In Fiscal Cliff Negotiations, President Obama Holds The Upper Hand
There are just over six weeks left until the end of the year, and far less than that left in actual legislative time given that Congress will be out of session this week for the Thanksgiving holiday and will likely check out of town sometime around December 21st at the latest. If nothing is done, either in terms of an actual deal or an agreement that kicks the can down the road, then all of the Bush Tax Cuts will expire, the first round of sequestration cuts will begin, the Payroll Tax Cut will expire, and he optimism that Congressional leaders are expressing on the chances of making a deal this year seems more than just a bit optimistic. For one thing, there isn’t a whole heck of a lot of time to craft a comprehensive deal that covers all these areas and satisfies enough interest groups to get a majority in both Houses of Congress. That’s why I still expect that any legislation that does get passed this year will be something that pushes this whole issue off to be dealt with by the 113th Congress. For another, at the moment there is one party to this entire negotiation that holds all the cards and he may be willing to let GOP unwillingness to raise taxes force the country over the fiscal cliff.
I speak, of course, of President Obama. The last time the Bush Tax Cuts were up for renewal in during the 111th Congress’s lame duck session, the President found himself in a politically difficult position. His party had just gotten trounced in the mid-term elections, losing control of the House and cutting back their Senate majority by a significant margin. Moreover, the Republicans had won the mid-terms by campaigning hard against the President’s agenda and his job performance. The economy seemed to be teetering on the verge of slipping back into recession, and analysts were warning that allowing taxes to rise across the board would pretty much guarantee that would happen. The President went into negotiations with the Republicans (the lame duck Democratic leadership was virtually ignored during this process) wanting to renew the Bush Tax Cuts only for people making $250,000/year and less. Because of the political situation, though, he had very little bargaining power and the Republicans were able to force a deal that extended the tax cuts for everyone. Democrats screamed and shouted, but in the end they went along with it because, like the President, they didn’t want to face the prospect of letting the tax cuts expire in a weak economy.
The political landscape is far different today than it was two years ago, however. Most obviously, instead of coming off of a losing election, the President has just been re-elected by an Electoral College margin that was only two states short of the one he won in 2008. Additionally, the Democratic Party picked up seats in both the Senate and the House while several Tea Party icons, notably Joe Walsh and Allen West, saw themselves defeated. Whether it’s true or not, and we’ll never really know, the President can claim that the American people endorsed his view on what should happen to the Bush Tax Cuts by re-electing. Based on polling that goes back all the way to when we dealt with this issue two years ago, it’s certainly true most Americans support raising taxes on “the rich” as part of a deficit reduction deal. What all that means is that, this time around, it’s the President who holds the cards and not the Republicans, and it’s far more likely that the final deal will end up resembling what he has proposed than that we’ll see all of the Bush Tax Cuts extended.
All of this leads to an interesting possibility that Jazz Shaw raises in a post today, the idea that the President may just as soon see the negotiations fail and let the nation go over the fiscal cliff, at least temporarily:
Basically, this works out to a win-win for Obama. Yes, he could look like the great peacemaker and try to strike some sort of grand bargain with Boehner. And if he did, he would likely get some of what he and the Democratic majority want in exchange for taking a slightly less than maximum raise on taxes for the most wealthy. But why?
If he takes a very hard line and forces the showdown to a collapse in discussions, several potentially positive (for him) results are baked into the cake. He can claim that Republicans refused a “balanced approach” and it’s their fault that everyone’s taxes went up. He then has the Democrats force a vote on a bill to only lower taxes on the middle class and the poor and just dares the GOP to vote against it. (They won’t.) At this point he has the tax / revenue increase he promised without giving up a single thing. Now the negotiations start anew to talk about “spending cuts” but the GOP’s major bargaining chip is gone. Obama gets to put up a far more shallow version of cuts, and if the Republicans don’t like it, they can choose to reject the deal and just let the deficit continue to skyrocket.
Politically, it appears that the President would have very little to risk if he did this, and the Republicans would have almost nothing to gain:
The spending cuts are a hangover from the debt-ceiling fiasco of a year ago. Recall from that time of national insanity the patriots threatening to send the United States into default on its debt. Recall their stopping so-called Republican leaders from making a deal that included any new tax revenues. Recall grownups from both parties — terrified of economic disaster in the event of a default — agreeing on the above radical spending cuts, should a better plan not arrive in time.
The Republican Party took the rap for the debt ceiling and is under suspicion for the fiscal cliff. A new Washington Post-Pew Research poll has 53 percent of Americans ready to blame Republicans if America actually goes over the edge and only 29 percent planning to point fingers at President Barack Obama.
Understanding this, thoughtful Republicans are feeling freer to risk the tea partiers’ wrath and cooperate with Democrats. The teams may disagree on much, but at least they’re now playing in the same ballpark.
We’ve seen this before, of course. The President was a far tougher negotiator during the debt ceiling negotiations in the summer of 2011 than he had been the previous December, and it ended up helping him politically largely because the Republicans were hamstrung by a significant part of the House GOP Caucus who foolishly believed that we didn’t need to raise the debt ceiling at all. Adopting the same strategy now would seem to be the politically smart thing for him to do, and if the GOP continues its intransigence on tax increases, it would be very easy for the President to say “No deal,” and walk away. At that point, the GOP would either have to give in, or watch the nation go over the fiscal cliff. Once we hit mid-January and people start noticing that their paychecks are smaller, they’re going to be looking for someone to blame, and you can rest assured that the White House will be telling them that it was the GOP’s refusal to make a deal in December that caused taxes to go up. At that point, I imagine that we’ll see Congress bang out a comprehensive deal that puts tax rates for all but “the rich,” however that’s defined, back to their Bush Tax Cut levels. The Republicans will vote for it in a heartbeat, and Obama will have won.