Beware Grand Bargains in sheep's clothing

Senate Democrats — holding firm against extending tax cuts for the rich — are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter.

The proposal illustrates the lengths lawmakers are going to in an effort to include new federal revenues in a fix for the “fiscal cliff,” the reckoning in January that would come when all Bush-era tax cuts expire and automatic spending cuts to military and domestic programs kick in.

Virtually every Republican in Congress has taken the pledge, pushed by Grover Norquist’s Americans for Tax Reform, never to vote for a tax increase — a pledge both parties see as a serious impediment to a tax compromise. But if tax rates snap back to the levels of the Clinton presidency on Jan. 1, any legislation to reinstate some of those tax cuts — but not all of them — would be considered a tax cut.

“Many Republicans are starting to realize something important: On Jan. 1, if we haven’t gotten to a deal, Grover Norquist and his pledge are no longer relevant to this conversation,” Senator Patty Murray, Democrat of Washington, said this week in a speech at the Brookings Institution. “We will have a new fiscal and political reality.”

The idea inflamed passions on both sides on Tuesday, when fiscal issues careening toward Congress roiled hearings and deliberations and spurred political recriminations as Republican leaders accused Democrats of steering the economy back into recession.

[T]he consequences of prolonged slow growth are profound. In just the period between 2017 and 2022, if the economy were to grow at its long-term average of 3.3% rather than 2.3%, it would produce $1 trillion in higher output, $904 billion in greater personal income, 1.1 million more jobs and an annual deficit $261 billion narrower. Average incomes for Americans, the study notes, would be "several thousand dollars higher."

So, how does the country win back that extra percentage point of annual growth? Washington can't provide the entire solution, but it certainly can provide a big part of it. That would require not just one "grand bargain" between the two parties—the kind that Democratic President Barack Obama and Republican House Speaker John Boehner tried to negotiate on the federal budget last year—but a whole series of them.

• Corporate taxes: Democrats accept the need for a simpler tax code and lower corporate rate, Republicans the need to eliminate loopholes to make this lower rate revenue-neutral to avoid adding to the deficit.[Again, we are solving a debt crisis without raising revenue.I don't know why anyone continues reading after that.]

• Balancing the budget: Democrats accept a meaningful reduction in the cost of Medicare, Medicaid and Social Security, and Republicans selected tax increases.

• Exports: Democrats accept that new free-trade agreements, particularly in the Pacific, are necessary, and Republicans that making those agreements politically palatable means helping displaced workers at home and attacking unfair trade practices abroad.

• Education: Republicans accept more spending on schools, Democrats that education funding must be lashed to a commitment to education reforms.

• Immigration: Republicans accept the need for higher immigration levels, Democrats that it should be tilted toward newcomers with higher skills and education.

The moderate Democrats who consider Third Way a policy home could accept these kinds of bargains, as could plenty of Republicans. Continued paralysis, by contrast, likely means more subpar growth and the pain that would bring.