How to forge a no-drama budget deal in Washington

The conventional wisdom is that next January, Congress and President Obama will be in exactly the same place they’ve been for most of the past three weeks—deep in government shutdown mode. The argument: The recent fiscal battles that ended with Wednesday night’s short-term deal to reopen the government and reauthorize Treasury borrowing buys time but does nothing to change Washington’s toxic culture.

It is hard to disagree, but there is another possible outcome. No, it isn’t the grand bargain. That’s off the table at least until 2015 and perhaps longer. But Congress and Obama could reach a mini-bargain that would at least take the edge off the current ugliness.

It would be simple and the first steps could be taken in a week or two (although they won’t be).  The deal would look come in three parts.

To start, remember that yesterday’s agreement called for House and Senate negotiators to sit down and finish the 2014 budget process that came to a grinding halt last March. So lawmakers have a ready-made venue for a deal. But what could a realistic agreement look like?  Here is one possibility: 

First, Congress would agree to retain the 2013 sequester spending level of $986 billion for 2014 discretionary programs. This is about $20 billion more than the scheduled $967 billion sequester level for 2014.

Second, budget negotiators would allocate this funding level to the appropriations committees. The committees would then write 2014 spending bills that fit within those levels, work out differences between the House and Senate versions, and pass a real budget.  No more mindless across-the-board spending cuts.

Third, Congress would make up the $20 billion of extra agency spending with cuts in mandatory programs such as Medicare and farm subsidies. Of course, lawmakers could always cut a bit more from discretionary or a bit less from mandatory. The numbers are not as important as the process.

A deal such as this would not require deep cuts in any single program. As it happens, Congress is in the midst of rewriting the farm law so it has an easy vehicle to chip away at those programs.  Congressional Republicans and the president have proposed similar Medicare changes such as increases in premiums for high-income retirees and for some Medicare Supplement insurance.

These changes in entitlement spending could all be made without touching the toxic issue of how to adjust Social Security benefits for inflation (aka chained CPI). And there would be no need to battle over the equally toxic issues of revenues.

The framework for this idea is hardly original. It is, in effect, the budget process that’s been in place in one form or another for four decades. And it could be easily completed by mid-January.

Congress abandoned that process in 2010, however. Since then, without any mechanism to settle differences, lawmakers ended up playing a nasty, ad hoc game of threats-and-deadlines that culminated in the madness of the past several weeks.

My proposal is exceedingly modest. It won’t do very much to address the long-term deficit, although well-designed entitlement reductions would build over time. But there is nothing wrong with small confidence-building steps, especially after what Congress and Obama have just gone through.

Given the fiscal chasm between the House and Senate budgets, a big deal in three months is far beyond reach.  The House would cut spending by $5 trillion over 10 years, the Senate by $1 trillion. The Senate would raise taxes by $1 trillion, the House not at all.

Closing those gaps in today’s environment is impossible. But policymakers might actually get to yes on a mini-deal.  They should at least try.