First, make several billion in immediate reductions to 2012 discretionary spending. These are essentially symbolic cuts that would give the Republicans something for their base and help convince markets that the president and Congress aren't just kicking the can down the road.
Second, cut $100 billion in the 2012-13 budget, which is about what Vice President Joe Biden and Cantor agreed on before Cantor walked out on negotiations, though Walker would have them implemented more slowly so as not to harm the recovery. This might include eliminating a few indefensible tax expenditures, such as ethanol subsidies (already rejected by the Senate) and the tax breaks for corporate jets that the president highlighted in his news conference, but would mostly focus on spending cuts.
Finally -- and this is the key to the deal -- institute budget controls with pay-as-you-go requirements, annual spending caps and specific debt-to-GDP targets. If the targets aren't hit by late 2013 -- by which time Congress and the president would have had a chance to overhaul the tax code and start reforming Medicare and other entitlements -- buzzers would sound, lights would flash and the deal would trigger automatic draconian spending cuts and what Walker delicately calls "surcharges," which in plain English means higher taxes.
Safety Valve
Obama has already agreed to a 3:1 ratio of spending cuts to tax increases, which sounds about right to Walker for the triggers. But the numbers and ratios in this third element are less significant than the principle, which is that what Walker calls an "automatic default mechanism" is the way to go. Such a contraption would give Washington a strong incentive to move toward real tax and entitlement reform over the next two years.
Will Republicans bite on this? This week, no. "The biggest sticking point right now is that Republicans don't want revenue on the table even as a default," Walker told me. "My message to the GOP is that this is not a tax increase, it's a safety valve, a 'Fail-Safe.'" In the movie and earlier book of that name, the automatic fail-safe mechanism for strategic bombers actually made nuclear war more likely, not less, but no matter.
We need a default mechanism to prevent default. As the players all know, this worked during the 1990s when the triggers and caps that began under the Gramm-Rudman-Hollings Act kicked in. With a combination of spending cuts and tax increases, Presidents George H.W. Bush and Bill Clinton managed to turn daunting deficits into surpluses by the end of the century.
Norquist Looms
Grover Norquist, the anti-tax crusader recently described by Alan Simpson as "the most powerful man in America, including the president," has convinced the majority of House members to sign his pledge to oppose all tax increases. He'll fight even these fail-safe triggers, just as he fought them under the first President Bush. (When Stephen Colbert asked Norquist this week whether he would support a tax increase if it would save grandmothers from being bitten to death by angry fire ants, he said: "I think we console ourselves with the fact that we have pictures and memories.")
Norquist's favorite argument to fellow Republicans is that the first President Bush lost his bid for re-election in 1992 because he abandoned his "read-my-lips-no-new-taxes" pledge. He threatens that the same fate will befall Republicans who agree to any tax increases now, even in the form of surcharges that need not be triggered if politicians act responsibly.