entitlement reform and revenue-raising taxreform. [Emphasis added]

Republicans accepted $617 billion in new revenue just a few weeks ago, but the President has not offered a dime of entitlement reform in nearly two years. Actually, he has reportedly talked about entitlement cuts behind closed doors, but those offers are always withdrawn. When it comes to the really tough parts of the deal, Republicans have already compromised. The President has not.

To sum up, the President isn’t keeping his end of the Grand Bargain, not when it comes to a balanced approach and not when it comes to entitlements. To rectify this, he should immediately propose $1.125 trillion in cuts including reductions to Social Security and/or Medicare. In return, Republicans should agree to tax reform that would generate an additional $75 billion. This is the deal the President wanted. He can’t claim his own proposal is unfair to him.