Budget negotiators take heed: The art of the deal, according to Reagan and Tip O'Neill

Democrats and Republicans on Capitol Hill are running out of time to avert another government shutdown and possible credit crisis. While both sides have written off a "grand deal," they have committed themselves to a $100 billion cut in the current year deficit – enough to avoid the second stage of the painful "sequestration" set for January.

There are two prospects for reaching that fiscal goal: finding common ground where both sides agree or striking a compromise agreement involving mutual concessions that would be extremely unpopular if carried out by one party alone.

The least painful option is finding common ground, but it's also the most difficult to achieve. Senate Budget Committee chair Patty Murray (D) of Washington has made clear she wants half the $100 billion goal achieved through tax reforms; her house counterpart Rep. Paul Ryan (R) of Wisconsin has signaled he wants the debt reduction to come from domestic spending cuts that Democrats decry.

These starting positions almost guarantee that success in the budget talks will unlikely be the result of finding common ground. Rather, reaching the goal will have to come from difficult concessions made by both parties.

Those skeptical of such a deal should recall the 1983 agreement on the long-term financing of Social Security. President Ronald Reagan wanted the issue behind him for his upcoming reelection campaign. Speaker Tip O'Neill wanted the program strengthened as an economic safety net for the country's seniors.

Thanks to some intricate bargaining, both got their way. The Democrats gave up "saving Social Security" as a political battle cry but won what would be seen as a chiefly "Democratic" solution to the program's financing: Upper-income retirees would now have half their benefits included as taxable income.

Republicans would get the issue behind them and win the delay in the cost-of-living adjustment they had backed earlier.

What's instructive for today was not only the mutual concessions but the manner in which the deal was announced. Here's how carefully Reagan unveiled the agreement:

"Each of us recognizes that this is a compromise solution. As such, it includes elements which each of us could not support if they were not part of solving the Social Security problem. However, in the interest of solving the Social Security problem promptly, equitably, and on a bipartisan basis, we have agreed to support and work for this bipartisan solution."

Message to Ms. Murray and Mr. Ryan: The enduring beauty of a compromise is that its worst aspects can be blamed on the other party.

Three years later, Reagan and O'Neill achieved a similar compromise in the Tax Reform Act of 1986. Again, it required some hard give and take. Reagan won a cut in the top marginal tax rate to 28 percent. O'Neill's Democrats got an equalization in the taxes of earned income and capital gains. The person who worked 9 to 5 for his money would not have to pay a higher rate than the person who made his money from investments. All this was paid for by plugging tax loopholes, especially for the more well-off.

The compromise didn't come easily. After an initial failure because of an all-out Republican opposition, the Democratic speaker insisted that Reagan get a minimum of 50 commitments from his party for O'Neill to bring it back to the floor for a second try. The Reagan team came through. The tax reform bill came up for a vote and passed.

This Reagan-O'Neill history could not be more relevant today. The public discussion has centered on the need for Republican concessions on corporate tax loopholes and for Democrats to yield on safety net programs.

Adding to the pressure is the realization by both sides that failure to reach a compromise on debt reduction will mean a $100 billion cut in pro-growth spending for education and infrastructure – as well as further cuts in defense. To avoid them, both Democrats and Republicans need to decide which is worse: admittedly painful concessions or another hatchet chop to the economy.

A powerful factor in the dealings between Reagan, the country's leading conservative, and O'Neill, the classic liberal, was their shared generation. Each confronted the other over the bargaining table when both were in their 70s. They knew that this was their final act in public life. Giving speeches and taking hard positions was not enough; they needed to deliver the goods. America will be better off if today's politicians obey the same urgency.

Chris Matthews is the host of MSNBC's "Hardball" (M-F 7 p.m. ET) and the author of The New York Times bestselling book "Tip and the Gipper: When Politics Worked."

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