Democrats and Republicans Making Efforts Toward a Deal

Nov 10, 2011

This week has seen the emergence of another set of broad outlines from the Democrats and Republicans on the Super Committee, in a process that is somewhat reminiscent of the Boehner-Reid back-and-forth during the debt ceiling debate. After each group made offers two weeks ago, they have come back with new plans that are a little closer to the other side's liking -- but only a little. With time running out, news that the two sides are negotiating leads us to hope for a deal, and hopefully a Big deal.

Earlier this week, Republicans showed a willingness to discuss new revenues, allowing for a $300 billion increase from tax-cut-extended levels through comprehensive tax reform in their new proposal. As CRFB President Maya MacGuineas stated in a press release today,

"Democrats deserve a lot credit for proposing significant savings in health care entitlements, and Republicans deserve real credit for suggesting new revenues. The willingness of both sides to put on the table policies that ideally they might prefer to avoid shows a serious desire to compromise and bodes well for the Super Committee ultimately coming to a deal."

There are currently no details on the Republican tax reform plan, other than it calls for a top rate of 28 percent. Overall, their new proposal would save about $1.5 trillion in spending cuts and revenues (including macro dynamic effects) combined. Republicans originally offered a plan that was about $2.2 trillion in new savings and relied largely on spending cuts.

Super Committee Democrats have also offered a revised proposal. The most recent proposal keeps the 1:1 spending cut to tax increase ratio but scales back the savings from each side of the ledger to $1 trillion each. Accounting for lower interest savings leaves a total of about $2.3 trillion in the new offer. The original Democratic offer included about $3 trillion in new savings (excluding job creation proposals).

While it is very encouraging that both sides have begun taking on their sacred cows -- notably, revenues for Republicans and entitlement reforms for Democrats -- both sides need to continue to pursue a big package of savings well over the minimum $1.2 trillion required. As we've argued before, that is what we need to put debt on a downward path and it can actually improve the chances of bipartisan agreement.

Budget AreaDemocratsRepublicans
Discretionary$400 billion $190 billion
Health Care$400 billion$275 billion
Other Mandatory$200 billion$200 billion
Tax Reform$1,000 billion$250 billion^
Chained CPIN/A$225 billion
Interest$300 billion$200 billion
Total New Savings
$2,300 billion$1,350 billion

Note: Numbers may not add due to rounding.
^Excludes about $110 billion from macro dynamic effects of tax reform.

There are clearly still gaps remaining between the two sides on both revenues and entitlement reforms. In order to get our debt on a sustainable path, we need the negotiating to continue seeking compromise but also to increase the total savings in the package. However, there do seem to be notable efforts on each side to try to reach an agreement, and we hope they succeed. As CRFB president Maya MacGuineas said today:

"Given the ramifications of failure with businesses, investors, and credit markets watching these negotiations closely, it is critically important that they come to a deal. It is heartening to watch how hard members of the Super Committee are working to succeed, and let’s hope that their stepping out of their comfort zone builds the environment where a deal can be reached."

Note: Estimates in table updated slightly from original posting based on mroe recent information.