Watch The Baseline In Grand Bargain Talks

Erik Wasson reports that “A small, bipartisan group of lawmakers in both the House and Senate are secretly drafting deficit grand bargain legislation that cuts entitlements and raises new revenue.”

See his piece for details on the bargaining. But see this blog post for the issue Wasson doesn’t explore—the tax baseline. This is a crucially important matter. Right now, as a matter of existing law, taxes are scheduled to go up substantially in 2013 as a result of the expiration of the Bush tax cuts. That creates a large wedge between the revenues raised under current law (in which the Bush tax cuts expire) and the revenues raised under current policy (in which they are in effect). Barack Obama’s stated position is that relative to that current law baseline he would like to enact a very large and somewhat regressive tax cut, known to political reporters as “the middle class tax cuts” from the Bush package. The Republican Party’s stated position is that they will refuse to enact this very large and somewhat regressive tax cut unless Democrats also agree to tack on a smaller but still substantial tax cut that exclusively benefits high income individuals. On its face, this is a nonsensical position for Republicans to be taking. It means that if Obama is re-elected, Republicans will refuse to enact Obama’s proposed tax cuts, federal revenue will sore, and then Obama will get to propose a whole new “Obama tax cut package” organized however he wants. This would put Republicans in a very awkward position. Alternatively, if Obama is re-elected the Republicans could simply cave to Obama’s position and extend the “middle class” tax cuts while allowing the rich people only tax cuts to expire.

All that said, the question for any Grand Bargain proposal is “raises new revenue” compared to which baseline? If Obama agrees to cut spending merely in order to secure GOP acquiescence to a revenue figure higher than the current policy baseline, then he’s giving away the store. Or, rather, the terms of the bargain aren’t spending cuts for revenue increases, they’re spending cuts in exchange for Obama getting a Grand Bipartisan Achievement. By contrast, if we’re talking about cutting spending in exchange for revenues higher than the current law baseline, then the GOP is giving away the store. They’d be agreeing to raise taxes higher than even Obama favors! Which is all just to say that the details matter here a lot, and on the merits the state of the baselines means that I think there actually isn’t very much to compromise over.