The President Says The Grand Bargain Negotiations "Won't Be Pleasant"

So, the president gave an off the record interview to the Des Moines Register in which he discussed the Grand Bargain [1]. (The paper apparently pitched a fit after the fact and the campaign agreed to allow it to be published.)

Q: Mr. President, we know that John Boehner and the House Republicans have not been easy to work with, and certainly you’ve had some obstacles in the Senate, even though it’s been controlled by the Democrats. At the time, whenever -- we talked a lot about, in 2008, hope and change. I’m curious about what you see your role is in terms of changing the tone and the perception that Washington is broken. But particularly, sir, if you were granted a second term, how do you implode this partisan gridlock that has gripped Washington and Congress and basically our entire political structure right now?

THE PRESIDENT: Well, Rick, let me answer you short term and long term. In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won’t be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs.

And we can easily meet -- “easily” is the wrong word -- we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table.

He then says that once he gets that done along with immigration reform, they can tackle the "non-ideological" agenda:

Now we're in a position where we can start on some things that really historically have not been ideological. We can start looking at a serious corporate tax reform agenda that's revenue-neutral but lowers rates and broadens the base -- something that both Republicans and Democrats have expressed an interest in.

I wrote yesterday about Shumer's recent speech in which he said that we shouldn't lower tax rates to lower to the deficit. And I mused that he might be doing it in order to decouple the issue from the Grand Bargain and do it separately down the road. The president's interview says to me as if that's exactly what's happening. You see, the president sees this "tax reform" as "non-ideological." If they can tackle the deficit first with "$2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs" they can feel free to come back and lower the rates after the fact.

The question, of course, is still what Obama's Grand Bargain of "$2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs" looks like in detail if you leave "tax reform" out of it.

Here's [2] the Grand Bargain Obama offered in the debt ceiling negotiations, which had the same four trillion dollar target:

[T]he major elements of a bargain seemed to be falling into place: $1.2 trillion in agency cuts, smaller cost-of-living increases for Social Security recipients, nearly $250 billion in Medicare savings achieved in part by raising the eligibility age. And $800 billion in new taxes.

Now the Republicans were worried about that 800 billion and they counter-offered:

In Boehner’s offer Friday night, the taxes came with strings attached. The Republicans wanted Obama to give up plans to raise the tax rate paid by the wealthiest Americans, now set at 35 percent. Instead, they wanted that rate to go down. They also wanted to preserve low rates for investment income — one of the biggest perks for the wealthy in the tax code — and establish a blanket exemption from U.S. taxes for corporate profits earned overseas.

Another key caveat: Much of the $800 billion would have to come from overhauling the tax code — not from higher tax rates. The Republicans believed lower rates and a simpler code would generate new revenue by discouraging cheating and spurring economic growth. If the White House would agree to count that money, the Republican leaders said, then they might have a deal...

So there were issues to work out that Sunday but also reason for optimism. In its counterproposal, the White House appeared to accept the $800 billion tax offer and a lower top rate. The administration rejected the exemption for overseas profits, but Geithner told the Republicans, they said, that he could get most of the way there.

And when Boehner brought up economic growth, arguing that his caucus would not accept tax increases under any other terms, the Republicans saw Geithner as receptive, Jackson said. “It was literally one of the last things discussed when they came in on that Sunday. And Geithner said, ‘Yes, we accept that,’ ” Jackson recalled. “We viewed it as a breakthrough.”

The story is that the deal fell through when Obama came back and asked for another 400 billion in tax hikes and the tea party shut down the whole thing because they didn't want any tax hikes in the first place.

But let's assume that Shumer gets tax reform off the table as part of the Grand Bargain which we now know the president says he wants as well. Can the president make his deal without it? I don't know. But he offered a deal without it during the last Grand Bargain negotiations. And he now says he's confident that he has the leverage to get them to accept that deal.

And that deal is this:

1.2 trillion in agency cuts, smaller cost-of-living increases for Social Security recipients, nearly $250 billion in Medicare savings achieved in part by raising the eligibility age. And $800 billion in new taxes.

I agree that that "won't be pleasant."