New Report Provides Blueprint for Successful Budget Deals

Lessons from 40 years of negotiations reveal the keys to crafting a true “grand bargain”

NEW YORK, NY — Republicans and Democrats are carelessly bringing back an era of trillion-dollar budget deficits, which are forecast to add $84 trillion in red ink over the next 30 years. At some point, either the financial markets or a voter rebellion will force the brakes on this unsustainable trend. But will Washington prove capable of crafting a bipartisan “grand deal” to rein in these deficits? A new Manhattan Institute report by senior fellow Brian Riedl analyzes 14 major deficit-reduction negotiations since the early 1980s to determine lessons and tactics that can be used in future budget deals.

Over the past 40 years, some budget negotiations have led to stunning bipartisan successes (like the 1983 Social Security deal), while others have resulted in spectacular failures (like the 2011 Obama-Boehner grand deal negotiations). After exhaustively reviewing records of past negotiations, interviewing participants, and incorporating negotiating theory, Riedl identifies three key ingredients for a successful deficit-reduction deal:

1. A penalty default (such as a looming government shutdown) that brings both sides to the bargaining table;
2. Public concern about the deficit and support for the broad outlines of a deal; and
3. Healthy, bipartisan negotiations that focus on good-faith compromises and “win-win” solutions.

Riedl argues that a successful negotiation requires having at least two of these elements present. The breakdown of these elements—especially the lack of healthy negotiations—has resulted in only one major deficit-reduction deal being enacted over the past 20 years. Both Democrats and Republicans should learn from these patterns and failures of the past to “become leaders and work together for economic sustainability.”

Additionally, the report analyzes the policy components of successful negotiations. The majority of savings from past budget deals have come from discretionary spending cuts (and, to a lesser extent, Medicare provider cuts and small tax increases). The challenge today is that most of this low-hanging fruit has already been picked, leaving major entitlement cuts and tax rate increases as the only options to deal with future growing deficits.

Click here to read the full report.