manhattan.institute Open in urlscan Pro
18.173.205.105  Public Scan

Form analysis
1 forms found in the DOM

https://manhattan.institute/subscribe

<form action="https://manhattan.institute/subscribe" class="newsletter-form">
  <input type="email" name="email" placeholder="Your email">
  <button type="submit">Submit</button>
</form>

Text Content

 * Policy Areas
   * Cities
   * Culture
   * Economics
   * Education
   * Energy
   * Governance
   * Health
   * Public Safety
 * Explore Content
   * Publications
   * Books
   * Multimedia
   * Podcasts
   * Projects
 * Get Involved
   * Events
   * Careers
   * Subscribe
 * About
   * About MI
   * Research Integrity
   * Press & Media
   * Staff
   * Trustees
   * Scholars

City Journal Donate



Search
 * Policy Areas
     Back
   * Cities
   * Culture
   * Economics
   * Education
   * Energy
   * Governance
   * Health
   * Public Safety
 * Explore Content
     Back
   * Publications
   * Books
   * Multimedia
   * Podcasts
   * Projects
 * Get Involved
     Back
   * Events
   * Careers
   * Subscribe
 * About
     Back
   * About MI
   * Research Integrity
   * Press & Media
   * Staff
   * Trustees
   * Scholars

Donate
52 Vanderbilt Avenue
New York, NY 10017
(212) 599-7000
info@manhattan-institute.org
 * 
 * 
 * 
 * 
 * 
 * 

View all Articles
Economics, Economics, Health Tax & Budget, Tax & Budget, Healthcare
June 18th, 2019 96 Minute Read Report by Brian Riedl Share


GETTING TO YES: A HISTORY OF WHY BUDGET NEGOTIATIONS SUCCEED, AND WHY THEY FAIL

Download PDF
Table of Contents
Introduction The Case for a Bipartisan “Grand Deal” Primary Ingredients for a
Successful Budget Deal Secondary Ingredients for a Deal Case Studies Budget
Resolutions, Individual Lawmakers, and Think Tanks The Components of Typical
Deficit-Reduction Deals Budget Deals (aka Fiscal Consolidation) Abroad Budget
Deals Will Get Harder to Achieve Moving Forward: How to Negotiate Specific
Recommendations Lessons for the Future Conclusion Endnotes


The case for a bipartisan “grand deal” to address the rising national debt is
evident from annual budget deficits that are projected to exceed $2 trillion
within a decade. Over the next 30 years, Social Security and Medicare’s
shortfalls are projected to drive $84 trillion in new government debt. Yet
increasing partisanship and polarization—both in Washington and among
voters—have significantly diminished the likelihood of bipartisan cooperation to
avoid a fiscal calamity.

This report examines 14 major deficit-reduction negotiations since 1980 to
determine why some succeeded and others failed. The analysis reveals what I call
three “primary ingredients,” some combination of which is necessary to achieve a
successful budget deal: 1) a penalty default, or a painful policy that would be
automatically implemented if a deal is not enacted by a certain date; 2) general
public support for deficit-reduction across parties, with some common ground on
the necessary reforms; and 3) healthy negotiations—presidents and lawmakers of
both parties establishing positive working relationships based on trust, good
faith, and a focus on compromise—seeking “win-win” solutions. The existence of
at least two of these primary ingredients has always resulted in a successful
deficit-reduction deal. Negotiations that took place with only one, or none, of
them has almost always failed.

Secondary ingredients that help to close a successful a deal include an optimal
mix of negotiators, an agreement on the problem, a reliance on neutral experts,
a united communications front, a divided government, and, at times, a bipartisan
commission.

Most successful budget deals over this period were enacted in the 1980s and
1990s. The 2000s have seen mostly failure due to the increasing inability of
Republicans and Democrats to overcome their hostility and engage in healthy
negotiations. At the same time, there has been an increasing public acceptance
of deficits, and an unwillingness of the public to unite around
deficit-reduction approaches.

Nearly all the projected growth in budget deficits over the next 30 years comes
from Social Security and federal health benefits (particularly Medicare and
Medicaid). Yet past deficit-reduction deals relied mostly on cuts to
discretionary spending and payments to Medicare providers, which may not be able
to sustain additional large reductions. Tax increases on the wealthy have played
a modest role in past deals yet cannot fully close more than a small fraction of
the fiscal gap. Most deficit reduction in coming years will need to come from
entitlements—such as Social Security and Medicare (beyond more provider
cuts)—that have often proved resistant to reform.

However, there is a path forward. Lawmakers will have to rebuild new penalty
defaults that create an incentive for anti-deficit legislation. Advocates need
to better educate the public on causes of consequences of ever increasing
deficits. And lawmakers must overcome their mutual distrust of each other, and
bring back an integrative negotiating approach that focuses on building win-win
solutions rather than relying on deceptive tactics that attempt to take the most
of a fixed pie.

DOWNLOAD PDF




INTRODUCTION

Budget deficits are set to exceed $1 trillion in the next year, on their way
past $2 trillion within a decade if current policies continue (Figure 1). Over
the next three decades, the Congressional Budget Office (CBO) forecasts $84
trillion in new deficits, which will bring the federal debt to 150% of GDP. And
that is the rosy scenario—it assumes peace, prosperity, low interest rates, no
new government programs, and the expiration of most of the 2017 tax cuts. More
realistically, the debt could surpass 200% of GDP (Figure 2).



While much has been written about the dangers of the ever-growing debt—and the
need for a bipartisan “grand deal” to avert a fiscal calamity—the reality is
that Congress and the White House are moving in the wrong direction. Republicans
are cutting taxes, while Democrats are promising massive new spending. Even if
both parties were to finally agree that reducing the flow of red ink is a top
priority, there is little reason to believe that they could successfully
negotiate a deficit-reduction deal.

This report analyzes 14 budget negotiations during the past three decades to
determine what lessons can be applied to future negotiations. Over this period,
there were several successful deals between 1983 and 1997 (which, together with
strong economic growth, culminated in budget surpluses between 1998 and 2001)
and several mostly unsuccessful negotiations since 1998.

The analysis reveals what I call three “primary ingredients,” some combination
of which is necessary to achieve a successful budget deal: 1) a penalty default,
or a painful policy that would be automatically implemented if a deal is not
enacted by a certain date; 2) general public support for deficit reduction
across parties, with some common ground on the necessary reforms; and 3) healthy
negotiations—presidents and lawmakers of both parties establishing positive
working relationships based on trust, good faith, and a focus on
compromise—seeking win-win solutions. The existence of at least two of these
primary ingredients has always resulted in a successful deficit-reduction deal.
Negotiations that took place with only one, or none, of them have almost always
failed.


THE CASE FOR A BIPARTISAN “GRAND DEAL”

The case for deficit reduction is growing even as Congress generally ignores the
issue. CBO projects that the budget deficit will rise to 9.5% of GDP over the
next 30 years, and that assumes peace, prosperity, low interest rates, and the
expiration of most of the 2017 tax cuts.[1]

The driver of this red ink is no mystery. According to CBO, between 2018 and
2048 Medicare will run a $41 trillion cash deficit, Social Security will run an
$18 trillion cash deficit, and the interest payments necessary to finance these
Social Security and Medicare deficits will cost $41 trillion. In short, over and
above payroll taxes and premiums, these two programs alone are set to add $100
trillion to the national debt. Over that 30-year span, the rest of the federal
budget is projected to run a $16 trillion surplus.[2] However, unlike the
temporary, recession-driven budget deficits a decade ago, Social Security- and
Medicare-based deficits will expand permanently (see Figure 3).



There is another way of showing the long-term fiscal dangers. By 2048, the
Social Security and Medicare systems are projected to run an annual budget
deficit of 12.6% of GDP (including the resulting interest on the debt). Even a
projected 3.1% of GDP surplus across the rest of the budget in 2048 will not
close that gap.[3]

A national debt that grows to 150% of GDP—which CBO projects in the rosy
scenario (i.e., continuing low interest rates, no new spending programs, and the
2017 tax cuts expiring on schedule)—would have severe negative consequences. The
interest cost would match Social Security as the largest annual federal
expenditure, requiring significant tax increases and spending cuts to finance.
In reality, such a large debt would surely raise interest rates from their
recent and current low levels, depriving the economy of growth-creating
investment. This is especially true, given this country’s low domestic savings
rate and the limited ability of other countries to finance such a large U.S.
debt.


PRIMARY INGREDIENTS FOR A SUCCESSFUL BUDGET DEAL

These growing deficits make clear that a new “grand deal” on deficit reduction
is absolutely necessary. Yet increased voter polarization, Washington
partisanship, and institutional breakdowns have made deficit-reduction deals
much more rare over the past 20 years. Is there a plausible path forward toward
a deal? This study addresses the question by analyzing 14 major
deficit-reduction negotiations since the early 1980s.

An examination of these case studies—which includes both direct research and
interviews with participants and experts—reveals several trends that delineate
the successes from the failures. Specifically, nearly all successful
deficit-reduction deals have included at least two of the following three
primary ingredients: 1) a penalty default that lawmakers sought to avoid; 2)
public support for the broad elements of a deal; and 3) lawmakers who trust one
another and take a good-faith, integrative approach to negotiating. It is
possible to secure a deal without two of these ingredients—there is always a
human element—but the chances of success substantially increase when they are
present.

Primary Ingredient #1: A penalty default. A penalty default occurs if the
failure to enact a deal by a certain time will result in the automatic
implementation of a policy that the negotiators wish to avoid. In short, the
default policy would penalize both parties. In 1983, the White House and
Congress moved quickly to enact Social Security reforms because its trust fund
was a few months away from insolvency, which would have reduced Social Security
checks. The 2013 “fiscal cliff” tax deal was motivated by the upcoming
expiration of the “Bush tax cuts,” which would have imposed large
across-the-board tax increases that neither party wanted. Past deficit-reduction
deals have been tied to legislation raising the debt limit, preventing a
government shutdown, or canceling a large spending sequestration. The existence
of penalty defaults often results in “must-pass” legislation to avoid the
penalty.

Penalty defaults are a key ingredient to overcoming the strategic disagreement
that has resulted from increasing partisanship and polarization. While lawmakers
usually have a political incentive to reject compromise, stand with their base
constituency, and exploit partisan differences for electoral gains, a penalty
default can raise the cost of inaction to an unacceptable level. Neither side
wants to risk blame for a government shutdown, debt-limit default, large
automatic tax increases or benefit cuts.

While penalty defaults are seen as external factors forcing the hand of
lawmakers, nearly all are created by previous laws. Congress and presidents have
chosen to have debt limits. The expiration dates of the Bush tax cuts were
written into law by previous Congresses (in part to comply with their own Byrd
Rule, which prevents reconciliation bills from expanding budget deficits beyond
a certain number of years). The inability of certain agencies to spend money in
a government shutdown, or Social Security to issue benefits beyond the
exhaustion of its trust fund, is based on previously enacted laws. The modern
version of sequestration was created by Congress in 1985.

Thus, Congress and the president determine their own penalty defaults. That
means that they can also repeal the defaults. Lawmakers in 1983 could simply
have required that full Social Security checks continue after trust-fund
exhaustion, funded by general revenues. In fact, many penalty defaults have lost
their effectiveness. In recent years, Congress has essentially canceled the debt
limit for one to two years at a time, and canceled spending sequestrations.
While past threats of government shutdowns have been used to motivate
deficit-reduction deals, the repeated failure of that approach—with negative
political consequences for the party seen as forcing the shutdown—has rendered
it ineffective.

Consequently, an effective penalty default must strike a balance. It needs to
show a real negative outcome that neither side would want. Yet it also needs at
least one side of a divided government that is willing to risk that outcome
occurring if a deal is not made. If the penalty is too weak, it will not
motivate lawmakers to overcome their strategic disagreement. If the penalty is
too strong, the parties are more likely to repeal its enforcement without adding
a deficit-reduction deal. The hostage must be valuable, and at least one side of
the negotiation must be willing to shoot the hostage if no deal is made.

Primary Ingredient #2: Public support. A second, more obvious, ingredient in a
deficit-reduction deal is sufficient public support across both parties. The
challenge is that voters typically prioritize deficit reduction in theory yet
oppose nearly all tax increases and spending cuts that would significantly
accomplish that objective.[4]

Public support for deficit-reduction efforts was notably higher and more
bipartisan in the 1980s and 1990s than in the 2000s.[5] After a brief Tea Party
interlude between 2009 and 2012, significantly rising budget deficits are no
longer seen by conservatives as an impediment to tax cuts, or by liberals as an
impediment to single-payer health care, a government jobs guarantee, free
college, student loan forgiveness, or a Green New Deal.[6] Some economists argue
that low interest rates make rising debt affordable,[7] while adherents to
Modern Monetary Theory (MMT) believe that Washington can essentially fund
surging deficits with the printing press.

Deficit-reduction deals are less popular today in part because the required
solutions are more painful. Deficit deals in the 1980s and 1990s (other than the
1983 Social Security deal) generally focused on significant discretionary
spending limits (mostly in defense), smaller mandatory reforms such as some
Medicare provider cuts, and occasionally more modest tax increases. Yet
discretionary spending is already near historical lows, and rising budget
deficits are now driven almost entirely by Social Security and health
entitlements—which are much more politically difficult to reform.[8] Democrats
(and many Republicans) draw a line at reducing these benefits, while the
alternative of substantial across-the-board tax increases—merely taxing the rich
is not enough—is a deal-breaker for Republicans (and many Democrats).

Overcoming public opposition to the pain of deficit reduction requires
bipartisan credibility and a tangible, understandable payoff for the public.
Bipartisan credibility requires bipartisan negotiation and compromise. President
Reagan’s initial attempt to offer his own reforms to save Social Security in
1981 encountered strong Democratic opposition, who ran against those reforms in
the 1982 elections. Proposals by President Bush to save Social Security in 2005,
and by Rep. Paul Ryan (R., Wisconsin) to balance the long-term budget in later
years, failed to rally the public partly because Democrats refused to
participate. President Clinton’s 1993 deficit-reduction act also remained
controversial partly because of unanimous Republican opposition.
Deficit-reduction deals often impose large costs on taxpayers, and skepticism
among taxpayers that they are shouldering a disproportionate burden can be
assuaged only by bipartisan assurances that the burden is distributed fairly and
equitably. The last two times a party tried to do a major deficit-reduction deal
on its own under unified government—in 1993 and 2005—that party lost the
congressional majority the following year.

Beyond bipartisan credibility, popular deals also require an understandable,
tangible public payoff. Sometimes simply averting a penalty default is the
payoff—Social Security checks will continue, or the government will stay open.
In 1997, the payoff was the promise of balancing the budget for the first time
since the 1960s. In 1990, President George H. W. Bush emphasized that a
deficit-reduction deal would finally encourage the Federal Reserve to lower
interest rates, which would save money for families and businesses while also
creating jobs.

Unfortunately, sometimes the payoff is not immediately obvious. The current
budget deficit is too large to achieve a balanced budget. Keeping the deficit
small enough to avert a future fiscal calamity may be seen as too theoretical by
voters. Other economic factors are maintaining relatively low interest rates
even as the national debt rises steeply. Thus, it may be helpful for lawmakers
to emphasize other benefits of deficit-reduction reforms. In 2005, President
George W. Bush argued that his Social Security reforms would lead to a better
system with possibly even higher benefits. Republicans often emphasize that
Medicare premium support would encourage choice and competition. Democrats
assert that taxing the rich can reduce inequality and that cutting defense may
lead to a more modest foreign policy. The 1996 welfare reforms were promoted as
a way to end the cycle of poverty, rather than as a budget-saving exercise.

Primary Ingredient #3: Personal Relationships, Trust, and Integrative
Negotiations. Hardened partisans regularly dismiss the importance of building
bipartisan trust and relationships as “kumbaya nonsense,” yet the history of
bipartisan negotiations shows that it is extraordinarily important. Indeed, the
collapse of trust and relationships is perhaps the most important factor in the
lack of successful bipartisan deals over the past 20 years.

There are two elements to this ingredient. The first is both sides entering the
negotiation in good faith by:

 * Maintaining civility and honesty and respecting the other side’s interests as
   legitimate;
 * Bringing a good-faith willingness to compromise for a deal, while recognizing
   that nothing is agreed to until everything is agreed to;
 * Not dominating the discussions, condescending, relitigating the past, or
   trying to dictate the other side’s interests; and
 * Not leaking or publicly undermining the other side’s position.

The second element is utilizing an integrative negotiating strategy—whereby both
sides work together to build a win-win deal—rather than a pure distributive
negotiation (where both sides begin with extreme positions and then try to
bargain the other down), or a negotiation based on deceptive or hardball
tactics. Elements of integrative negotiations include:

 * Beginning by defining the problem together, expressing each side’s desired
   outcome (which is not necessarily a legislative position), and exploring
   creative legislative options to achieve those outcomes;
 * After all reasonable options have been defined, both sides listing their
   “must-haves” and “unacceptables,” and even ranking priorities in order to set
   the stage for concessions and compromises;
 * Seeking trade-offs and compromises with the specific goal of each side’s
   victories; and
 * When facing an impasse, expanding the negotiation by bringing in outside
   issues that can break the deadlock.

A certain degree of hardball tactics and deception is inevitable in all
negotiations (and may provide limited benefits to the side employing them), but
a heavy reliance on them will often destroy the negotiations.

Political scientists and social psychologists agree that building the necessary
trust for good-faith negotiations usually requires repeated interactions—both
personal and professional.[9] Simply getting to know each other leads to
increased mutual respect and more honest and trustworthy negotiations. Thus,
Presidents Reagan and George H. W. Bush spent considerable time inviting
congressional Democrats to the White House for social events as well as calling
them to learn their policy concerns (President Clinton reached out to
Republicans later in his presidency as well). The importance of repeated
interactions also shows the harm of Congress’s more recent evolution of flying
into Washington, D.C., on Monday nights and flying out after the final weekly
votes on Thursday nights. Finally, this is why seniority (especially on
committees) is so important in successful negotiations. It is difficult to act
deceptively—or to dismiss the other side’s interests as totally unworthy—when
the two sides have gotten to know each other well, both personally and
professionally.

Positive budgetary examples include Reagan and House Speaker Tip O’Neill (D.,
Massachusetts) beginning the 1982–83 Social Security commission with a pledge
not to publicly attack each other or the commission (which commission chairman
Alan Greenspan called the lead factor in enacting a deal).[10] While the 1995–96
Clinton–Gingrich budget negotiations broke down almost exclusively over personal
distrust, animosity, and deceptive negotiating, by 1997 they had won a major
bipartisan balanced budget agreement simply by dropping the political warfare
and deciding to sit down and build a win-win deal—what House Speaker Newt
Gingrich (R., Georgia) called “the human touch.”[11] “We’re in this together”
trumps the aim to embarrass the other side into unconditional surrender.

While looking back at the 1990 budget deal, former House Speaker Tom Foley (D.,
Washington) said, “I did have a very good relationship with President Bush. I
felt very comfortable in talking with him about any matter related to the
agreement. Honestly, I think that did help and made a difference for everyone.”
Former Republican Rep. Bill Frenzel (R., Minnesota) added: “In those days, the
bad guys were the opposition, not the enemy. There’s a world of difference
between those two words. Yes, we had some distrust, but also we had some ability
to work with each other, believe each other, and [that] made life easier at that
time.”[12] After negotiating that 1990 budget deal, President Bush and
Democratic leaders pledged to bypass all government shutdowns, fight unrelated
amendments, and seek majority support in each other’s own party in order to
ensure congressional passage.

Some budget negotiations have seen participants make additional concessions for
the sake of unity. The 1983 Social Security commission probably had the votes to
pass a party-line conservative solution on day one if they had wanted—but they
continued negotiation and making concessions to win a bipartisan supermajority
vote.[13] During the 1997 budget deal, Clinton reportedly gave Republicans
additional concessions to ensure that the GOP could declare victory as well.
Outside the budget, Republican authors of the 2001 USA PATRIOT Act made
additional concessions to Democrats—whose votes were not required for passage—to
build nearly unanimous support and bipartisan credibility with the public.[14]

Former high-ranking Rep. Henry Waxman (D., California), in his book The Waxman
Report: How Congress Really Works, repeatedly endorses integrative negotiations
as the path to most successful deals. Waxman recounts how he negotiated the 1996
Food Quality Protection Act with Rep. Tom Bliley (R., Virginia), chairman of the
House Commerce Committee. “We implicitly trusted one another,” according to
Waxman. The two lawmakers and their staffs engaged in numerous meetings where
they listed their various priorities, sought win-win solutions, and helped each
other satisfy their policy needs. Their legislation passed Congress unanimously
and was signed into law. Waxman concludes: “The greatest misconception about
making laws is the assumption that most problems have clear solutions, and
reaching compromise mainly entails splitting the difference between partisan
extremes.”[15]

The 1990 Clean Air Act provides another example of a successful integrative
solution. “As an observer and a participant in that process,” writes American
University political scientist Jeffry Burnam, “I can testify that there was very
little bargaining in the sense of ‘horse trading’ in the Senate back room. The
discussions there were based on efforts by key leaders to find mutually
acceptable solutions that were right for them in accordance with [the] view that
politicians have much to gain by seeking common ground and sharing credit for
measures that are in their mutual interest to support.”[16]

The increasing utilization of bipartisan congressional “gangs” to negotiate
deals is also based on trust and good-faith negotiations. Unlike the usual
participants in negotiations—rigid committees, congressional leadership, and
White House officials—gangs are self-selecting and private. This makes them more
likely to trust one another and safeguard the privacy of negotiations.


SECONDARY INGREDIENTS FOR A DEAL

While the primary ingredients create substantial momentum for a
deficit-reduction deal, secondary ingredients can also push Congress and the
White House toward a deal:

An optimal mix of negotiators

Several budget deals over the past several decades have been heavily assisted,
or nearly destroyed, by the decision of who is in the room doing the
negotiating. All successful bipartisan deals except one—the 1985
Gramm-Rudman-Hollings law—began with private negotiations (or commissions)
involving the White House and the congressional leaders of both parties.

Presidential leadership has been vital to all major deals, with the exception of
the 1985 Gramm-Rudman-Hollings Act, which began as a popular amendment to a
debt-limit bill. However, while White House leadership is extremely important,
some dispute whether the president should be in the room negotiating the final
deal. In his book recounting the 1997 budget deal, Clinton’s assistant for
legislative affairs, John Hilley, writes that one key to success was limiting
the president’s direct involvement in the initial meetings that set broad budget
goals. While Clinton remained heavily engaged and in control of the negotiation
details, “it was better to have the ultimate decisionmaker above the fray, one
step removed from all the bumps and bruises that are part of the day-to-day
engagements among strong-willed partisans. When things got rough, or a change of
direction was required, it was always good to be able to ‘take it back to the
president’—giving everyone time to assimilate, think anew, calm down.”[17]

Hilley adds that the earlier 1995 budget negotiations failed partly because
Clinton was too directly engaged in the discussions. President Obama also
directly led the detailed negotiations with congressional Republicans during the
failed 2011 grand-deal negotiations (although he was able to negotiate the
smaller Budget Control Act). Additionally, Reagan and George H. W. Bush had top
aides negotiate the final details of the 1983 Social Security deal and 1990
Andrews Air Force Base deal. The president should surely direct the
administration’s bargaining position, but he need not necessarily sit at the
bargaining table.

A perennial challenge has been the trade-off between building a large group of
negotiators that ensures that all interests are represented, versus having a
smaller group that is more likely to build a consensus. In the 1983 Social
Security reforms, a 15-member commission made progress, yet the final deal
required breaking off into an informal “Gang of Nine” that began meeting at the
home of James Baker, White House chief of staff. In the 1990 budget deal, Bush
originally hosted a group of approximately two dozen at Andrews Air Force Base
for 11 days to negotiate in private. Progress was made, yet the deal was sealed
when a smaller group of eight top White House and congressional leaders met in
the office of House Speaker Foley for several days after the Andrews
negotiations broke up. The 1997 budget deal was negotiated by a small group of
administration and congressional leaders who were open to compromise.

These examples suggest that a smaller group of six to nine negotiators is
optimal. The problem is that limiting the number of congressional leaders at the
table increases the pressure on those leaders to adequately represent the
diverse factions of their conference. However, successful leaders must inspire
loyal followers. A major reason the 2011 Obama–Boehner negotiations continued
breaking down was that House Speaker John Boehner (R., Ohio) was not seen as
someone who could bring the “Tea Party” Republican faction with him on a deal.
House Majority Leader Eric Cantor’s (R., Virginia) presence was often considered
a reflection of Tea Party opinion, yet Boehner was driving the Republican
negotiations, and the two reportedly did not get along with each other.

Ultimately, a successful budget negotiation should consist of two negotiating
factions, rather than several partisan sub-factions. This requires a minimum
degree of party consensus before entering negotiations. The president and
congressional leaders must also be able to deliver their rank-and-file
lawmakers.

Two successful models have emerged. The 1983 and 1990 model begins with a larger
group of negotiators (15–22) that includes the key administration aides,
congressional leadership, relevant committee chairpersons, and top staff. Once
the larger group has moved toward a general framework, they shrink the room to
six to nine top congressional and administration leaders to finish the deal.
Still, this approach is not perfect—by isolating the 22 members at Andrews Air
Force Base, rank-and-file Republicans still felt left out, and ultimately voted
against the deal.

The other model, from 1997, is to begin with a relatively small group of
negotiators who also maintain contact with relevant factions and committee
leaders—even cycling them into the negotiations when their issues of
jurisdiction were addressed.

The choice of administration negotiators matters as well. In the chaotic 2011
negotiations, both Republican and Democratic members of Congress complained that
Obama and his top negotiators were rarely on the same page, leading to
repeatedly contradictory negotiating positions.

A united front to overcome outside interests and communicate to the public

Even a bipartisan agreement on an optimal set of policy reforms does not
guarantee that the public or influential interest groups will support the deal.
The president and congressional leaders may have the wind at their back when
announcing a bipartisan agreement, but they still need to sell it to the rest of
Congress and the voters. An obvious tactic is to emphasize the bipartisan nature
of the deal. In the 1997 budget agreement, President Clinton made sure to
include Republican leaders at the Rose Garden ceremony announcing the deal. The
1998 Social Security pact between Clinton and House Speaker Gingrich would have
been rolled out in a series of coordinated speeches, commissions, and events
(had it not collapsed because of the Lewinsky scandal). In 1983 and 1990, the
White House and congressional leaders coordinated communications and pledged to
work together knocking down political obstacles.

Addressing skeptical interest groups is trickier. The 1983 Social Security
reforms reportedly enraged AARP—yet the parties simply chose to ignore the
organization, whose own preference for a general revenue bailout was seen by
negotiators as a wild overreach. AARP was more successful fighting President
Bush’s 2005 Social Security reforms because Democrats joined their opposition
from the start. Past deals that capped defense spending, reduced payments to
health providers, and raised user fees had too much bipartisan momentum for the
affected interests to block.

One approach is to bring the most important outside stakeholders into the
process. Including them as part of a bipartisan commission to solve the problem
alongside lawmakers can give these stakeholders a voice and an investment in
seeing the problem solved. At minimum, keeping in close consultation during the
policy process can build support from outside organizations that are acting in
good faith.

An agreement on the scope of the problem, the data, and a reliance on neutral
experts

One common aspect of failed negotiations is that neither side may agree on the
exact nature of the problem to be solved, and both sides may bring their own
contradictory experts and data. The most famous example is the 1995–96
Clinton–Gingrich budget negotiations that resulted in a 21-day government
shutdown over whether to rely on Congressional Budget Office (CBO) or Office of
Management and Budget (OMB) scoring of the budget proposals. During the 2011
Obama–Boehner negotiations, both sides also brought wildly divergent analyses of
the budgetary savings and effects of various proposals.

Creating a bipartisan commission has been shown to address these issues. The
1983 Social Security commission was professionally staffed with technical
experts who drafted a long series of memos explaining the scope of the problem
and the savings and ramifications of various proposals. The 1998 Breaux-Thomas
commission, 2010 Simpson-Bowles commission, and 2011 “Super Committee” also
included highly trained, technical staff that helped both sides frame the
problem, create reform options, and analyze their pros and cons. There is
considerable nonpartisan technical expertise at CBO, OMB, Government
Accountability Office (GAO), and across federal agencies. It is just a matter of
negotiators agreeing on a group of experts, bringing them in, and accepting
their expertise.

A bipartisan commission

A bipartisan deficit-reduction commission can serve several purposes. First, it
can break the partisan logjam and focus both parties on finding a solution. For
example, after a year of partisan warfare over the soon-to-be insolvent Social
Security system, Reagan in late 1981 created a bipartisan Social Security
commission that brought Republicans, Democrats, and outside experts together to
define the policy challenge, focus on solutions, and craft reform options.
Although the deal was finalized outside the official commission negotiations,
the creation of a commission made those civil, bipartisan negotiations possible.

Second, a commission can bring bipartisan credibility to a deficit-reduction
plan and thus encourage public support. The 1983 Social Security commission’s
recommendations were much more widely accepted than previous Social Security
reform proposals. The 2010 Simpson-Bowles commission gave some credibility to
deficit-reduction efforts, even if the commission itself did not approve the
final plan. In the 1980s and 1990s, a defense-base-closing commission was able
to build support in Congress for closing more than 100 obsolete military bases—a
solution that never could have occurred through regular congressional politics.
A commission does not guarantee success, but it can break some of the partisan
gridlock and get the ball rolling on reform. Furthermore, several “failed”
commissions, such as the 1998 Breaux-Thomas commission and the 2010
Simpson-Bowles commission, had several of their key proposals enacted over the
next five years.

Brookings Institution’s Stuart Butler and Timothy Higashi have noted that
successful commissions require several factors.[18] First, they must be created
by a White House and Congress that is truly dedicated to solving the problem at
hand. A commission is a tool, yet it cannot motivate a disinterested Congress.

Second, a commission usually requires current members of Congress who have a
direct stake in the politics. Lawmakers will not give credibility to a group of
(only) outside experts who have no political skin in the game.

Third, commissions should reserve additional spots for respected former
lawmakers and outside experts, as well as interest-group stakeholders whose
support may ultimately be necessary for a deal. While membership should include
a diversity of opinion, it helps to include individuals who are capable of
working across the aisle.

Fourth, requiring a commission supermajority to approve the plan is wise because
fiscal consolidation recommendations are unlikely to be approved by a partisan
and polarized Congress unless they have successfully brought several diverse
factions on board.

Finally, there should be some automatic mechanism to bring the approved
commission recommendations to the House and Senate floor for a guaranteed vote,
so that the report does not simply collect dust on a shelf.

Commissions have historically been more successful when used for discrete
issues, such as Social Security solvency or closing military bases. Broader
budget agreements usually require more direct congressional and White House
involvement. Stuart Butler and Maya MacGuineas have proposed having a commission
initiate the deficit-reduction planning and craft default proposals to meet the
long-term budget targets, while also empowering Congress and the White House to
replace those reforms with alternatives that can achieve equal savings.[19]

Divided government

It may be counterintuitive to observe that deficit-reduction deals are more
likely to occur under divided government than unified control. As difficult as
forging bipartisan agreement can be, unified party control of the White House,
House, and Senate is even less likely to result in deficit-reduction
legislation. One reason is lack of interest. When one party has finally achieved
the long-dreamed-of trifecta of the White House combined with a House and Senate
majority, fiscal consolidations are often not on the priority list (1993
Democrats are an exception). Republicans typically seek to cut taxes and enact
other popular parts of the conservative agenda. Democrats typically aim to
create and expand government programs and enact other popular parts of the
Democratic agenda. Also, during the last two periods of unified government, the
party in power focused on alleviating a national crisis (the terrorist attacks
for the 2001–06 Republican trifecta[20] and the great recession for the 2009–10
Democratic trifecta).

Unified government also fails to produce major bipartisan deals because the
minority party sees little political benefit in helping the majority enact
controversial policies. In that situation, the majority party may find it too
risky to impose consolidations without the support of the minority party—and the
minority party will see its aggressive opposition to these painful reforms as
its key back into power. Thus, congressional Republicans unanimously opposed the
1993 Democratic tax increases, and congressional Democrats aggressively opposed
Bush’s 2005 Social Security reforms. The minority party’s aggressive opposition
rendered the reforms politically toxic; indeed, both parties lost their
congressional majorities the following year. At this point, any major
deficit-reduction deal is much more likely to be enacted under divided
government.


CASE STUDIES

The following 14 case studies constitute the largest grand-deal deficit
negotiations since 1983. Six of them resulted in enacted legislation (summarized
in Figure 4 and Figure 5), and eight did not. The vast majority of these case
studies show that a large bipartisan deal requires at least two of the three
primary ingredients described earlier.






1983 NATIONAL COMMISSION ON SOCIAL SECURITY REFORM (“GREENSPAN COMMISSION”)[21]

The Social Security system was heading toward insolvency, and by summer 1983 it
would be unable to pay full benefits. Ronald Reagan came into office in 1981
proposing his own solvency reforms (mostly benefit savings) ran into bipartisan
opposition and were harshly attacked as a war on seniors. Reagan responded with
a new approach: the creation of a 15-member bipartisan commission in September
1981, which was chaired by Alan Greenspan and included lawmakers and outside
experts appointed by both parties. The commission would report after the 1982
elections.

The commission’s main contributions were depoliticizing Social Security reform,
collectively defining the problem in terms of solvency goals to be met without
fundamentally altering the program’s structure—with a unanimous vote—and
building reform options. However, after the commission deadlocked on solutions,
an agreement was reached by a smaller “Gang of Nine” congressional leaders and
administration leaders who met at the home of James Baker, the White House chief
of staff. Their solution—which funded a short-term fix and approximately
two-thirds of the 75-year long-term shortfall—was endorsed by the broader
commission on a 12–3 vote. Congress then tweaked and even expanded the reforms
(adding a future increase in the full retirement age from 65 to 67), before it
passed with bipartisan support and was signed by the president in April 1983.

The final deal resulted in budget savings (estimated at the time of enactment)
of $165 billion over seven years, consisting of $88 billion in taxes, $23
billion in revenues from bringing in new populations such as nonprofit and new
federal employees, $39 billion in benefit savings from delaying an annual COLA
by six months, and an estimated $15 billion in lower interest costs. An
additional $18 billion transfer of general revenue into Social Security improved
program solvency but did not alter the unified federal budget. Future benefit
savings would come from raising the full retirement age to 67. In terms of the
primary ingredients:

Penalty Default? Yes. Unless reforms were enacted, the Social Security system
would stop paying full benefits in summer 1983.

Public Support? No. While the public understood that Social Security was facing
a crunch that would render it unable to pay full benefits, most Americans still
opposed the necessary reforms to save the system—even if the opposition was
softer in 1983 than in previous years.[22] It is also worth noting that AARP
opposed virtually all plausible reforms, a position that led to both parties
dismissing their opposition.

Healthy Negotiations? Yes. At the time the commission was formed, Reagan and
House Speaker Tip O’Neill privately pledged not to publicly oppose the
commission’s recommendation—which Greenspan later declared the most important
reason that the reforms were enacted.[23] Republicans put taxes on the table,
and Democrats agreed to spending cuts. The “Gang of Nine” got along well,
trusted one another, and tried to make both sides a winner. Leaks were
minimized. Congress accepted most recommendations and even worked on a
bipartisan basis to expand the savings. Bob Dole (R., Kansas) implored Senate
colleagues not to oppose savings provisions unless they had better alternatives.
Ultimately, the 1983 Social Security reforms showed how both parties can
collaborate on a controversial issue in a manner that hurts neither party
politically.

Result: With a penalty default and healthy negotiations, the result was the most
ambitious entitlement reforms in more than three decades.


1985 BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT
(“GRAMM-RUDMAN-HOLLINGS”)[24]

Amid public concern over rising deficits, the Democratic House and Republican
Senate both wanted a deficit-reduction deal. Reagan had pledged to veto any tax
increases, and Democrats (seeking defense cuts) took Social Security reform off
the table. After the negotiations within the regular budget process broke down,
a bipartisan group of senators offered an amendment to a bill in September to
increase the debt limit that would create annual (and declining) caps on the
budget deficit, to be enforced by across-the-board spending cuts (aka
sequestration).

To the surprise of most, the Senate passed the proposal 75–24. From there,
congressional leaders of both parties—seeing the proposal’s momentum—set aside
their concerns and worked together to make the caps acceptable to the rest of
Congress. Democrats were able to exempt most mandatory spending from any
sequestration and require that defense cuts would constitute half of any
sequestration. Republicans kept tax increases out of the automatic reforms and
received assurance that sequestrations would not occur until after the 1986
elections. While neither side loved the compromise, it passed the House and
Senate overwhelmingly and was signed by the president on December 12, 1985 (the
legislation as signed would be struck down by the Supreme Court).

In the final deal, yearly deficit-reduction targets spared both tax increases
and major entitlement cuts. While the previous CBO baseline projected a budget
deficit rising from $212 billion in 1986 to approximately $300 billion by 1991,
this law required that the deficit fall incrementally from $172 billion in 1986
to zero by 1991. If Congress failed to stay within the targets, automatic
across-the-board cuts (sequestrations) would take place—half from defense and
the other half from nondefense discretionary spending (plus a small portion of
non-exempt entitlement spending).

Penalty Default? No.

Public Support? Yes. Polls and lawmaker town halls showed that the public was
increasingly concerned about rising deficits, which resulted in immediate
legislative momentum for the proposal.[25] Democrats were especially interested
in reining in the defense budget, and Republicans wanted to protect earlier tax
cuts from falling prey to rising red ink.

Healthy Negotiations? Yes. The proposal originated with a bipartisan amendment
to a bill. Congressional leaders who were skeptical decided that it would be
more effective to shape the legislation—and remove what Democrats and
Republicans separately regarded as its worst provisions—than to stand on the
sidelines and vote no. Both sides were able to exempt key priorities from the
final provisions governing sequesters.

Result: Public support and good-faith negotiations led to success. This was a
rare bipartisan budget deal that began as regular legislation—rather than a
commission or set of top-level negotiations—and gained momentum. In 1986, the
Supreme Court declared the law unconstitutional (Bowsher v. Synar, 478 U.S. 714,
1986) on separation-of-powers grounds: the law transferred executive functions
to the U.S. comptroller general (who is director of the General Accountability
Office, an agency within the legislative branch). A tweaked (and constitutional)
version of the law, 1987 Balanced Budget and Emergency Deficit Control
Reaffirmation Act, was enacted in 1987.


1990 OMNIBUS BUDGET RECONCILIATION ACT (“ANDREWS AIR FORCE BASE SUMMIT”)[26]

In 1990, the mounting budget deficit again had the attention of both parties. An
automatic sequestration was looming, the economy was weakening, and the Federal
Reserve would not lower interest rates without a deficit-reduction deal.

Democrats had been drafting their own deficit-reduction plans when President
George H. W. Bush announced on June 26, 1990, that he would be willing to break
his “no new taxes” campaign promise as part of a bipartisan budget deal. From
September 7 through September 18, Bush, his aides, and a bipartisan group of
approximately a dozen congressional leaders negotiated at Andrews Air Force
Base. Although progress was made, the final deal was not sealed until a smaller
“Gang of Eight”—White House and congressional leaders—began meeting in House
Speaker Tom Foley’s office in late September.

Despite pledging to work together to pass their budget deal through Congress, a
Republican rebellion in the House defeated the plan. From there, negotiators
moved the proposal leftward to win more Democratic support. It passed Congress
in late October, and the president signed the bill on November 5, 1990.

The final deal projected deficit reductions of $495 billion over five years,
consisting of $158 billion in new taxes, $197 billion in defense cuts, $80
billion in mandatory program savings (of which $33 billion was to be cut from
reimbursement to Medicare providers), and $60 billion in interest savings. The
act also replaced the Gramm-Rudman-Hollings sequester with five years of
discretionary spending caps and new, pay-as-you-go (PAYGO) rules, requiring that
new tax cuts or entitlement expansions be offset.[27]

Penalty Default? Yes. A spending sequestration was looming. Bush had threatened
to veto a continuing resolution and shut down the government if no deal was
struck by October 1. The president also wanted to persuade the Federal Reserve
to lower interest rates on a fragile economy.

Public Support? Yes. The public was generally worried about the rising deficit.
Both parties feared a public backlash if they failed to complete a deal.

Healthy Negotiations? Yes. Bush had long invested significant effort into
building personal relationships with Democratic leaders. In addition, his OMB
director, Richard Darman, had a particularly strong relationship with Democrats.
The Andrews Air Force Base negotiations were generally collegial and suffered
minimal leaks. After leaving Andrews, a smaller “Gang of Eight” finished the
deal. Negotiators of both parties worked together to sell the deal to Congress
and fight poison-pill amendments. However, rank-and-file Republicans felt
excluded by the private negotiations at Andrews and generally opposed the deal.

Result: With all three primary ingredients secured, the bargain was sealed.
Ironically, the income-tax rate increases were not in the original deal struck
at Andrews and at Foley’s office. A rebellion of House Republicans against the
bill ultimately led to more taxes, which was not their intention.[28] Major
defense savings were made possible by the collapse of communism.


1993 OMNIBUS BUDGET RECONCILIATION ACT (“DEFICIT REDUCTION ACT OF 1993”)[29]

After running for president on the promise of a middle-class tax cut, Bill
Clinton quickly determined that rising deficits required both tax increases and
spending cuts. With Democrats controlling the House and Senate, Republicans
quickly made clear that they would oppose the president’s plan. This left the
president needing the overwhelming support of congressional Democrats. Clinton’s
congressional relations were rocky (with both parties), and Congress defeated a
$16 billion stimulus plan that was attached to the deficit-reduction proposal.
However, the rest of the deficit-reduction package was passed by a razor-thin
margin of 218–216 in the House, 51–50 in the Senate (with Vice President Al Gore
breaking the tie), and then signed into law on August 10, 1993.

Clinton was concerned about rising deficits, particularly the effect on interest
rates and economic sluggishness. He also wanted to preempt more aggressive
Republican deficit reforms.[30] As the debate heated up, the White House became
more motivated to simply avoid an embarrassing legislative defeat. On the flip
side, Republicans, fully out of power, opposed the tax increases but were also
motivated to deny the president a major victory. Thus, moderate congressional
Democrats—many of whom favored aggressive deficit reduction, including
entitlement cuts—had the most leverage because their overwhelming support was
required for passage.

At the time it was enacted, the new budget law was estimated to trim the budget
deficit by $433 billion over five years. This included $241 billion in new tax
increases, led by raising the highest income-tax rate from 31% to 39.6% ($115
billion), raising transportation fuel taxes by 4.3 cents per gallon ($31
billion), removing the earnings cap on Medicare payroll taxes ($29 billion), and
raising the percentage of Social Security benefits (from 50% to 85%) subject to
income taxes for upper-income seniors ($25 billion). It also saved $145 billion
in federal spending by various measures, including extending the discretionary
spending caps through 1998 ($69 billion), Medicare provider cuts ($48 billion),
tweaking benefits for military and federal retirees ($12 billion), raising
Medicare premiums ($8 billion), Medicaid reforms ($7 billion), and new spectrum
auctions by the Federal Communications Commission ($7 billion). The bill
included a $19 billion expansion of the Earned Income Tax Credit (EITC).
Finally, the law saved an estimated $47 billion in lower interest costs on the
national debt.[31]

Penalty Default? No.

Public Support? No. While the public supported the proposal by a 58%–27% margin
when it was unveiled in February 1993, support continued to fall closer to an
even split, with Republicans especially hostile.[32] Clinton’s approval rating
also continued to fall throughout the summer of 1993 as the budget debate heated
up.[33] Voters did not consider the bill a top priority, and even many
Democratic lawmakers determined that opposing the bill was good politics.[34]

Healthy Negotiations? No. Most congressional Republicans initially made clear
they would not support the plan.[35] Republicans who did reach out were
dismissed by a White House that also demanded that congressional Democrats not
work with (or even speak with) any Republicans regarding the bill.[36] Rather
than involve congressional Democrats in drafting the proposal, the White House
handed a complete plan to Congress with demands not to amend it.[37] A
bipartisan Senate alternative proposal was dismissed.[38] The president and
other White House officials—needing nearly unanimous Democratic votes for
unpopular tax increases—relied heavily on bullying, intimidating, pleading,
lying, and making legislative promises to fellow Democrats that were later
broken after the votes were secured.[39]

Clinton repeatedly complained that he did not understand the rhythms and
motivation of Congress.[40] The final deciding vote for the package came from
Sen. Bob Kerrey (D., Nebraska), who endured verbal abuse from Clinton before
reluctantly voting for the legislation to keep the new presidency from sinking
(and in return for a promise to create a new commission to address entitlement
spending growth).[41]

Result: This was the only deal in this study to have been enacted without two of
the three primary ingredients for a successful negotiation. That was a luxury of
single-party control of the House, Senate, and Congress that eliminated the
requirement for bipartisan negotiations. Still, passing the unpopular reforms on
a party-line vote played a role in the Democrats losing control of Congress the
following year.


1994 BIPARTISAN COMMISSION ON ENTITLEMENT AND TAX REFORM (“KERREY-DANFORTH”)[42]

A few months after the Deficit Reduction Act was enacted, the president
fulfilled a promise to Kerrey and created the Bipartisan Commission on
Entitlement and Tax Reform by executive order.[43] Cochaired by Kerrey and
Republican senator John Danforth, the commission included 10 senators, 10 House
members, 8 private-sector leaders, a governor, and a mayor, as well as 27
professional staffers. Of the 32 members, 30 voted for an interim report
defining the budget challenge, and 24 voted for a set of broad principles
supporting immediate action to limit long-term deficits. However, the commission
deadlocked and was unable to issue a final report with any consensus
recommendations. The commission staff created a computer game whereby the public
could try to balance the budget.

As no recommendations reached the necessary three-fifths threshold for approval
by the commission, Kerrey and Danforth instead issued a joint proposal, as did a
few other members introduce proposals. Most of these proposals did not include
detailed scoring.

The commission was created as a favor to Kerrey and had the strong support of
Danforth. Neither the White House nor House or Senate leaders were significantly
invested in the commission’s success—in fact, some opposed the commission’s
purpose.

Penalty Default? No.

Public Support? No. Despite public outreach and hearings televised on C-SPAN,
the commission received little broad media coverage or public engagement. And
while most Americans generally supported deficit reduction, there was little
demand for major entitlement cuts or tax increases. AFL-CIO, NAACP, and AARP
publicly attacked draft plans to pare back entitlement spending.

Healthy Negotiations? No. The failure even to issue a report of consensus policy
recommendations (despite a modest three-fifths threshold for approval) suggests
that the members lacked either the motivation or capability to compromise. When
Kerrey and Danforth issued a joint proposal that would reform Social Security
and Medicare, commission member Rich Trumka (president of United Mine Workers)
publicly shrieked that it was “the most fundamental attack on Social Security
and Medicare since their beginning.”

Incoming House Speaker Newt Gingrich warned commission Republicans that any
proposal to reform Social Security—a program whose future shortfalls the
commission was created in part to address—would be unacceptable. In short,
Congress and even commission members were openly hostile to the reforms that the
commission was created to examine.

Result: The lesson of this experience is that successful commissions require, at
the very least, a Congress and president committed to solving the underlying
problem. Absent this commitment, commission members will not make the required
investment or compromises. The lack of any requirement that Congress vote on a
commission-approved proposal made the exercise relatively academic. Finally, the
commission’s coverage of all tax and entitlement programs was too broad to make
agreement realistic.


1995–96 GOVERNMENT SHUTDOWN[44]

Emboldened by what it considered a voter mandate, the new Republican
congressional majority passed a reconciliation bill in November 1995 that would
balance the budget in seven years by cutting spending by $974 billion and taxes
by $222 billion (for a net $752 billion in deficit reduction). Clinton opposed
these reforms and vetoed bills to raise the debt limit that included many of the
Republican provisions. The result was a government shutdown.

After finally pledging to negotiate a seven-year balanced budget, the president
signed legislation reopening the government after five days. However,
Republicans later determined that the president’s pledge was insincere, and this
led to a second shutdown on December 16 that lasted 21 days. During that time,
Clinton pushed a more modest budget blueprint and Republican leaders committed
public gaffes (such as Senator Dole making comments that were construed as
preferring that Medicare “wither on the vine”), culminating in the public moving
toward the president’s position. In early January 1996, the Republicans
surrendered and passed clean legislation, reopening the government. The budget
talks ended soon after, without a balanced budget deal.

Figure 6 shows that H.R. 2491, the original budget reconciliation bill passed by
the Republican Congress and vetoed by the president, would have saved $752
billion over seven years. Clinton offered a counterproposal that would have
saved $417 billion.[45] Republicans used the debt limit and a government
shutdown to push Clinton into supporting their budget. A public backlash against
these GOP tactics, plus the public’s preference for the president’s budget
proposals, allowed him to eventually block the Republican approach.

Penalty Default? Yes. Republicans had used the threat of a government shutdown
and hitting the debt limit as leverage against President Clinton. He vetoed the
budget reform legislation anyway, but the shutdown did not lead to a deal.

Public Support? No. The public wanted a deficit-reduction deal. However,
Republican and Democratic voters were harshly split on how to balance the
budget, and most voters opposed using the debt limit and government shutdown as
leverage for a budget deal. Ultimately, the public sided against the more
aggressive Republicans.

Healthy Negotiations? Emphatically no. Democrats ran millions of dollars in
television issue-ads against the Republicans during the negotiations.[46]
Republican lawmakers asserted that they did not want to be in the same room with
Clinton.[47] Republicans portrayed the president as a dishonest negotiator, and
the president portrayed Republicans as hostage-takers.

Clinton and House Speaker Gingrich attacked each other in the press daily.
Clinton and Senate Majority Leader Dole were already gearing up for the 1996
presidential election and in little mood for compromise. House Republican
freshmen did not trust the party leadership negotiating on their behalf.
Similarly, deficit-reduction plans by moderate congressional Democrats were
dismissed by their own party leaders.

Result: The penalty default, a government shutdown, was not enough to bring
about a deal. There was a deal to be made—the disagreement was over the
magnitude of the spending cuts—yet animosity between the sides resulted in
failure.


1997 BALANCED BUDGET AND TAXPAYER RELIEF ACTS (“1997 BUDGET DEAL”)[48]

Following the contentious 1996 election, President Clinton and the Republican
congressional leadership decided to give balancing the budget another try. With
Dole no longer in the Senate and House Speaker Newt Gingrich weakened, the
Clinton White House sought a fresh start by reaching out to the Republican
chairmen of the House and Senate Budget Committees.

Thanks to strong economic growth, the rapidly closing budget deficit meant that
both parties could achieve the long-sought goal of a balanced budget without as
much political sacrifice as earlier deals required. Starting essentially with
the policy frameworks from the 1995–96 failed negotiations, new CBO budget
estimates continually reduced the amount of required savings for a balanced
budget. The president and congressional Republican leaders announced a package
of spending and tax cuts on May 2, 1997, worked out the details over the summer,
and enacted the final reforms in August.

This grand bargain yielded net estimated savings of $816 billion over 10 years.
The spending savings of $1,036 billion consisted of discretionary spending caps
($520 billion); Medicare reimbursement cuts to health providers ($297 billion);
Medicare savings from beneficiaries, such as premium increases ($88 billion);
and $142 billion in resulting net interest savings—and an $11 billion cost of
other provisions. Revenues were cut by $220 billion. The deal provided for a
$500 per-child tax credit and a new entitlement, the Children’s Health Insurance
Program (CHIP).[49]

Both sides wanted credit for a balanced budget. Republicans wanted to show that
they could govern after the bruising government shutdowns of 1995–96, while
Democratic leaders wanted to combat their image as tax-and-spend liberals.
Liberal Democratic Rep. Charles B. Rangel (D., New York) triumphantly declared
at the White House ceremony that “we have now shattered the myth that we
Democrats are spending Democrats and taxing Democrats.”[50]

Penalty Default? No.

Public Support? Yes. The public wanted a balanced budget. Republicans had
campaigned on a balanced budget. Clinton and congressional Democrats wanted to
build their deficit-hawk credibility with the public.

Healthy Negotiations? Yes. In a complete reversal from the 1995–96 negotiations,
both sides worked well together, trusted each other, and negotiated in good
faith. Negotiators focused on ranking each side’s preferences, delineating
must-haves and unacceptables, and seeking win-win solutions.

Neither side sought to embarrass the other. Clinton even decided to give the
Republicans a “win” on tax cuts (even though the public shared Clinton’s
skepticism) as a good-faith gesture to keep Republicans on board. Both sides
also reduced the number of negotiators and excluded those who were seen as
overly partisan or difficult. Gingrich credited the “human touch” for making the
deal possible.

There were tense moments. Late one evening, Rep. John Kasich (R., Ohio) called
Clinton aide John Hilley at home and asked for his address because, he said, “if
we don’t get a deal by the beginning of the recess, I’m [expletive] coming over
and burning your house down!” Yet Kasich later raved that “Hilley was the whole
key to this because whenever things got crazy I’d talk to Hilley.”[51]

Result: With public support and healthy negotiations, a deal was to be had. The
law included significant tax cuts and spending hikes up front, paid for by vague
automatic cuts in the future. After surging economic growth revenues
surprisingly balanced the budget by 1998, many of those future automatic cuts
were canceled. This was the last successful budget negotiation that showed
significant trust and good faith on both sides.


1998 CLINTON–GINGRICH SOCIAL SECURITY MEETINGS[52]

After completing the 1997 bipartisan budget agreement—and seeing the budget
balance one year later—Clinton and Gingrich held secret meetings to craft a deal
that would bring personal investment accounts and consider other structural
reforms to Social Security, such as slowing the growth of benefits. Clinton
wanted to protect the new budget surplus from tax cuts. Gingrich wanted to
introduce market reforms into Social Security. The group began small and
included Erskine Bowles, White House chief of staff, and Bill Archer, chairman
of the House Ways and Means Committee.

The group mapped out a full process of speeches, events, and legislation to be
rolled out beginning with the January 27, 1998, State of the Union address. Six
days before the speech, news of the president’s relationship with Monica
Lewinsky broke. Republicans went to war against the White House; Democrats
geared up to defend their leader; and the Social Security reform was an instant
casualty.

Penalty Default? No. Social Security benefits faced no immediate threats.

Public Support? Yes. Social Security personal accounts were popular with
Republicans, and Clinton’s pollster found that 73% of Democratic voters wanted
some form of personal account system as well.

Healthy Negotiations? Not by the end. Clinton and Gingrich began negotiating in
secret and seemingly in good faith. There were no leaks, and a full bipartisan
rollout was choreographed. That short era of good feelings evaporated.

Result: The meetings began with the primary trust ingredient, but that
evaporated. Granted, the plan still may have faced challenges in Congress.
However, the Lewinsky scandal showed the importance of outside political
constraints on Washington deal-making.


1999 NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICARE
(“BREAUX-THOMAS)[53]

As part of the 1997 budget agreement, the White House and Republican Congress
created a commission to reduce Medicare’s long-term liabilities. The 17
commission members included lawmakers and outside experts of both parties. It
was cochaired by Sen. John Breaux (D., Louisiana) and Rep. Bill Thomas (R.,
California).

Negotiations began well, leading to proposals that favored raising the Medicare
eligibility age from 65 to 67, merging Parts A and B, introducing a premium
support option,[54] and adding a Medicare drug benefit. However, as the Lewinsky
scandal gained momentum, Clinton aimed to shore up his liberal base. Hours
before the commission’s final vote, the president gave a press conference
publicly opposing the deal. Top commission advisors of both parties agree that
the president’s late opposition drove several commission Democrats to oppose the
final deal, leaving them just shy of the 11 of the 17 required votes for
approval.

Penalty Default? No.

Public Support? No. The federal surplus made the public less interested in
seeking budget savings. Furthermore, the backlash against managed-care
approaches (such as HMOs) to health care undermined support for the direction
the commission was headed.

Healthy Negotiations? Ultimately, no. The commission did generally get along,
worked together, and built trust. But the Lewinsky scandal eventually pushed
most commission Democrats against compromise.

Result: These negotiations had none of the three primary ingredients typically
necessary for success. Breaux and Thomas continued to support the proposal. A
version of the commission’s Medicare drug benefit was enacted in 2003 (which
added costs to the Medicare system, in conflict with the commission’s overall
goal).


2005 SOCIAL SECURITY REFORM[55]

George W. Bush ran on Social Security reform in the presidential election of
2000, and again in 2004. In 2001, he created a bipartisan Social Security reform
commission (with no current members of Congress) that congressional Democratic
leaders reportedly refused to meet with.[56] In early 2005, Bush proposed adding
personal accounts to Social Security and later endorsed “progressive indexing”
of benefits (slowing the growth of benefits for upper-income seniors). Other
details were open to negotiation.

Congressional Democrats and liberal organizations—many of whom had previously
supported addressing Social Security’s fiscal challenges—instead repudiated
their past openness and refused to engage in the process.[57] Bush was
relentlessly attacked as anti–senior citizen. Many Democrats (save for a few
moderates in Congress) denied that Social Security faced any solvency issues and
misrepresented the proposals as eliminating all benefit guarantees and radically
cutting benefits. This scared off the congressional Republican majority, who had
concluded that Social Security reform was too controversial to do without
bipartisan support. The reforms faded away, never reaching a vote in Congress.

Penalty Default? No. The projected insolvency of the Social Security trust fund
was a few decades away.

Public Support? No. Polling showed support for fixing Social Security and some
sympathy for personal accounts.[58] Yet the public was not invested in the
issue, and Democratic attacks successfully made reform toxic.

Healthy Negotiations? No. Partisan tensions were high after the 2004
presidential campaign. Democrats and AARP harshly attacked the president’s
proposals. When asked when the Democrats would propose their own plan to avert
Social Security’s eventual insolvency, House Democratic leader Nancy Pelosi (D.,
California) responded: “Never. Is never good enough for you?”

Result: With none of the three primary ingredients for a successful grand
bargain, Bush’s desire to reform Social Security had no traction. This episode
also raises another political problem for budget deals: unified government. When
the White House and both branches of Congress are in the hands of one party, the
prospect for grand bargains does not increase—more likely, it makes such deals
less likely. The minority party, hoping to regain some power, has no motivation
to help the majority secure a victory, and refuses to provide the needed
bipartisan cover to get a deal done. The 1993 legislation was barely enacted
under these circumstances, but the 2005 efforts failed.


2010 NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM
(“SIMPSON-BOWLES”)[59]

With budget deficits exceeding $1 trillion, congressional Republicans supported
the creation of a bipartisan deficit commission—and then voted it down when
President Obama endorsed it.[60] In response, Obama created his own deficit
commission, cochaired by Democrat Erskine Bowles and former Republican senator
Alan Simpson. The 18 commission members consisted of 12 Republican and
Democratic congressional leaders, two chairpersons, and four nongovernmental
experts.

After nine months of mostly ineffective negotiations, Bowles and Simpson drafted
a chairman’s mark. Between 2012 and 2020, their proposal would have saved $4.124
trillion from sources including tax reform and gas-tax revenues ($996 billion),
discretionary spending caps ($1.661 trillion), health-care mandatory savings
($341 billion), other mandatory savings ($215 billion), Social Security revenue
and benefit changes ($238 billion), and resulting interest savings ($673
billion). The underlying baseline also assumed extension of the “2001 Bush tax
cuts,” a cancellation of upcoming Medicare provider cuts that were required by
the sustainable growth rate (SGR) law (which was created in the 1997 deal), and
a gradual reduction in Overseas Contingency Operation (OCO) spending in Iraq and
Afghanistan. The long-term target was to balance the budget with taxes and
spending at 21% of GDP by 2035.[61]

The chairman’s mark failed to get the support of 14 of the commission’s 18
members. The strongest opposition came from the House Republicans and Democrats.
Republicans asserted that the plan did not sufficiently reform Medicare and
Medicaid, raised taxes too high, and would push workers into Affordable Care Act
health exchanges (by paring back the tax exclusion for employer-provided health
premiums).[62] Obama also opposed the blueprint for eliminating too many tax
deductions and cutting defense spending too deeply.[63] Congress broadly
criticized the deal as well, and outside groups attacked any reforms that
affected them.

Penalty Default? No.

Public Support? No. In 2010, conservative voters were focused on rising
deficits. Yet Republicans did not want to raise taxes, and Democratic voters
were wary of most major spending cuts. Both parties’ leaders considered it
politically safe to oppose the final commission recommendations.

Healthy Negotiations? No. Republican and Democrat factions often refused to
negotiate directly, communicating through cochairmen Bowles and Simpson.
Senators Kent Conrad (D., North Dakota), Judd Gregg (R., New Hampshire), and Tom
Coburn (R., Oklahoma) pushed for a deal, although most commission members did
not want to be the first to move off their talking points or offer concessions.
The prospect of a chairman’s mark—drafted by Bowles and Simpson—finally gave
members a document to modify and shape, rather than just argue talking points.
The length of the commission—nine months—marginally helped developed trust.

Result: With none of the three primary ingredients necessary for a deal present,
negotiations led nowhere. However, many of the commission’s proposed savings
within discretionary spending caps and small entitlement savings reforms were
later enacted as part of the 2011 Budget Control Act and the 2013 and 2015
“Ryan-Murray” deals that altered the Budget Control Act.[64]


2011 OBAMA–BOEHNER GRAND DEAL[65]

With Simpson-Bowles in the rearview mirror, the debt limit needed to be raised,
and a Tea Party Congress demanded deficit reduction. The president wanted to
avoid hitting the debt limit and risking a federal default on its obligations.
Republicans wanted to cut the deficit, yet also feared blame if the negotiations
failed.

White House and congressional leaders began a lengthy series of negotiations.
The 25-person “Biden Group”—led by the vice president and Republican House
Majority Leader Eric Cantor—began talking in May 2011. Despite progress on small
deficit-reduction reforms, this group disbanded when it was discovered that
Obama and House Speaker John Boehner were engaging in their own negotiations.
Figure 7 shows a sample of the leading offers from Obama and Boehner. Taxes as
well as the size and pace of major entitlement reforms divided the two sides.
The Obama–Boehner group—which expanded to include other congressional and
administration leaders—eventually failed to reach a grand deal. It foundered on
the fundamental division between Republicans and Democrats over taxes and
entitlements. The group would move on to a discretionary spending deal that is
taken up below.

Penalty Default? Yes. Republicans threatened to vote against raising the debt
limit without a deal.

Public Support? No. A Gallup poll showed that a plurality of voters preferred
not raising the debt ceiling at all.[66] The public also lacked consensus on
reform options: a September 2011 Bloomberg poll showed that 38% of adults wanted
spending cuts only, 31% wanted tax increases only, and 17% preferred both.[67]
Surveys showed a record 64% of voters considered reducing the budget deficit as
a top priority,[68] yet strong majorities also expressed an unwillingness to pay
more in taxes or accept significant spending cuts.[69]

Healthy Negotiations? No (see sidebar, The Obama–Boehner Negotiations: An
Autopsy). Neither the Republican nor Democratic leaders had the full trust of
their rank-and-file lawmakers; within the negotiations, neither party trusted
the other, both parties leaked to the media, and both parties attacked the other
publicly. The negotiations themselves were unstructured, containing too many
“red lines” and too few policy concessions.

Result: With only one of the three primary ingredients, the deal never happened.

The Obama–Boehner Negotiations: An Autopsy




The 2011 Obama–Boehner grand-deal negotiations represent the most intense,
high-level budget negotiations—and the most spectacular failure—of the past 20
years. As future bipartisan negotiations will likely include similar offices
(the White House and congressional leadership) and have to navigate the same
policy fissures and the trade-off between entitlement cuts and tax increases, it
is worth looking at the mistakes made in order to avoid repeating them.


Competing negotiating groups undermining each other

The “Biden Group,” 25 negotiators led by the vice president and the House
majority leader (Eric Cantor), disbanded when they learned that President Obama
and House Speaker Boehner had formed a separate negotiation. Obama and Boehner
were close to a deal that fell apart when they learned of a bipartisan “Gang of
Six” in the Senate that was closing in on their own deal. Whenever a new group
formed, the earlier group would disband out of a belief that at least one side
must be getting a better deal from the new group. For example, Obama abandoned a
potential agreement with $800 billion in higher taxes as soon as he heard a
rumor that the Gang of Six had agreed to $1.2 trillion in revenue.[79]


Republican disorder

Boehner and Cantor had a personal rivalry and strong disagreements over whether
to agree to tax increases (Boehner was more tax-friendly). Rank-and-file House
Republicans did not trust their leaders at all and strongly opposed any deal
raising taxes. In the Senate, John Kyl focused on moving a deal to the right,
while Majority Leader Mitch McConnell was skeptical of the negotiations. Some
rank-and-file senators formed a Gang of Six, which rendered it impossible for
Republicans to negotiate with one voice, or for Democrats to trust that
Republicans could follow through on a promised deal.


Democratic disorder

The White House rotated at least six negotiators besides the president, often
with wildly varying approaches and opinions. Vice President Biden, Chief of
Staff Bill Daley, and Treasury Secretary Tim Geithner were significantly more
willing to compromise than OMB director Jack Lew, National Economic Council
director Gene Sperling, and Legislative Affairs director Rob Nabors. At one
point, a Republican offer was greeted with an enthusiastic yes from Geithner,
while Nabors responded that the offer was practically insulting.[80] House and
Senate Democrats were highly skeptical of the negotiations, felt excluded, and
repeatedly asserted that the president should not assume congressional
Democratic support for a deal.


Partisan bitterness

Both sides entered the negotiating still bruised by the stimulus, Affordable
Care Act, and other battles. Republicans remembered former Obama chief of staff
Rahm Emanuel’s previous attitude of “we have the votes, (expletive) ’em,”[81]
and Democrats remembered McConnell telling a reporter that his goal was to make
Obama a one-term president. In the previous two and a half years, Obama had
mostly bypassed the personal outreach to Congress that had been the hallmark of
the Reagan, H. W. Bush, and (at times) Clinton presidencies. Consequently, Obama
lacked strong personal relationships and trust with lawmakers of either
party.[82]


While negotiations were often cordial, participants reported an underlying
partisan tension. Obama reportedly resented that Republicans were using the debt
limit—and the threat of the U.S. defaulting on its debt—to extract budgetary
concessions. Republican negotiators, meanwhile, found Obama (and several of his
advisors) to be condescending and professorial, as he and Jack Lew lectured
Republicans on policy basics and even conservative political strategy. As stated
earlier, having the president directly sit at the negotiating table (rather than
top aides) has not been conducive to achieving successful bipartisan agreements.


Republicans repeatedly expressed concern that a successful budget deal could
help Obama politically—and even acknowledged that the president’s endorsement of
the Simpson-Bowles commission’s recommendations would have created a Republican
backlash. Congressional Democrats, meanwhile, complained that joining the
entitlement reform crusade would make it more difficult to demagogue Republicans
as heartless budget-cutters.[83]


On April 13, 2011, hours after privately meeting with Republican leaders to call
for compromise and toned-down rhetoric, Obama invited Ryan to sit in the front
row for a budget speech that was promoted as stressing conciliatory outreach.
Instead, stunned Republicans watched Obama savage Ryan and misrepresent his
budget proposals (inventing nonexistent provisions and exaggerating the real
provisions) in a campaign-style speech. Even prominent Democrats and White House
officials were disgusted by the ambush, and the president later called it a
“mistake.”[84] However, Obama—who was usually conciliatory during the actual
negotiations—followed other negotiating sessions with angry press conferences
attacking Republicans.[85] Boehner also gave occasional press conferences
blasting and misrepresenting the president’s negotiating positions.[86]


Leaks

When negotiators feared that their side was giving away too much—or wanted to
embarrass the other side for making a controversial offer—they often leaked the
offer to the media, or to their rank-and-file lawmakers. Republicans leaked to
the Wall Street Journal, while Democrats leaked to the New York Times and
Politico.[87] The leaks achieved their objective of creating a public and
congressional backlash, at the cost of both parties eventually limiting their
communications.


Republicans repeatedly pulled out of talks

In response to the leaks and lack of trust, Republicans twice pulled out of the
negotiations. Cantor and Republicans pulled out of the Biden Group negotiations
as a preemptive move after hearing (false) rumors that the vice president was
planning to leave.[88] When Biden clarified that he was not planning to leave,
Cantor responded that he had already told reporters that he was leaving and
therefore could not change his mind. Later, Boehner abandoned the White House
negotiations (and announced it to the media) as a strategic bluff to extract
more concessions.[89] Finally, after Obama seemingly reneged on an agreement by
demanding an extra $400 billion in taxes, Republicans temporarily left the
talks, again.[90] In many cases, Republicans anticipated an Obama press
conference and raced to the podium to preemptively abandon the negotiations and
offer their side of the story.


The White House lacked a strong policy process

As discussed above, the White House policy process was disorganized. Obama
repeatedly wavered on various issues, and the White House lacked a centralized
process for making decisions. Instead, those decisions often fell to
presidential advisors who vigorously disagreed with one another. Even Rep. Chris
Van Hollen (D., Maryland), one of the lead Democratic negotiators, reportedly
concluded that the White House had no negotiating strategy or core
principles.[91] Senate Majority Leader Harry Reid’s chief of staff bluntly told
Obama that he was “baffled” by the president’s lack of basic negotiating skills
and strategy.[92]


Negotiations were unstructured

A rational process would first examine broad, shared goals, and delineate
“must-haves” versus “unacceptable,” and then seek a range of mutually acceptable
policies. The Biden Group made significant progress using this model. The
Obama–Boehner negotiations went in circles. The president would assert that he
needed a $2 trillion debt-limit increase that would last through the 2012
election. Republicans would respond that such a deal requires $2 trillion in
budgetary savings. Both sides would agree on some basic savings in discretionary
spending and smaller entitlement programs. Republicans would point out that
large entitlement reforms are necessary to get to $2 trillion. Obama would
respond that major entitlement changes require tax increases—and that even most
structural Social Security and health reforms were still off the table.
Republicans would refuse to raise taxes without more aggressive structural
entitlement reforms (and were skeptical of tax rate increases even with
structural reforms). Deadlocking on a big deal, they would reexamine the smaller
deal of discretionary and small entitlement reforms, and then repeat the same
conversation. This discussion went in circles for countless hours.


Both sides had too many “red lines”

Some red lines are inevitable in any negotiation. Yet Obama had said that he
would block any deal unless it extended the debt limit through the 2012
elections, delayed all spending cuts until after the 2012 elections, matched any
significant health-care reforms with tax increases, excluded nearly all
structural entitlement reforms (such as Medicaid per-capita caps or block
grants, Medicare premium support, changes to the Affordable Care Act, or broad
Social Security reforms), employed separate spending caps for defense and
nondefense discretionary spending, enforced future tax reform promises with a
tax trigger, and guaranteed that any tax changes increased the progressivity of
the tax code.


Republicans employed several red lines as well. This included requiring that
10-year budgetary savings be as large as the debt-limit increase, rejecting tax
rate increases and rejecting separate spending caps within discretionary
spending. The Republicans in Congress also seemed to take all tax revenues off
the table.


With all these demands from both sides, it proved nearly impossible to thread
the needle of reform.


Neither side made sufficient concessions

At the time of the negotiations, the U.S. was facing a current policy baseline
deficit of $9.2 trillion over the next decade. Both sides quickly agreed to save
$1.1 trillion from discretionary spending caps and $250 billion from smaller
mandatory programs. But there was virtually no movement on tax revenues and
major entitlement programs—where the savings are more likely to grow over time.


Obama agreed to consider raising the Medicare eligibility age to 67 over a
30-year period (saving just $15 billion in the first decade), merging Medicare
Parts A and B after a decade (saving zero in the first decade), using the
chained CPI to calculate annual budgetary inflation adjustments, and saving
perhaps $300 billion in smaller health reforms, such as provider cuts.
Collectively, these entitlement reforms would not have reduced much of the $9.2
trillion first-decade baseline deficit, or (with the exception of chained CPI)
significantly altered long-term deficit trends. The agreement to consider these
proposals caused consternation in the White House and reportedly terrified
congressional Democrats. On the Republican side, Boehner offered $800 billion in
higher taxes in return for major entitlement reforms. The Republican Congress
expressed their opposition to that figure and probably would not have accepted
any additional tax revenue. The two sides never came close to an
entitlements-for-taxes deal that could likely pass Congress.


The president backtracked on a tentative deal

At one point, a deal seemed to be in place that included $800 billion in new
taxes. However, after Obama learned that the Senate “Gang of Six” might be
closing a deal with $1.2 trillion in taxes, the president called Boehner and
reportedly upped the ante to $1.2 trillion in taxes in return for the
agreed-upon level of entitlement reforms. While the president later insisted
that the additional revenues were only a suggestion (why was this done through a
spur-of-the-moment phone call?), Republicans interpreted it as the president
backtracking on an agreement and pulled out of further grand-deal negotiations.


2011 BUDGET CONTROL ACT[70]

As the Obama–Boehner prospects for a grand deal collapsed, many of the
participants began a new round of negotiations to complete what became the
Budget Control Act. This law was eventually scored as cutting approximately $1.9
trillion over the decade

The Budget Control Act called for savings of $917 billion over 2012–21,
consisting of caps on discretionary spending ($756 billion), other reforms ($5
billion), and resulting interest savings on the debt ($156 billion). The law
also set up the Joint Select Committee on Deficit Reduction (“Super Committee”)
to find an additional $1.2 trillion in savings or face an additional
sequestration of discretionary and nonexempt mandatory spending.[71] When scored
against the updated CBO budget baseline in early 2012, the combined savings
dipped from $2.1 trillion to $1.9 trillion because of updated budget and
economic assumptions.

Penalty Default? Yes. Republicans threatened to vote against raising the debt
limit without a deal.

Public Support? Yes (softly). With the federal government on the verge of
hitting the debt limit, caps on discretionary spending and the creation of a
Super Committee were considered an acceptable set of reforms. A Gallup survey
showed liberals and moderates supporting the agreement and conservative
opposition that was likely based more on wanting additional savings (rather than
opposing the spending cuts in this agreement).[72]

Healthy Negotiations? No. Participants claim that the negotiations became even
more contentious, negative, and distrustful when they moved to negotiating the
Budget Control Act. As the debt-limit deadline approached, Democrats became
increasingly wary that Republicans might allow default. Even as the negotiation
narrowed to bipartisan discretionary spending caps, small negotiating diferences
brought increasingly harsh threats and “red lines.”

Result: The negotiations that led to the law had a penalty default and some
degree of public support. The pressure of the debt limit required a deal, and
scaled-down reforms were less controversial with most voters.


2011 JOINT SELECT COMMITTEE ON DEFICIT REDUCTION (“SUPER COMMITTEE”)[73]

While the Budget Control Act automatically cut $900 billion-plus over nine
years, the 12-member bipartisan, bicameral congressional Super Committee was
supposed to find alternative reforms to prevent an additional $1.2 trillion in
across-the-board cuts (enforced, if necessary, by sequestration). During three
months of negotiations—which began with a month of bipartisan staff briefings on
savings options—talks remained at the general level, arguing over the ratio of
spending and revenue savings categories, as well as whether to raise revenues
through traditional tax increases, economic growth revenues from tax reform, or
user fees. These disorganized, circular conversations never came close to a
deal. Even at the end, a Republican offer to reduce the sequester through
bipartisan, less controversial, reforms to smaller mandatory programs was
rejected by burned-out Democrats (these smaller mandatory proposals would return
in the bipartisan 2013 and 2015 deals to replace discretionary spending cuts).

Figure 8 shows a sample of competing offers within the Super Committee
(including a bipartisan proposal presented at a hearing from Erskine Bowles and
Alan Simpson). The failure to enact alternative reforms triggered an additional
$1,032 billion in 2012–21 savings ($1.2 trillion scored against an earlier
baseline), consisting of lower defense spending caps ($454 billion), nondefense
discretionary spending caps ($303 billion), automatic cuts to Medicare providers
($86 billion) and other nonexempt mandatory programs ($48 billion), and the
resulting savings in interest on the debt ($142 billion).[74]



Penalty Default? Yes. Super Committee failure would result in a $1.2 trillion
sequestration.

Public Support? No. After the collapse of the Obama–Boehner grand deal and the
August debt-limit showdown, the public did not pay much attention to the Super
Committee, and there was no sign that an entitlements-for-taxes deal had
achieved a public consensus.[75]

Healthy Negotiations? No. Two of the Democrats—Reps. Xavier Beccera (California)
and Jim Clyburn (South Carolina)—barely participated in the deliberations.
Members lacked guidance from their party’s leadership and spent weeks making
partisan, generic counteroffers without much progress. Any remaining trust was
shattered by an October 2011 New York Times exposé containing anonymous quotes
of staffers (and possibly lawmakers) harshly criticizing various committee
lawmakers.[76]

Result: The negotiations had only one of the three primary ingredients for a
deal (a penalty default) and failed to avert the sequester. Later deals replaced
some of the scheduled discretionary spending cuts with mandatory savings, until
the caps were essentially repealed by the Bipartisan Budget Act of 2018.[77]


BUDGET RESOLUTIONS, INDIVIDUAL LAWMAKERS, AND THINK TANKS

Lawmakers have not been shy in offering their own ambitious budget proposals.
Perhaps the most famous are the blueprints proposed by former House Speaker Paul
Ryan (R., Wisconsin) in his earlier congressional years—which rose from basic
proposals to eventually become the basis for House Republican budget
resolutions. Budget blueprints have also been released by the House and Senate
Budget Committees, individual lawmakers, and groups like the House Progressive
Caucus, House Blue Dog Coalition, and House Republican Study Committee.

Yet blueprints by themselves have not led to serious bipartisan budget
negotiations. Even when budget resolutions are enacted, blueprints have been
largely ignored except for the discretionary spending figures and occasional
reconciliation instructions (which essentially allow a future tax or entitlement
reform bill to pass without a Senate filibuster). The reality is that individual
and party blueprints are viewed as too partisan to set the stage for bipartisan
negotiations. The only large budget deal that began with legislation—the 1985
Gramm-Rudman-Hollings law—was simply a spending-cap amendment, not a detailed
set of tax and spending proposals. On the contrary, most successful budget
negotiations begin with two parties—or a commission—sitting down and building
their own opening offers from scratch, rather than starting with a partisan
legislative proposal.

Still, budget resolutions and lawmaker proposals do serve a purpose. Their main
role is to give birth to new policy proposals and, in some cases, unite a
political party around an agenda. Republican proposals like Medicare premium
support had once been obscure ideas championed by just a few lawmakers, until
Ryan began making it a centerpiece of his budget resolutions.

Over time, Republicans voting for their budget resolution went on the record as
supporting Medicare premium support, and learned to defend the policy, making it
a staple of the Republican health-care reform agenda. While Democrats have not
used budget resolutions to this degree, proposals such as single-payer health
care, student loan forgiveness, and allowing Medicare Part D to negotiate drug
prices all began with partisan Democratic bills that were adopted more broadly
by the party.

Think-tank proposals have not been particularly effective. Strongly liberal or
conservative proposals have occasionally made their way into legislation and
worked up through the ranks of one of the political parties. Yet think tanks
have not significantly influenced deficit-reduction grand deals—most prominent
think tanks have opposed bipartisan grand deals for their lack of partisan
purity. Even prominent bipartisan think-tank budget proposals—such as the
Bipartisan Policy Center’s 2010 Deficit Reduction Task Force, headed by retired
Senate Budget Committee chairman Pete Domenici (R., New Mexico) and former OMB
and CBO director Alice Rivlin78—have given prominence to certain proposals but
have not motivated Congress and the White House to work out a deal. Think tanks
have been more effective in explaining and defending certain budgetary
approaches than in crafting legislation that makes it to the finish line.


THE COMPONENTS OF TYPICAL DEFICIT-REDUCTION DEALS

More than half of all savings in major deficit-reduction deals since the early
1980s have come from discretionary spending cuts (relative to the baseline of
inflation-based growth rates). These cuts typically come in the form of tight
statutory discretionary spending caps that last from five to nine years and are
enforced by sequestrations (Figure 9).

The result? Past deals have reduced discretionary spending from 10% of GDP in
1983, to 6% of GDP in 2019—on its way to a projected 5% of GDP within a
decade.[93]This would represent a post-1930s low and leave little room for
additional discretionary spending relief in future deals. In any case, past
discretionary caps have been repealed or replaced within a few years of
enactment.

Mandatory spending cuts have provided 16% of the budget savings in past deals,
and a slight majority of those cuts have come from reduced reimbursements to
Medicare providers. These reforms have proved to be popular ways to pare back
health spending without directly burdening beneficiaries. However, many of the
large Medicare provider savings enacted in 1997 were later repealed or replaced
because they imperiled the ability of medical providers to supply their services
at realistic prices. Given the size of these past cuts (plus $700 billion in
additional cuts as part of the 2010 Affordable Care Act), Medicare provider cuts
are unlikely to be more than a small piece of any major deficit-reduction deal
in the future.

New taxes have contributed 19% of the savings in major deficit-reduction laws.
The 1985 and 2011 deals contained no new taxes, and the 1997 Balanced Budget Act
contained a net tax cut. Significant tax increases were included in the 1990 and
1993 agreements, and taxes have also been raised outside traditional grand deals
in 1982 and 2013. In many bipartisan negotiations, Republicans refuse to raise
taxes, while Democrats refuse to enact large structural entitlement
reforms—leaving discretionary spending cuts and smaller entitlement tweaks to
dominate most deals.

These trends highlight the unique nature of the 1983 Social Security reforms,
which both raised tax rates and pared back the most politically sensitive
entitlement program. They also explain much of the failure to enact large
entitlement reforms (and occasionally large tax increases) as part of the
1995–96 shutdown negotiations, Breaux-Thomas commission, Simpson-Bowles
commission, Obama–Boehner grand-deal negotiation, and congressional Super
Committee. Negotiators continue to rely on discretionary spending savings and
smaller entitlement savings instead.

Another common component of budget deals is the tendency to provide new spending
or tax cuts up front while scheduling the spending cuts for later—and sometimes
eventually repealing the scheduled cuts. The 1983 Social Security reforms
contained a few small targeted expansions. The 1990 and 1993 budget deals
expanded EITC. The 1997 budget deal contained significant tax relief, created
CHIP, and expanded other health benefits. Even the 2011 Budget Control Act
expanded Pell Grants. The fiscal consolidations of the 1985 deal[94] (and the
sequestration-enforced portion of the 2011-enacted spending caps) were scheduled
to begin after the next elections. Multiyear discretionary spending caps (along
with Medicare provider cuts) have also been repealed within a few years.

The party that is more motivated for a deal—often the party that needs a
deal—usually finds itself having to compromise more because it is negotiating
from a position of relative weakness. In the 1983 Social Security reforms, 1985
Gramm-Rudman-Hollings law, and 1997 balanced budget agreement, both parties came
with equal motivation and leverage, and came away generally satisfied. In the
1990 budget deal, Bush was somewhat more motivated than Democrats because he
felt ultimately responsible for an economy weighed down by rising debt and
interest rates—and he ended up signing a deal heavily tilted toward Democratic
priorities such as tax increases, defense cuts, and Medicare provider cuts.

In the 1995–96 government shutdown, both parties fought hard because they
believed that they had a mandate and the public on their side. Eventually, the
polls lined up behind Clinton, giving him the upper hand and leading to a
Republican surrender.

he 2011 Obama–Boehner negotiations were the most interesting case study in
leverage. Obama believed that he had very little leverage because the Republican
Congress had communicated that they might be crazy enough to shoot the hostage
(refuse to raise the debt limit without a deal, risking default). The president
considered himself responsible for averting the economic chaos of default and
for getting a deal, even if the deal was tilted to the right.

Republican leaders, meanwhile, believed that they had leverage until a default
occurred, at which point they would be blamed by the public for the resulting
economic chaos.[95] The rest of Congress, meanwhile, seemed mostly unconcerned
about default and wanted only a deal that they could win (and congressional
Democrats believed that they had the leverage with the upcoming tax cuts
expiring and the Republicans desperate for an extension). The final compromise
consisted of roughly equal spending cuts between (Republican-prized) defense and
(Democrat-prized) nondefense spending. However, the increased Republican
willingness to allow such large defense cuts fed a subsequent impression that
the GOP got the better end of the deal.


BUDGET DEALS (AKA FISCAL CONSOLIDATION) ABROAD

A 2012 report by the Organisation for Economic Co-operation and Development
(OECD) reviewed the economic literature and added its own analysis of 50 years
of fiscal consolidations by member nations.[96] The differences between OECD
country experience and the U.S. are revealing.

OECD found that major fiscal consolidations are more likely to be enacted under
the follow conditions: a country’s budget deficit is increasing rapidly
(regardless of the initial debt level); the economy is growing; interest rates
are rising (which makes government interest payments more expensive); new
government leaders have taken office—especially more centrist leaders; and
similar countries are also prioritizing deficit-reduction (a peer-pressure
effect).

Additionally, the enacted fiscal consolidations that most successfully reduced
budget deficits have typically included broad fiscal rules. They included, for
example, balanced budget requirements, deficit caps, or spending caps; priority
given to spending cuts over tax increases; modest tax revenues that avoid large
income- or payroll-tax increases; and a gradual implementation (unless the debt
was rising drastically).

American deficit-reduction deals have generally followed this path of broad
fiscal rules (discretionary spending caps), a reliance on spending restraint,
modest revenues, and gradual implementation. The main difference is that
American fiscal consolidations—with average savings of roughly 1% of GDP—have
been substantially smaller than the typical savings enacted in other developed
countries over the past few decades, which have often exceeded 5% of GDP.[97]

U.S. deficit-reduction deals have been less ambitious for three reasons: they
were addressing budget deficits (averaging 4% of GDP) that were often smaller
than those of other nations; America’s comparatively lower spending levels leave
fewer relatively generous benefits to pare back; and political gridlock has
repeatedly taken tax increases and most entitlement spending off the table,
leaving fewer options to reduce deficits.


BUDGET DEALS WILL GET HARDER TO ACHIEVE

Achieving a grand bargain to stabilize U.S. government finances today is
significantly more difficult than in the past, and for reasons beyond the
obvious increased partisanship and polarization afflicting American politics and
society. First and foremost, the budget challenge has become more daunting.
Budget deficits—currently 4% of GDP—are headed to 5% of GDP within a decade (7%
under a current policy baseline) and more than 12% of GDP over the next few
decades.[98] While past deficits have occasionally exceeded the current level,
they have never had long-term projections this dire.

Surprisingly, the steeply rising deficit is not leading to a public backlash, as
it had in earlier eras.[99] Some suggest that deficit reduction is not a voter
priority because the economy is doing well, anyway. Yet there may be a deeper
cause.

Between 2007 and 2009, the deficit soared from $161 billion to $1.4 trillion,
creating a Tea Party movement that led to a new Republican House and concerns
that American finances were headed toward those of Greece, if not Weimar
Germany. However, that deficit—which was mostly a temporary result of the
recession—fell back to $438 billion by 2015 as the economy recovered, the
stimulus and Troubled Asset Relief Program (TARP) laws expired, and modest
spending and tax consolidations were enacted.

This made the anti-deficit activists look like the boy who cried wolf—bringing
to mind President Reagan’s quip, “I am not worried about the deficit. It is big
enough to take care of itself.” Conservative columnist Ross Douthat spoke for
many when he wrote in the New York Times that, while he still supports
structural spending reforms, he now believes that his earlier deficit-reduction
insistence was unnecessarily apocalyptic.[100] The problem, of course, is that
the current deficits are driven primarily by Social Security and Medicare
spending—the result of demographics and rising health-care costs—that will not
solve itself in a way that a recession would.

Additionally, the common solutions provide less savings. Discretionary spending
is falling toward its lowest share of the economy since the 1970s (Figure 10).
Moreover, the global economy, tax competition, and the ability to shift income
to low-tax countries have limited the efficacy of tax rates above a certain
level. And entitlement spending—the lead driver of long-term deficits—has become
more difficult to reform as 74 million baby boomers begin collecting Social
Security and Medicare benefits.[101] Medicare provider payments have already
been cut significantly. In short, much of the low-hanging fruit has already been
picked.



Finally, several common penalty defaults have lost their effectiveness. The debt
limit had been tied to every major deficit deal between 1985 and 2011. Yet
Republicans—who had often required a deficit-reduction deal in return for their
vote to raise the debt limit—have largely abandoned that threat, and there is a
question as to whether future threats would even be credible. Similarly,
attempts to tie deficit-reduction deals to the continuing resolutions that
prevent government shutdowns have failed so often that they no longer motivate a
deficit deal. Even sequestrations have been repealed by Congress often enough
that they no longer guarantee that deficit reduction will be carried out.
Lawmakers need to come up with new, credible, and realistic penalty defaults
that nudge them into fiscally responsible directions without being so
unreasonable that they are instead repealed.


MOVING FORWARD: HOW TO NEGOTIATE

Past history shows that major congressional deals typically do not result from
oppositional, confrontational, and deceptive negotiations. Negotiations seeking
to pummel the other side into an embarrassing surrender for political gain are
doomed to fail. Successful negotiations begin with an aspiration to craft an
enduring deal in which both sides can declare victory. Key elements include:

• Repeated interactions and positive personal relationships. Political
scientists and social psychologists have shown that negotiators who have
positive relationships are more likely to accurately represent their interests
and appreciate the positions and constraints of the other side. Additionally,
both sides are able to depoliticize disagreements, behave in an honest and
trustworthy manner, and assess the honesty and trustworthiness of the other
side.[102] This framework suggests that successful negotiators are more likely
to be longtime incumbents, lawmakers with repeated interactions (such as
committees), and members who regularly reach out to the other party.

• Carefully determine the group of negotiators. Beginning with a large group of
negotiators can achieve more buy-in and set broad parameters. However, most
successful agreements have been finalized by a smaller group of six to nine top
congressional leaders (and staff) of both parties as well as top White House
officials. Additionally, the negotiators should have a record of being able to
work well across the aisle. History and the recommendation of a former
successful White House budget negotiator both suggest that the president should
be heavily engaged in the deliberations but not necessarily at the daily
negotiating table.[103]

• Use an integrative approach. Deliberative negotiations assumed a fixed pie and
begin with both sides making extreme demands while resisting moves to the
middle. By contrast, integrative negotiations seek creative solutions to build a
win-win deal. Both sides begin by specifically defining the problem together.
This should focus less on legislative positions (such as “do not cut Medicare”)
than on desired outcomes (ensure continued affordable and quality health care
for retirees). Negotiators should signal policy flexibility to achieve those
outcomes and acknowledge the legitimacy of the other side’s goals.[104]

 * From there, negotiators should explore creative policy options that can
   achieve those goals. As they get deeper into policy options, each side should
   provide a list of “must-haves” and “unacceptable” options, and even rank the
   order of their priorities. This is the point where modest horse-trading can
   begin if the two sides determine that their “unacceptables” do not strongly
   conflict with the other side’s “must-haves.” Along the way, negotiators
   should make good-faith concessions, seek reciprocity, and build trust. The
   purpose should be to help each side claim some victories and be able to sell
   the agreement to the rank-and-file members and voters. Solutions should be
   judged by their quality and their acceptability to both sides.
 * If lawmakers reach an impasse on priority issues, or find themselves in an
   inflexible distributive negotiation, they can expand the negotiation to other
   issues.[105] Former Rep. Barney Frank (D., Massachusetts) has observed:
   “Different priorities across issues are often the basis of an
   agreement.”[106] For example, when the 2010 deal to extend the expiring “Bush
   tax cuts” became a deliberative negotiation where Republicans and Democrats
   would not budge, negotiators sided with Republicans on a two-year extension,
   in return for winning Democratic votes with new provisions such as payroll
   tax relief and unemployment insurance extensions.[107] On issues where the
   parties have two opposite approaches that cannot be split in half (such as
   broad health-care reform), it may be helpful to expand the negotiations and
   give one party a major win on an unrelated issue. If getting down to the end
   of a negotiation, classic logrolling and side benefits may not represent
   efficient government but are also a way to expand the terrain.[108]

• Run up the score. Leaders negotiating an agreement is only the first step
toward a sustained deal. Both sides of the negotiation need to sell the deal to
their rank-and-file lawmakers, as well as to a voter base that is typically
skeptical of compromises. Therefore, the two negotiating sides need to help each
other achieve victories. In 1997, Clinton reportedly agreed to tax cuts in
excess of what he considered necessary for a deal (and in excess of what polling
supported) in order to better guarantee the deal’s Republican support.[109] In
2001, Republicans, who already had the votes to pass the USA PATRIOT Act,
nevertheless made additional concessions to Democrats in order to achieve
near-unanimous congressional support and thus enhance the law’s credibility with
voters.[110] By contrast, attempts to push through a major deal without
bipartisan support—even when one party has the votes—often undermine the public
legitimacy of the reforms, as shown by the 2010 Affordable Care Act.

• Maintain confidentiality. Although the public desires transparency, it is
impossible for negotiators to explore various options if they fear leaks that
could enrage other lawmakers or voters. Leaks played a significant role in
undermining the 2011 negotiations between Obama and Boehner, as well as the 2011
“Super Committee” negotiations. In both situations, trust evaporated, and
lawmakers became reluctant to explore various creative solutions.[111] A similar
principle to confidentiality is that nothing is agreed to until everything is
agreed to. This approach allows lawmakers to tentatively agree to various
concessions without fear of the other side refusing to make reciprocal
concessions or leaking the concessions as a done deal.

• Avoid divisive and deceptive tactics. Divisive tactics include personalizing
issues, relitigating past disputes, lecturing, condescending, or dismissing the
other side’s priorities. Deception includes maintaining secret information,
misrepresenting one’s own position, and beginning with extreme positions as a
negotiating ploy. Although it is tempting, negotiators should also avoid the
intransigent tactic of rejecting a fair deal as a bluff, hoping for a better
deal later.

Nevertheless, it is true that strategic overreaching can work on a limited
level. In the 1990 budget deal negotiations, the Republican push for lower
capital-gains taxes and the Democratic push for higher income-tax rates both
seemed unnecessary and an overreach, yet provided each side with an available
concession that canceled out the other’s side’s proposal (the tax rate increases
returned later, for other reasons). In the 1997 budget deal, congressional
Democrats included in their “victories” the defeat of more extreme Republican
proposals that may have been initially proposed simply to become bargaining
chips. Strategic overreaching should be limited, as making too many unrealistic
proposals will expose the tactic and undermine trust.

• Playing hardball can backfire. For a negotiating side that lacks leverage,
walking out on a deal rarely makes sense. In 1990, the House Republican minority
provided key votes to defeat the initial deficit-reduction deal because it
included new tax revenues. This forced Bush and Democratic leaders to seek more
votes from House Democrats, which was accomplished by adding even larger tax
increases. By contrast, many Democrats in 1985 were caught off guard by the
initial support for the Gramm-Rudman-Hollings deficit targets. Once they
realized that it would likely pass regardless of their opposition, they decided
to remain within its legislative coalition by trying to shape the final
deal—which they did by exempting a large portion of entitlement spending.

There are other ways in which hardball tactics have failed. In 2011, Obama
seemingly had a tentative deal with Boehner for $800 billion in new tax revenue
(in return for entitlement reforms), yet the deal collapsed when the president
instead requested (according to the president) or demanded (according to
Republicans) an additional $400 billion in taxes. In 1995, congressional
Republicans had Clinton agreeing to significant spending savings, yet walked
away and ended up with nothing after demanding additional concessions. Sometimes
it is better to pocket a modest victory and move on.


SPECIFIC RECOMMENDATIONS

• Set budgetary savings targets. A target—such as $2 trillion in savings over
the decade, or 75-year solvency for Social Security—focuses negotiators on a
shared goal and the size of the reforms they should examine to meet that goal.
The target should be ambitious yet still realistic. And lawmakers should be
especially wary of including future automatic spending cuts or tax increases
that may prove politically unsustainable and thus be repealed (such as occurred
following the 1997 and 2011 deals). Regardless of the target, the savings should
be scored over decades—at least 20 years—to determine if lawmakers are
prioritizing temporary Band-Aid savings over reforms that would truly avert a
calamitous long-term debt burden.

• Agree on a baseline—or a workaround. Because savings are typically measured
against the budget baseline, it is important to agree on an initial baseline.
The CBO current law baseline assumes that Congress will allow temporary policies
to expire, even if that means sharp automatic tax increases or spending cuts
that Congress has no intention of allowing. By contrast, a current policy
baseline assumes that Congress will cancel drastic automatic reforms and thus
continue current tax-and-spending policies. So for an expiring $1 trillion tax
cut, the current law baseline assumes the expiration (and thus a tax increase in
the economy), while the current policy baseline assumes renewal—and thus means
that the extension would not require offsets elsewhere.

There is a workaround if negotiators cannot decide which baseline to use. They
could simply set long-term spending and tax targets. For example, if lawmakers
follow the Simpson-Bowles practice of targeting a balanced budget in 2035 with
taxes and spending at 21% of GDP, it does not matter which baseline is used.
Lawmakers can renew and expire policies at will, as long as the final deal hits
those targets. This approach has the added benefit of focusing lawmakers on the
long-term savings of the policies (assuming that the target is at least 15 years
away), rather than short-term reforms with minimal long-term savings.

• Correctly track the policy concessions. To the extent that negotiations move
toward a tit-for-tat series of concessions, it is vitally important to correctly
identify which reforms benefit each side of the negotiation. For example, past
negotiations have often begun under the framework that Republicans want spending
cuts, Democrats want tax increases, and lawmakers should aim for a specific
ratio of those policies. Yet the partisan interests are not that clean. Spending
cuts to defense and Medicare providers are often Democratic policies. Higher tax
revenues from economic growth within tax reform are often a Republican priority.
Democrats typically embrace tax rebates, while Republicans usually (but not
always) prefer tax rate reductions instead. Additionally, past negotiators
argued over whether user fees should be classified as tax increases (and thus as
a Republican concession) or spending offsets (a Democratic concession).

Future budget negotiators should assign a neutral third party to track the
concessions made, and determine if they are Republican, Democrat, or roughly
equal concessions. Classifying is not an exact science, but it can avoid what
has often become a rather large area of tension and confusion within
negotiations.

• Build momentum with low-hanging fruit. Past negotiations have achieved large
savings from less controversial reforms such as discretionary spending caps,
user fees, and savings from small mandatory programs. As described earlier, the
savings from those options may already have reached their feasible maximum from
past deals, but they should be examined to begin the process of building a new
savings package.

• Offer the public tangible benefits. Budget deals in 1985 and 2011 delayed the
implementation of most of the painful reforms until after the next election.
Relatively modest benefit expansions were also included in the 1983 Social
Security reforms (higher benefits for disabled widow|er|s), 1990 and 1993 budget
deals (EITC expansion), 1997 budget deal (tax cuts and CHIP), and 2011 BCA
(expanded Pell Grants). A deficit-reduction deal will also be much more
politically popular if it provides a tangible benefit to the public, such as a
balanced budget, lower interest rates, or the avoidance of a penalty default
such as sequestration.

• Create automatic procedures for future savings. Federal deficits are projected
to grow significantly over the next several decades. Thus, laws that impose
gradual reforms down the road can be both politically and economically sensible.
In 1983, lawmakers could not have immediately increased the Social Security
eligibility age without a fatal political backlash. So instead, they enacted
reforms gradually raising the age beginning 17 years in the future, which faced
much less political resistance. The approach essentially creates future “default
reforms” that would have to be affirmatively replaced to not take effect.

• Consider creating a commission. The 1983 Social Security reforms were far too
controversial to be enacted through regular politics. The creation of a
bipartisan commission brought bipartisan credibility and problem-solving
approaches to the issue, even if the final reforms were not crafted during
official commission negotiations. The Simpson-Bowles and Breaux-Thomas
commissions did not produce plans that met the threshold for approval, yet
inspired reforms that were enacted in the following few years. Commissions can
bring various stakeholders into the process (including outside groups and
special interests), and build a shared problem-solving goal that does not always
exist within traditional congressional negotiations.


LESSONS FOR THE FUTURE

Trillion-dollar annual deficits and steeply rising debt will eventually force
Congress and the White House to negotiate a fiscal consolidation. The only
question is whether they will phase in gradual reforms soon or wait for an
economic crisis to force drastic reforms. In any event, no grand bargain will
take place without at least two of the three “primary ingredients” that emerge
from the experience of the last several decades.

Public support for reform should come from lawmakers and advocates investing
significant time in educating the public on the causes and consequences of
rapidly expanding budget deficits. It is a common misconception that Americans
could never care about federal deficits until the inevitable point at which they
create a fiscal and economic crisis. The growing focus on climate change shows
that people—particularly, younger Americans—are capable of advocating painful,
forward-looking reforms to avert a coming crisis. And while budget projections
may seem less scientific than climate projections, the retirement of 74 million
baby boomers into Social Security and Medicare is not a theoretical forecast. It
is a demographic reality that will bring staggering debt.

At the same time, the case for deficit reduction would be greatly enhanced by a
fiscal goal that families can understand and support. The challenge is that
balancing the budget is not feasible at this point, and interest rates are
already relatively low (for now). Averting a future fiscal and economic crisis
may be too theoretical and intangible, as is 75-year solvency for Social
Security and Medicare. Perhaps lawmakers could track reduced interest costs and
put a portion in a fund for tax rebates.

Next, lawmakers will need effective penalty defaults that can help shape future
budget negotiations. The need to raise the debt limit—with the threat of a
government shutdown—will no longer move Congress toward grand bargains, and pure
spending-cap legislation will not secure Democratic support.

However, lawmakers can take a page from the 1983 Social Security reforms and
enact increases in the eligibility age—and perhaps other reforms to Social
Security and Medicare—that begin to phase in gradually. Congress might also put
Social Security and Medicare on a 30-year budget path and include automatic
reforms that would kick in if spending begins to exceed that path.[112]

More broadly, Congress and the White House could take automatic annual spending
increases off autopilot—at a minimum, by ceasing to use inflation measures that
overstate actual inflation)[113]—and even experiment with small automatic
spending reductions. Similarly, Congress could consider tax triggers if the
deficit increases too fast. The House and Senate could raise the supermajority
thresholds necessary to waive the enforcement of budget rules. There are
countless ways to create a legislative structure that incentivizes lawmakers to
be fiscally responsible.

Finally, Congress and presidents will need to relearn the art of healthy
negotiations.[114] Reverse the partisanship, build trust, and learn how to
negotiate effectively. Congress can hire more nonpartisan, professional staff at
CBO, GAO, and elsewhere to analyze budget trends, draft budget-savings options,
and facilitate bipartisan negotiations. It may be helpful for Congress to have a
regular lecture series on integrative negotiating strategies, which can include
former lawmakers who achieved impressive records of legislative achievement
using these strategies. Elected Republicans and Democrats might consider
spending more time getting to know each other as people; presidents might
consider more outreach to both parties in Congress. Political parties cannot
negotiate until they trust each other and respect the other side’s vision and
priorities. Simply put, lawmakers need to step away from Twitter and talk to
colleagues. Given today’s political and social climate, that will undoubtedly be
considered a big ask—but seriously, is there any realistic alternative?


CONCLUSION

Budget deficits are on pace to soon exceed $1 trillion, on their way to $2
trillion within a decade—or higher, if interest rates rise. This deluge of debt
will bring staggering interest costs to taxpayers, less investment, and a weaker
economy. Yet a partisan White House and Congress pander to a polarized
electorate that demands even more tax cuts and spending hikes. It is time for
elected officials to take responsibility and practice leadership on this issue.
That requires leveling with the American people about the dangers of rising
deficits—and working together across parties to make the difficult decisions to
avert an economic calamity. Past generations of lawmakers have shown the
blueprint to bipartisan problem-solving. Today’s partisan lawmakers must become
leaders and work together for economic sustainability.


ENDNOTES

See endnotes in PDF

 

--------------------------------------------------------------------------------

This paper was made possible by a grant from the Peter G. Peterson Foundation.
The statements made and views expressed are solely the responsibility of the
author. In addition to the cited publications, its sources include background
interviews with Charles Blahous, Stuart Butler, Jason Furman, William Hoagland,
and Marc Goldwein.

 

Donate

Are you interested in supporting the Manhattan Institute’s public-interest
research and journalism? As a 501(c)(3) nonprofit, donations in support of MI
and its scholars’ work are fully tax-deductible as provided by law (EIN
#13-2912529).





FURTHER READING

More Economics, Economics, Health publications
Commentary Economics, Health Finance, Culture & Society
May 15 2024
Biden’s Nursing-Home Union Giveaway
By Judge Glock Read More
Commentary Economics, Health Finance, Tax & Budget
Dec 11 2023
The New Politics of Medicare
By Chris Pope Read More
Commentary Health, Economics Healthcare, Employment
Sep 14 2023
Tax Rebate Loans Can Better Aid the Unemployed
By Chris Pope Read More
 * Terms of Use
 * Privacy Policy
 * Subscribe

Copyright © 2024 Manhattan Institute for Policy Research, Inc. All rights
reserved.

52 Vanderbilt Avenue
New York, NY 10017

(212) 599-7000
 * 
 * 
 * 
 * 
 * 
 * 

Signup for our Newsletter
Submit
 * Policy Areas
   * Cities
   * Culture
   * Economics
   * Education
   * Energy
   * Governance
   * Health
   * Public Safety
 * Explore Content
   * Publications
   * Books
   * Multimedia
   * Podcasts
   * Projects
 * Get Involved
   * Events
   * Careers
   * Subscribe
 * About
   * About MI
   * Scholars
   * Research Integrity
   * Contact us
   * Press & Media

 * Terms of Use
 * Privacy Policy
 * Subscribe

Copyright © 2024 Manhattan Institute for Policy Research, Inc. All rights
reserved.

EIN #13-2912529

- - -
-
- - -
-


- -

-

By - Read time - mins Read More
- - - -
-
- -
By - Read time - mins Read More

- -
01
January 1970
Event - -
Event - -
01 January 1970


- -

01
January 1970
01 01 January 1970
Event -
Jan 01 1970
- -
Interview -
-
-
- - -
-
- - -
Latest Podcast - -
-

- - -
- - -
-
-

-

-


-

By -