In the middle of a lethargic second term in which President Barack Obama and Congress have passed little meaningful legislation, Washington, D.C. has an opportunity to reboot. The narrow aversion of a federal default on its debt and temporary government shutdown have set up a budget conference, which is long overdue.
If Congress uses the framework from previous negotiations, it is more likely than not the budget conference will end similarly to the previous— with nothing to show. House Speaker John Boehner does not have the political capital or political courage to corral his caucus to vote for tax increases even in exchange for cuts in nondiscretionary spending. Meanwhile, Senate Democrats and Obama will not accept entitlement cuts without matching tax increases.
Therefore, it makes little to no sense to work within the framework of the grand bargain that failed a couple years ago. Rather, Democrats should accept certain budget cuts in return for immigration reform.
This compromise would accomplish what Washington was unable to do last week, which would be to reduce our budget deficit and promote growth in the United States economy. The latest Congressional Budget Office projected that the federal deficit will fall to 2 percent of GDP by 2015. The budget deficit is falling and it’s falling fast. The CBO report also found that a 0.2 percent increase in the growth rate would put an end to the long-run budget gap.
This is where immigration comes in. The CBO found the immigration reform bill that the Senate passed would increase real GDP by 3.3 percent in 2023 and 5.4 percent in 2033, real increases of $700 billion and $1.4 trillion, respectively. The increase in real GDP represents much more than the 0.2 percent increase in the growth rate needed to eliminate our long-run budget gap. Moreover, the increase in taxes paid as a result of the immigration bill is one of the few ways Democrats can raise revenues without increasing taxes.
The key to this negotiation is to find spending cuts that Republicans will agree to in return for immigration reform. Spending cuts will reduce the growth rate, so it will be imperative to ensure those reductions in the growth rate are substantially less than the increase from immigration reform. The budget cuts must also take into account equity and not come upon the backs of the most needy. For example, Democrats should reject reductions to the Supplemental Nutrition Assistance Program that Republicans have been pushing for.
This framework could extend the liquidity of social security and greatly reduce the long-run budget imbalance while providing the basis for the next generation of innovation and job creation. While not all of Washington, D.C. would approve of this compromise, a majority of each house of Congress could support this. Instead of focusing on higher taxes and entitlement reform, immigration reform and spending reductions could provide the compromise Washington, D.C. has been looking for.
Do you think this would be a good compromise between Republicans and Democrats? Please send all feedback to email@example.com.