Fiscal Cliff 2013: Why Democrats Will Win the Debt Ceiling Debate

The Republican Party, as it stands now, is fractured, struggling to find a true identity after yet another electoral loss. No doubt, this is a perfect time for Democrats to go on the offensive and attempt to further break the GOP’s intransigence and aversion to compromise.

Breaking Republicans’ “no tax increases, ever, for any reason” stance, if only temporarily, is no small feat. But it was a relatively easy feat, with taxes set to go up on everyone and huge spending cuts on the horizon (and the milk cliff!), the GOP had to give in.

In the upcoming fights over the debt ceiling and the sequester, Democrats will have to make Republicans give in — to raising the debt ceiling, to raising further revenues in a progressive way, to keeping the integrity of entitlement programs, to not cutting other important social programs.

With an all-out push by President Obama, Democrats can get a carbon tax and progressive tax reform in a grand bargain. The price? Progressive Medicare reforms and the permanent reduction of the payroll tax. Now that doesn’t sound too bad, does it?

Democrats, here’s how you do it:

1. Go on the offensive on Medicare reforms to get progressive tax reform

Medicare without any changes is fiscally unsustainable. That’s just a fact, and it means Democrats have a responsibility to put forward ideas to reform it.

Medicare costs are high because health care costs are high, but also because Medicare pays out more in benefits than it takes in — about $241,000 more for “an average-wage two-earner couple together earning $89,000 a year,” according to the non-partisan Urban Institute (first established by the Lyndon Johnson administration).

But Democrats also have a political and strategic advantage to proposing their own reforms, outside of those already established by the Affordable Care Act. To do so makes moot the only talking point the GOP has going for it on extreme reforms like the Ryan plan — that such policy is needed to keep Medicare from going bankrupt.

So Democrats should advocate means-testing Medicare further (it is already means-tested to a degree). There is space between means-testing too much, which may lead the better-off and healthier to leave Medicare for private insurance, shrinking the risk-pool that keeps costs lower, and not means-testing enough.

Alongside means-testing, Democrats should propose other reforms, like increasing Medicare’s bargaining power and Ezekiel Emanuel’s proposal for “graduated eligibility” that would connect the age of eligibility to lifetime earnings.

Take the wind out of the Ryan plan backers’ sails, take on progressive Medicare reform, accurately come across as serious about reforming Medicare, and tie Democratic support for these proposals to getting more revenue via tax reform with a 1-1 spending cut to revenue increase ratio, and announce it all in the State of the Union. That’s a winning formula.

2. Advocate for the elimination of the payroll tax, and a carbon tax, all in one

The payroll tax is horribly regressive, and for a country that, with the help of lobbyists, is all too eager to incentivize certain behavior in the tax code, it makes no sense to disincentivize labor via the payroll tax.

That’s an easy argument to make; it’s true, and it’ll be extremely popular. So Democrats should use it to create a more progressive tax system and fight climate change, all at the same time. Permanently reduce the payroll tax by instituting a carbon tax. According to Sebastian Rausch and John M. Reilly of MIT, this would allow for a 1.59% reduction in payroll taxes, and the President could bring the rate down even more by eliminating wasteful oil and gas subsidies.

The argument against a carbon tax in normal circumstances would be that it would kill jobs, etc. But I highly doubt it would be more detrimental to job growth than the payroll tax — in certain industries, sure, but not overall, providing an opportunity to make that talking point a moot point as well.

3. Keep pushing these proposals, day after day, and watch Republicans struggle to find reasons to oppose them

The president’s popularity would soar, and an all out, coordinated push by the president and his allies, including both Clintons, would put the Republicans in a impossible position. They would be forced to defend allowing the sequester to take place, and continuing to threaten making the U.S. default on our obligations by refusing to raise the debt ceiling, all because they opposed these extremely popular proposals.

That won’t fly, and that’s how Democrats can make a grand bargain truly grand.