Fiscal Cliff Watch: Offers Begin to Emerge

UPDATE: Debt numbers in table have been slightly altered since the original posting.

With now less than a month before the country would go over the fiscal cliff, proposals from both sides have been put on the table. While a final deal could look different than the presented plans, they do provide a guide to where the negotiations stand and where lawmakers may head to reach a compromise.

To help follow the negotiations, we've created a comparison table of both the President's proposal last week and the Republican offer presented in a letter yesterday. The Republican offer cited a suggestion Erskine Bowles put forward as a possible middle-ground during the Super Committee hearings. Because the numbers in the Republican letter were somewhat more vague than what Bowles presented, we've included both sets of numbers; we are also assuming that the numbers presented for the 2012-2021 budget window will now be applied to the 2013-2022 window.

Comparison of Budget Proposals (Numbers in Billions)
Budget Category
White House Offer House GOP Offer
Savings in Letter "Bowles" Savings
(from Super Com.)
Jobs Measure and Tax Extenders -$435 billion Unspecified $0
Discretionary Spending $0 $300 billion $300 billion
Health Care $350 billion $900 billion $600 billion
Other Mandatory $250 billion $300 billion
Chained CPI $0 Unspecified $200 billion
New Revenue $1,560 trillion $800 billion $800 billion
Social Security $0 $0 $0
Interest ~$225 billion $300 billion ~$350 billion
Total New Savings $1,950 billion
$2,300 billion
$2,550 billion
Enacted Savings $1,700 billion $1,700 billion $1,700 billion
Total Savings
$3,650 billion
$4,000 billion
$4,250 billion

Debt in 2022

(81% Under Realistic Current Policy)

73.5% 72% 71%

It's worth noting that both sides have realized that a bipartisan plan will need a combination of spending reductions, increased revenue and entitlement reforms -- although there is disagreement on what the right mix of each should be and what the policies should be to achieve them.

Excluding previously enacted savings, President Obama favors a plan that would raise slightly under $1.6 trillion in new revenues and produce roughly $600 billion in spending cuts (though some of this money is returned in the form of $435 billion of spending increase and tax cuts). House Republicans, on the other hand, put forward an offer which includes $800 to $850 billion in new revenue and $1.2 to $1.35 billion in spending cuts.

In addition to differences on the "how much," there are also differences on the "how". For instance, the White House wants to raise its revenue by first allowing the upper-income tax cuts to expire and rates to go up to generate about $950 billion in revenue, and then raise an additional $600 billion through tax reform. House Republicans want to raise the revenue without raising tax rates.

While is great to see that both sides are looking to address revenue and spending, both sides should negotiate up not down. The original plans offered are likely to barely stabilize the debt or put it on a slow downward path. Negotiating to the lowest common denominator will mean missing that benchmark altogether. Going bigger, on the other hand, offers the opportunity to put the debt on a clear downward path over the medium-term and making substantial improvements on our long-term fiscal situation.

We will continue updating this comparison grid as more plans are released.