Progressive bloggers have been tearing up the blogosphere decrying the compromise that is in the process of being passed. If people are serious, they are misinformed. If not, they are simply role playing - however with a time agreement in the Senate and the bill passed in the House, it is now safe to gloat about Obama winning the long term game. Why I know Obama won is below the fold. I will also take a guess at what will happen next. Note that on my blog last winter, I predicted that the outcome of this debate would be a joint committee to write legislation with equal partisan representation and fast track consideration. That is precisely what happened.
First off, unless there is language in the bill extending the Bush tax cuts, as much as the GOP claims that there are no revenues in the deal - the entire panoply of Bush tax cuts are repealed unless Obama either geeks to GOP demands or they compromise. If Obama says so, the entire package of tax cuts expire, in addition to any spending cuts enacted over the next few days. The Committee of 12 is likely to propose major tax reforms that actually bring in revenue - although it will be interesting to see whether any of the consensus rules of the Committee require just a majority to make recommendations or a majority in each House's membership.
Second, the Tea Party radicals have been prevented from causing the economic crisis that so many of them desire. It is a libertarian fantasy that collapse of the state is imminent and that out of that collapse, people will self organize into free communities - which is as unrealistic as a belief in the revolution of the proletariat making all things right. Not only has the possibility of collapse been averted, it can't even be threatened until 2013.
Third, the effective date of any triggers is after the next election. The GOP is OK with that because they are under the delusion that Obama will lose. They are unaware of their own mortality. The Tea Party is in a demographic where death is as likely one year as the next. Not only are they moving toward age 90 as a group, but almost all of them are over age 50. An equal number of people in any age cohort die between the ages of 50 and 90 every year until none are left. There is no peak - every year an equal number of people die each year after age 50 in every generation. The demographics do not support any long term domination, just the opposite.
Now, what will happen?
Sober reflection should keep chained CPI off the table. The problem in Medicare is mostly that parts B and D are underfunded. They can either be funded by raising taxes - indeed they are fully funded if all the Bush tax cuts expire (not just the ones on the rich) although comprehensive tax reform could be used to directly fund all of health care in a single VAT-like Net Business Receipts Tax. The other option, or even a complementary option, is to increase the premium for both parts and offset the increase in premiums with an increase in Social Security benefits. This would require greater funding to accomplish, either will across the board increases or by more quickly raising the income cap - or maybe some of both.
Chained CPI won't work for one simple reason - if you adopt it you can't increase premiums for Parts B and D - which is something that is essential to do - therefore no chained CPI (unless no one objects - and I plan to). This is a Maya MacGuinnes thing. Maya did not think it all the way through (as usual).
There is still the very real prospect that health care reform will not work as planned, with mandates being inadequate in the face of patient protection provisions to keep many families insured. I suspect that the reason people think this won't happen is because people are more likely to avoid bad things than taking risks to maximize their earnings - meaning they will pay the insurance even though in all likelihood, they are better off dropping it until they get sick. This is why people get onto the HOV lane in DC when restrictions come off in order to avoid congestion in the normal lanes, even though they then congest HOV equally. Still, if the financial markets believe that mandates are inadequate to keep people insured (or if mandates look like they will fall to a constitutional challenge), the insurance industry may insist on an early deal trading madates and pre-existing condition reforms for a subsidized public option for all those who can't get insurance. If that happens, however the funds are increased for the public option, they will also be increased for future Medicare and Medicaid. If this epiphany happens in the next 4 months, it will make it into the deal.
I suspect that the Committee of 12 will succeed in broadening the tax base and cutting rates. They will say that they are getting rid of the Alternative Minimum Tax (AMT), but what they are really doing is modifying the AMT by adding benefits at the lower level, lowering the rates at the middle and raising them at the top and scrapping the remainder of the tax code. Everyone knows they are doing that, but no one is willing to admit it.
If the Committee of 12 makes any serious cuts at all, it will be in Defense. Of course, that may reduce the attractiveness of the final product to Republicans, so Obama may wait until after the election to start claiming his own peace dividend.