Friday, January 14, 2011

The President's Next Step

Matt Yglesias says the President shouldn't lead on tax reform, while Andrew Sullivan thinks he should.

Yglesias is correct that there are political risks of getting out front on this, but there are also political (and policy) risks of not taking this head on. Now that we have a second stimulus through the extension of the tax rates and a payroll tax holiday, a credible long term deficit reduction strategy is correct on the policy merits. For the President, it is likely the best politics as well, because leading on the deficit issue is likely the only way to win back independents in key states like mine (North Carolina) that the President narrowly won in 2008.

We will deal with the deficit and cumulative debt at some point, the only question is whether we do so only after an economic crisis when our options will be limited, or whether we do so in a reasoned manner. Now is the time to fight this out.

A two-pronged approach makes the most sense for the President: try and work with the Senate on tax reform, while insisting that the House Republicans follow through (after their repeal vote) and make clear what they would do to replace the health care law.

The President shouldn't allow the House Republicans off the hook after the repeal vote, but he should go back on offense and continue to ask: when are the committees going to start writing the replace part? If you have good ideas, lets have them and see if we can work something out. Remind them how easy they said it would be to enact common sense reforms that would truly address costs. See what the CBO thinks of their plans. Of course it is much easier to be opposed to something than it is to describe what you are for.

There are some consequential ways the Affordable Care Act could be changed to both address the unpopularity of the individual mandate, but more importantly to take some next needed steps to address health care costs. Modification bills along these lines (and perhaps others) would be good news, and the hardest steps on costs will only be done with both parties participating.

The President's Deficit Commission report (Bowles/Simpson) was approved by 5 of the 6 Senators on the panel, and this signals the potential for a consequential reform emerging from the Senate. All of the Senators voting in favor of the report, including leading conservative Tom Coburn, said the plan wasn't what they would have personally written, but they all know that a serious, long term deficit reduction strategy will look something like Bowles/Simpson, with an overall tax reform at its heart. The Senate being so closely divided means anything will take both sides participating (7 Republicans will have to vote to override a filibuster), and the President should seek to work with the Senate on a long range tax reform/deficit reduction plan. Given all the words that have been said about needing to address the deficit by House Republicans, a White House/Senate deal would produce enormous pressure on the House to get involved, and of course to shape any bill that would emerge.

If we ever adopt a serious, long term deficit reduction plan that moves us toward a sustainable federal budget, the last political step will include members of both parties passing a bill that is akin to their holding hands and jumping off a cliff together. The President is the only person who can take the first step toward the edge.

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