How Republicans Can Win The Debt Fight

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The deadlines for Congress to avert a government shutdown and a default on the U.S.’s debt obligations are fast approaching, and compromise once again seems impossible. President Barack Obama is adhering to his no-negotiation position, saying Congress must raise the debt limit without any strings attached. House Republicans, meanwhile, continue to attempt to link the continuing resolution and the debt ceiling to defunding or delaying the Affordable Care Act, the president’s signature legislative achievement.

Fortunately for Republicans, there is a way out that would give them the upper hand in future debates, too. And it has nothing to do with Obamacare.

As the former deputy chief of staff for Senate Minority Leader Mitch McConnell, I spent many nights and weekends in the Capitol helping broker the last three fiscal agreements between Congress and the Obama administration: the 2010 extension of the George W. Bush tax cuts, the 2011 debt limit increase and the 2013 fiscal cliff deal. These talks have a rhythm, and what we’re seeing now is a predictable pre-negotiation alignment by the two sides.

Obama’s refusal to negotiate is pure posturing, an opening bid. The president seems to hope congressional Republicans will move from their preferred starting position — repealing Obamacare and securing budget savings equal to the amount of the debt-limit increase — to a middle ground that will “force” him to come to the table. Republicans could seek a delay of the individual and employer insurance mandate, the approval of the Keystone XL pipeline, or both, instead of a full repeal of the health-care law. The more reasonable the Republicans’ request is, the harder it will be for the president to refuse to engage them.

Unsustainable Stance

The problem for Obama is that his position is unsustainable and easy to lampoon. As House Speaker John Boehner has pointed out, you can’t agree to negotiate with Vladimir Putin and simultaneously refuse to negotiate with Congress — no matter the topic. Eventually the administration will have to come off the sidelines.

For the president, the ideal result would be something like a debt-limit increase paired with a repeal of the 2011 Budget Control Act, which put the sequestration cuts into effect. Assuming a full repeal of Obamacare is off the table, Republicans would like to secure spending reductions equal to the increase in the debt limit, along with some additional amount of savings applied to reducing, if not eliminating, sequestration.

There is obviously middle ground. Both sides could be satisfied with a debt ceiling increase of about $1 trillion — an amount sufficient to get past the 2014 elections —accompanied by an agreement to enact revenue-neutral tax reforms that broaden the base and lower rates. These steps could provide a significant boost to the economy.

This solution would appeal to House and Senate Democrats because it spares cuts to the entitlement programs they desperately want to protect and fear the president might agree to cut as part of a more comprehensive deal. Obama and Boehner had entitlement cuts on the table during their 2011 deal that fell through. Faced with a decision between raising taxes and protecting entitlement spending, Democrats have historically chosen the latter.

Agreeing to this middle-ground solution should also appeal to the president. The agreement I described would raise the debt limit without requiring any concessions on spending. Although it would be a long way from the Republican capitulation he now seeks, it’s a far better result for the president and his party than the 2011 deal.

Convincing Republicans

To reach an agreement, Republicans would have to give up using this debt-limit increase as an avenue for fanciful attempts to repeal or defund Obamacare. It would also require giving up the debt limit as leverage to tackle entitlement spending. These arenmuch in the way of concessions. The attempt to defund Obamacare as part of the continuing resolution debate might be about fundraising, list building or the 2016 primaries. Whatever some Republicans may have in mind by taking this position, however, it isn’t part of even a halfway thought-out effort to legislate.

Those advocating far-reaching budget changes are moved by a genuine desire to fix our nation’s balance sheet, but even casual observers realize there’s no chance the president will agree to meaningful entitlement savings without demanding crippling tax increases in return. So while it may seem like a concession to leave entitlements off the table, it isn’t; it’s merely giving up something Republicans obtain in this
round of negotiations anyway.

As someone who has dedicated his life to advancing Republican economic philosophy, it would be a once-in-a-generation accomplishment to secure an agreement to fundamentally change the tax code in a revenue-neutral way. If done correctly, changing the tax code could raise the standard of living, reduce dependence on government programs and shrink the size of the debt; it could convert the recipients of transfer payments into taxpayers.

A tax code stripped of its exotic sounding and demagogic provisions would also render subsequent tax increases more difficult to achieve, disarming Democrats in future negotiations. Those seeking to raise revenue would have to advocate for either new taxes or rate increases.

This agreement wouldn’t require Republicans to abandon their efforts to rein in entitlements. There will be ample opportunities to re-engage on that issue in future debt-limit debates. A $1-trillion increase would guarantee at least one more visit to the debt-limit circus before the end of Obama’s second term. And time will only make Medicare and Social Security insolvency more imminent, dramatic and urgent.

Having that debate against the backdrop of a new tax code would help the proponents of entitlement reform. If Republicans play the long game on the debt ceiling, they can achieve something of significance and put the Republican in charge of negotiating the next fiscal agreement in the strongest possible position.