http://online.wsj.com/article/SB10001424052702304176904579111373960504830.html?mod=WSJ_Opinion_LEADTopThe Budget Reform Pivot
An honorable shutdown exit for the GOP and President Obama.
October 4, 2013
Both parties are digging in deeper over the budget impasse, and the likelihood now is that the partial government shutdown elides into the debt-limit deadline later this month. Neither side may be listening at the moment, but there is a political exit from this mess that has the added advantage of helping the country.
The exit ramp is for both sides to pivot from the ObamaCare stalemate to negotiations over tax and entitlement reform. The Ted Cruz Republicans would have to give up their mission to defund the Affordable Care Act with only one house of Congress. President Obama would have to show he's willing to negotiate with Republicans over the debt limit. Both sides would step back from the brink and give themselves a chance for some long-term political gains.
The advantages for the Republicans are obvious. The Cruz faction has paraded the GOP into a shutdown without a strategy for getting out, as even some of them are figuring out. Their strategy of "keep it shut" is a dead end. The political impasse is doing no good for the Republican image, and the longer it continues the more it is putting at risk in 2014 the swing seats that provide its House majority.
Mr. Obama is simply not going to delay or defund his signature legislation. And the political irony is that instead of learning about the glitches and problems of the health law's rollout this week, the public is hearing only about the GOP willingness to punish other Americans to get rid of ObamaCare. The Cruz Republicans have helped Mr. Obama change the subject from his faulty program to their political tactics.
By turning to a reform negotiation, Republicans would have the chance to achieve at least some of their policy goals. Those include a down payment on entitlement reform, including significant changes in Medicare. Republicans won't get Paul Ryan's superior 2011 reform, but they might get increases in the retirement age, the end of first-dollar Medigap coverage, and other changes that over time add up to real fiscal savings. They might even get the Keystone XL pipeline or repeal of the medical-devices tax in the bargain.
Such a negotiation is also the GOP's best chance for tax reform before 2017. The obstacles will be high—and insuperable if Mr. Obama insists on $1 trillion in additional revenue on a static basis. But Mr. Obama is on record as favoring a cut in the corporate tax rate, and Finance Chairman Max Baucus also wants to leave the Senate with a reform legacy.
Progress on either front would show swing voters that Republicans are able to govern without maximalist demands. They could point to progress on reducing debt, and above all they would help the economy and thus show that their policies raise middle-class incomes. Regarding ObamaCare, they could rightly say they fought as hard as they could to delay it, but that to replace it they will need more Republicans in Congress. This could be a major campaign theme in 2014.
As for Mr. Obama, he'd benefit immediately by stopping any damage from the shutdown and the threat of a debt default. He might think Republicans will blink on the debt limit, but that's what he thought about a shutdown. He also might think he can blame Republicans if the worst happens, but any economic harm will mar his final term.
Mr. Obama's left wing won't like entitlement reforms, but it will like easing the sequester spending caps on education, welfare and public works. If Democrats really believe that public spending is crucial to economic growth, they'll also get more spending immediately in return for long-term reforms. Without a larger budget deal, Democrats face three more years of ever-tightening discretionary budget caps.
The biggest upside would be the growth impact of tax reform. On the economy's present growth trajectory, Mr. Obama will finish his second term with lower real middle-class incomes than in 2009. He'll be the toast of the hedge-fund class but have increased income inequality. If he wants a second-term economy like Reagan's or Bill Clinton's, he needs bipartisan cooperation for pro-growth reform.
We realize this is all a political long shot. The Cruz faction is a rump caucus, but it will have more influence the more GOP leaders fail to deliver any reform. Mr. Obama can reduce its influence if he uses this moment as an opening for compromise rather than to humiliate House Speaker John Boehner into surrender or a debt-limit crack-up. On the other hand, Mr. Obama may welcome a default if his real political goal is to tar the GOP as irresponsible and take back the House in 2014.
There's also the question of whether Mr. Obama is even capable—temperamentally—of negotiating such a compromise. He is so sure of his own superior political virtue that he disdains meeting other politicians halfway (foreign dictators perhaps excepted). We'll find out soon enough, but he can't say he wasn't offered the opportunity.