Boehner Walks Towards Bowles

Via ZeroHedge, a letter sent to the White House from the Speaker and House leadership calls for use of the Bowles framework along with the House-passed budget: 

on November 1 of last year, Erskine Bowles, the co-chair of your debt commission, presented the Joint Select Committee with a middle ground approach that garnered praise from many fiscal watchdogs and nonpartisan experts.  He recommended that both parties agree to a balanced package that includes significant spending cuts as well as $800 billion in new revenue.

Notably, the new revenue in the Bowles plan would not be achieved through higher tax rates, which we continue to oppose and will not agree to in order to protect small businesses and our economy.  Instead, new revenue would be generated through pro-growth tax reform that closes special-interest loopholes and deductions while lowering rates.  On the spending side, the Bowles recommendation would cut more than $900 billion in mandatory spending and another $300 billion in discretionary spending.  These cuts would be over and above the spending reductions enacted in the Budget Control Act.

This is by no means an adequate long-term solution, as resolving our long-term fiscal crisis will require fundamental entitlement reform.  Indeed, the Bowles plan is exactly the kind of imperfect, but fair middle ground that allows us to avert the fiscal cliff without hurting our economy and destroying jobs.  We believe it warrants immediate consideration.

If you are agreeable to this framework, we are ready and eager to begin discussions about how to structure these reforms so that the American people can be confident that these targets will be reached.

I’m working fast here, but where it says “House-passed budget” (elsewhere in the letter) I take it they mean the Ryan budget passed in late March. Feel free to correct this if you know of a later budget. It preserves the line in the sand on tax rates while apparently upping the ante on what will be in the budget reductions, relying on Simpson Bowles (so the conservative blogosphere’s campaign for accepting SB got through).  The Bowles testimony was reported by USA Today and the prepared remarks are here.

Note that the proposal is a two-step, so that this is simply a downpayment on further reforms.  The Bowles recommendations are simply discretionary spending reductions in growth rates to 1/2 of inflation plus some health care cost fixes. I believe it also gives credit for cost savings from war (which are bogus, but both sides have incentives to take those off the table.) 

What it means is that the Speaker is still in the mood to bargain, and wants one pretty badly, but is willing to put some ideas to paper and commit to $800 billion in tax increases on paper.  It’s a small step, and my guess is that it won’t be Boehner’s last. 

P.S.  Keith Hennessey has posted a second piece on the President’s offer, following up on his Wall Street Journal editorial this morning. Both are worth your time. I don’t think this counter is calling the President’s bluff.

  1. La Dernière Lettre

    I want them to make some sort of a deal.  Boehner has to give a little.  Obama has to give a little, and Reid just needs to pass it.

  2. Walrus

    Hey King, welcome back to life as a private citizen. Your loss and the voter ID amendment really shook my faith in MN politics. To be fair my esteem for MN politics has been very low for a very long time (Senator/Governor Dayton, Governor Ventura, Senator Franken, Representative Ellison.) But it is too bad that the MN legislature won’t have your expertise.

    I’ve been meaning to ask an economist like yourself about the “fiscal cliff.” I have no evidence but I get the feeling we have already gone over a fiscal cliff. The current negotiations remind me of an argument about which maxed out credit card should be used to pay this month’s balance. So does avoiding the current fiscal cliff really accomplish anything or does it just signal markets that we are serious about fixing our real budget problems sometime in the future?

  3. Guruforhire

    I dont know if this is wise.  We can’t pick which democrat we argue with.

  4. BrentB67

    It is a step in the right direction. Not a step far enough, but it is a step.

    The issue isn’t the argument Boehner makes it is what is he willing to endure to stand up for that argument.

    Obama rolled Boehner like a rented bowling ball in August 2011 and knocked over a house full of bowling pins. I don’t think it gets much worse for republicans. They need to make stand. Nothing they say or do is going to be popular, but standing their ground may earn them some respect.

  5. Scott R

    Framing our tax proposal as essentially the recommended policy of Obama’s very own bipartisan commission is smart politics, bordering on brilliant politics. (see the comments of some of us in George’s thread “Jump“)

    Boehner and every last Republican should include the  phrase ”Simpson/Bowles”, or simply “Bowles”, in every single public utterance during this fight. 

    It’s a winning strategy, but only if they’re relentless with the messaging.

  6. King Banaian
    C

    @walrus thanks for the kind words.  I had won by very little in a wave election year, so we always knew re-election was an iffy proposition…

    The size of the Boehner offer is, I think, enough to induce markets to reassess the likelihood that we can control the growth of debt to a level sustainable by GDP growth.  It’s better than the cliff.  The cliff is in itself not enough to force the reassessment; neither is the Obama/Geithner offer.  It shows no willingness to work together. If you get to the point where the primary budget is balanced (total deficit < interest payments on debt, last year $396B, $454B in FY2011), markets can see future debt/GDP ratio will fall.  Today’s offer is closer to that level and, if they indicate there’s more to come in a two-step approach, you have as well a path to a return to your AAA rating.