Did Boehner, Obama Agree to 'Grand Bargain' on Debt Limit?

A bigger than expected debt limit deal may be in the works as President Obama met with congressional leaders from both parties Thursday.

Before Thursday, expectations were that a debt limit increase would be tied to $2 trillion in cuts, without touching entitlement spending (Social Security, Medicaid, and Medicare). Now, there are some reports that $4 trillion in deficit reduction may be in the works. In this supposed “grand bargain” with Republicans, Democrats would agree to reform Social Security, Medicare and Medicaid, while Republicans would agree to increase revenue by closing tax loopholes.

The sticking point in negotiations thus far has been that Republicans have refused to agree to a bill that included revenue increases while Democrats have refused to agree to a bill that did not include revenue increases. Democrats have also been reluctant to address the rising costs of Social Security, Medicare and Medicaid.

Reforming Social Security, Medicare and Medicaid has been one of the biggest challenges in reducing the long-term growth in the federal budget. With Baby Boomers beginning to retire, longer life spans, and the increasing cost of health care, the costs of these programs are expected to dramatically increase. A report last month by the Congressional Budget Office said that the cost of Social Security and government health care programs is expected to rise from 10 percent of GDP today to 25 percent of GDP 25 years from now. That increase amounts to an additional $750 billion added to the costs of these programs.

The Republican-led House passed a budget plan, put together by Rep. Paul Ryan (Wis.), in April that would reduce the cost of Medicare by changing it to a premium support plan. Participants would buy health insurance in the private market and the government would give means-tested support to help pay for it. The Ryan plan did not address the rising cost of Social Security.

The Democratic-led Senate has not passed a budget, and President Obama has not proposed a long-term budget that addresses Social Security, Medicare or Medicaid's fiscal problems.

The Thursday private meeting took place at 11 a.m. in the White House. Obama emerged at 1 p.m. to tell reporters, “It was a very constructive meeting.”

He also said that congressional staff and leaders will continue to meet over the weekend and he will reconvene with leaders on Sunday “with the expectation that parties will at least know what each other’s bottom lines are and will hopefully be in a position to start engaging in the hard bargaining necessary to get a deal done.”

Obama provided no details about what was said at the meeting.

Speculation of a “grand bargain” emerged Wednesday when The New York Times reported that House Speaker John Boehner (R-Ohio) met secretly with Obama over the weekend to propose $1 trillion in additional revenue (by eliminating tax deductions, increasing user fees, and selling government property), in exchange for reforms to Medicare, Medicaid and Social Security.

The proposal makes sense if a $4 trillion deficit reduction package is really on the table. Achieving that level of deficit reduction would be difficult without some combination of revenue increases and reductions in the rate of growth of Social Security, Medicare and Medicaid.

Obama addressed the debt limit negotiations at a first ever “Twitter Town Hall” Wednesday. Twitter is a social networking service that allows users to send short, 140 characters or less, messages to everyone in their network. Anyone with a Twitter account could pose a question to the president. Some of those questions were chosen, in part based upon how many people “re-tweeted” the question, for the president to answer.

Obama criticized Republicans during the Twitter Town Hall for not agreeing to eliminate tax deductions as part of a deal to increase the debt ceiling.

“Never before in its history has the United States defaulted on its debt. The debt ceiling is not something that should be used as a gun against the heads of the American people to extract tax breaks for corporate jet owners, or oil and gas companies that make billions of dollars because the price of gasoline has gone up so high,” said Obama.

Congressional leaders from both parties will have a tough time selling any “grand bargain” to their respective caucuses. Many in the House Democratic caucus are strongly resistant to any changes in Social Security, Medicare, or Medicaid, and many in the House Republican caucus oppose any changes to the tax code that is not revenue neutral.

Members of the House Tea Party Caucus, in particular, have held a hard line on increasing the debt limit. Rep. Michele Bachmann (R-Minn.) is running a new ad in Iowa in which she says emphatically that she “will not vote to increase the debt ceiling.”

If the rest of the Tea Party Caucus refuses to sign any debt limit increase, Boehner may need to negotiate more with Democrats to get enough votes to pass the bill. Ironically, this would give Democrats more leverage in the negotiations over the debt limit increase.

Obama left his press conference today by saying, “Nothing is agreed to until everything is agreed to, and the parties are still far apart on a wide range of issues.” He took no questions from reporters.

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