Friday, July 22, 2011

The two most imporant things

The President delivered a press conference full of sound and fury today.  Rather than have a long debate about all he said, I want to focus on only two things.  I'm drawing from the WSJ transcript which accords with my memory of having heard it live.

Very early on, the President said

Essentially what we had offered Speaker Boehner was over a trillion dollars in cuts to discretionary spending, both domestic and defense.  We then offered an additional $650 billion in cuts to entitlement programs — Medicare, Medicaid, Social Security.  We believed that it was possible to shape those in a way that preserved the integrity of the system, made them available for the next generation, and did not affect current beneficiaries in an adverse way.
In addition, what we sought was revenues that were actually less than what the Gang of Six signed off on.  So you had a bipartisan group of senators, including Republicans who are in leadership in the Senate, calling for what effectively was about $2 trillion above the Republican baseline that they’ve been working off of.  What we said was give us $1.2 trillion in additional revenues, which could be accomplished without hiking taxes — tax rates, but could simply be accomplished by eliminating loopholes, eliminating some deductions and engaging in a tax reform process that could have lowered rates generally while broadening the base.

Then, in response to a question, the President continued

Absolutely.  But what you saw — and, again, you’ll see this from the description of the deal — essentially what they had agreed to give on is to get back to a baseline — this starts getting technical, but there were about $800 billion in revenue that were going to be available.  And what we said was when you’ve got a ratio of $4 in cuts for every $1 of revenue, that’s pretty hard to stomach.  And we think it’s important to make sure that whatever additional revenue is in there covers the amount of money that’s being taken out of entitlement programs.  That’s only fair.

Before getting into this, I want to note that the White House tends to count interest savings as "spending cuts" even if their cause was increased revenues.  As a result spending cuts are going to always be overstated in White House numbers.  It would be better in all of these discussions if we counted interest separate from cuts and revenues but we'll ignore that from here on out.

I want to, as I often do, focus on the facts and figures.  From the first quote, we can conclude that the President offered, in some form or fashion, $1.65 trillion in cuts over the next 10 years.  Now it would be helpful to understand the baseline from which those cuts are taken and when they hit, but let's ignore that for the moment.  Let's assume those cuts are real and from a legitimate baseline and roughly contemporaneous with the revenue increases.  As the same time, from the second quote, we can infer that the President and the speaker were aligned on $800 billion of revenue increases.  In total therefore, there appeared to be a $2.45 trillion package that both men were agreed on.

But then we come to the request to "give us $1.2 trillion in revenues" or "to make sure that whatever additional revenue is in there covers the amount of money that’s being taken out of entitlement programs" (again the baseline matters but we'll ignore it).  Let's assume for the moment that those extra $400 billion in revenues came with an extra trillion or so in cuts bringing the total to close to $4 trillion.  So Boehner said no to the new $4 trillion deal but what about the $2.45 trillion deal that it sounds like both sides agreed to?  What happened to that deal?

Of course, we'll never know because this is all going on behind closed doors but it sure seems like there was a deal that could have been done that was big enough to solve the problem but, when the President asked for more revenues, Boehner walked.  That's taking the President's account, not Boehner's.  Funny, that's not how he positioned it.

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