Washington's 'grand bargains' getting much less grand

After many failed efforts at a big, bipartisan 'grand bargain,' the White House and Congress are scaling back expectations. Progress on the nation's fiscal woes is likely to be piecemeal.

President Obama’s pitch for a “grand bargain for the middle class” isn’t all that grand, at least by any standard of previous fiscal proposals bearing the “grand” brand.

On Tuesday, Mr. Obama’s stakes were much smaller than the $4 trillion in deficit reduction that once tantalized Washington: “Grand,” he said, equals a rewrite of the corporate tax code with a handful of the resulting billions going into long-favored Democratic priorities of infrastructure, manufacturing, and community colleges for the next few years.

It’s a lack of ambition that matches a sinking realization on Capitol Hill that making incremental progress on the nation’s long-running fiscal disputes is probably the best Congress and Obama can do when they negotiate difficult issues like funding the government and raising the federal debt ceiling this fall.

In other words, there’s no end in sight to the partisan budget slugfest of the past three years.

“If we have to do this in pieces, we’ll do it in pieces,” said Alan Krueger, outgoing chairman of the White House Council of Economic Advisers, at a Politico event on Monday, “if it’s too much for the Congress to do in one grand bargain.”

The grand bargain’s failing prospects aren’t for a lack of trying. Knowing well that raising the federal debt ceiling and continuing government funding past the start of a new fiscal year on Oct. 1 will necessitate policy changes in order for Republicans to collaborate on either matter, envoys from the Obama administration have met with a half-dozen or so Republican senators in prior months to sketch out areas of agreement.

In early 2011, the president and new House Speaker John Boehner (R) of Ohio spent weeks in private talks that, eventually, proved futile. A bipartisan gang of solution-minded senators produced its own sweeping fiscal pact during the negotiations to raise the debt ceiling. At last, a "supercommittee," tasked by Congress with negotiating a "grand bargain" on deficits also failed, triggering a regime of mandatory spending cuts and caps for the next 10 years.

As a result, the dream is all but gone of “going big” and sweeping away the fiscal malaise that engulfs nearly every debate, fiscal or not, in Washington.

Sen. Bob Corker (R) of Tennessee, one of those meeting with Obama officials on the deal, says that the time is near to decide whether Congress and the White House will pursue small improvements to the nation’s fiscal picture or keep hammering at a sweeping deal.

Senator Corker sees that call being made by the end of this week, when Congress will adjourn for its August recess. But that decision is more likely to break for a small deal than a sweeping one, he says, with Congress able to restructure the budget-cutting “sequester” and reconcile overall government spending levels far more easily.

Corker says there’s a “no brainer” to fixing the sequester: Substitute cuts to mandatory spending, such as alterations to government benefit formulas, for example, for the extant across-the-board reductions to everything from the Defense Department to education and nutrition assistance for the poor.

Such a plan could draw on a handful of proposals, such as changing the calculation of some government benefits to a formula known as chained CPI or giving richer Americans smaller Medicare subsidies, that have been endorsed by many members of both parties.

The alternative has much less agreement.

“Another route is to try to do the mega deal but, again ... to do a mega-deal, you have to do some structural changes to entitlements to create long-term solvency and I don’t know if the White House is prepared to do that,” he says.

Democrats, likewise, see the need to move away from the traditional grand bargain and to to chip away at the problem, as long as Republicans refuse to raise taxes.

“We're not reaching consensus and moving forward on [a sweeping debt deal] because Republicans aren't willing to create, to raise new revenues,” said Jen Palmieri, White House director of communications, on a conference call with reporters. Thus, “we should take a look at what we all do agree on, which is that we should do business tax reform.”

The problem with going small? Many government spending and taxing issues are deeply intertwined, as Sen. Johnny Isakson (R) of Georgia pointed out on Tuesday, and can’t easily be digested on their own.

If lawmakers start with corporate tax reform, the vast majority of American businesses that pay taxes through the individual income tax code “are going to go crazy,” Senator Isakson says, because they could face rates as high as almost 40 percent while large firms like General Electric could see rates around 25 percent.

“You can’t address these things in small sound bites, you have to look at the totality of the tax code,” says Isakson, a member of the Senate Finance Committee who has been working on a comprehensive reform with Sen. Max Baucus (D) of Montana, the committee’s chairman.

That’s why Senator Baucus and Rep. Dave Camp (R) of Michigan, the chair of the House Ways and Means Committee, have vowed to move corporate and individual tax reform proposals through their committees together. At a recent breakfast with The Christian Science Monitor, the men argued that corporate tax reform would be politically untenable without individual reform.