The Small Bargain and the Grander Bargain

Moneybox
A blog about business and economics.
Dec. 10 2012 1:43 PM

The Small Bargain and the Grander Bargain

This is not necessarily the analytical frame that the participants in the "fiscal cliff" negotiations are using, but it's worth noting that from an Obama administration perspective, we're not just looking at a question of deal or no deal, we're looking at a question of Grander Bargain or Small Bargain.

The best way to understand the possibility of a Small Bargain is to understand what the Obama administration can likely get just by default. That's the full cliff—big tax hikes and automatic spending cuts on both the military and domestic spending. Then in the new year, Obama and the House Republicans would agree to a big middle-class tax cut and partially roll back those sequester cuts. That's a decent win for Obama, and it gives him a decent amount of leverage in the negotiations. And the existence of that leverage means we might well get a Small Bargain in which Obama gets $800 billion in higher revenue via higher tax rates on the rich and the sequester gets partially rolled back. That's a decent win, too.

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But there's a lot that's not in the little deal. Compared to Obama's initial offer, the Small Bargain falls about $800 billion short in tax revenue. Compared to Obama's initial offer, the Small Bargain doesn't get any fiscal stimulus. Compared to Obama's initial offer, the Small Bargain doesn't resolve the debt ceiling.

So even though a little deal might be broadly acceptable to the Democratic Party, you can see why the White House might want a Grander Bargain. In the Grander Bargain, the White House would be trying to secure a lot more goodies. They'd be trying to get some more tax hikes that the squishier members of the Senate Democratic caucus aren't willing to back without bipartisan cover. They'd be trying to get some stimulus. They'd be trying to wrap the debt ceiling up and turn the corner to nonbudgetary issues like immigration reform. And in order to get a Grander Bargain, Obama would have to give up some really big fish to the Republicans that progressives won't like. And the problem here is that people tend to be loss-averse—they'd rather keep what they've got than give it up to get something new. That's why you wouldn't see liberals or conservatives embrace a grand bargain in which we banned abortion in exchange for implementing single-payer health insurance. And it's why I'd be skeptical about any Grander Bargain coming together even if I see why the White House likes the idea of going big. Both coalitions want, at the end of the day, to get through this process while giving up as little as possible. Conservatives don't want to cough up new progressive taxes they can avoid just to throw people off Medicare, and liberals don't want to throw people off Medicare just to raise taxes.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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