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What is the Grand Bargain?

Explanation of Potential Agreement Between President and Congress

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The term grand bargain is used to describe a potential agreement between President Barack Obama and congressional leaders in late 2012 on how to curb spending and reduce the national debt while avoiding steep automatic spending cuts known as sequestration or the fiscal cliff set to take place the following year to some of the most important programs in the United States.

The idea of a grand bargain had been around since 2011 but the real potential emerged following the 2012 presidential election, in which voters returned many of the same leaders to Washington, including Obama and some of his fiercest critics in Congress. The looming fiscal crisis combined with a polarized House and Senate provided high drama in the final weeks of 2012 as lawmakers worked to avoid the sequestration cuts.

Details of the Grand Bargain

The term grand bargain was used because it would be a bipartisan agreement between the Democratic president and Republican leaders in the House of Representatives, who had been gridlocked on policy proposals during his first term in the White House.

Among the programs that could be targeted for substantial cuts in a grand bargain are the so-called entitlement programs: Medicare, Medicaid and Social Security. Democrats who resisted such cuts would agree to them if Republicans, in return, sign off on higher taxes on certain high-income wage-earners much like the Buffett Rule would have imposed.

History of the Grand Bargain

The grand bargain on debt reduction first emerged during Obama's first term in the White House. But negotiations over the details of such a plan unraveled in the summer of 2011 and never began in earnest until after the 2012 presidential election.

The disagreements in the first round of negotiations reportedly were the insistence by Obama and the Democrats on a certain level of new tax revenue. Republicans, particularly more conservative members of Congress, were said to have vigorously opposed raising taxes beyond a certain amount, reportedly some $800 million worth of new revenue.

But following Obama's re-election, House Speaker John Boehner of Ohio appeared to signal a willingness to accept higher taxes in return for cuts to entitlement programs. "In order to garner Republican support for new revenues, the President must be willing to reduce spending and shore up the entitlement programs that are the primary drivers of our debt," Boehner told reporters following the election. "We’re closer than anyone thinks to the critical mass needed legislatively to get tax reform done."

Opposition to the Grand Bargain

Many Democrats and liberals expressed skepticism over Boehner's offer, and restated their opposition to cuts in Medicare, Medicaid and Social Security. They argued that Obama's decisive victory allowed him a certain mandate on maintaining the nation's social programs and safety nets. They also claimed the cuts in combination with the expiration of both the Bush-era tax cuts and payroll-tax cuts in 2013 could send the country back into a recession.

The liberal economic Paul Krugman, writing in The New York Times, argued that Obama should not easily accept the Republican offer of a new grand bargain:

"President Obama has to make a decision, almost immediately, about how to deal with continuing Republican obstruction. How far should he go in accommodating the G.O.P.’s demands? My answer is, not far at all. Mr. Obama should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a 'grand bargain' on the budget that snatches defeat from the jaws of victory."
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