So, it certainly appears that we are headed over the fiscal cliff (kind of a misnamed and bad analogy if you ask me...modest across the board tax hikes and spending cuts are hardly a "cliff", but I'll go with the commonly understood language), barring an eleventh hour deal.
There are a few ways that things could still play out differently - Speaker Boehner could decide to allow a vote on extending lower tax rates for those below $250K, which seems almost sure to pass with near universal Democratic support and a smattering of Republicans who think that something is better than nothing. I could also still see a "kick the can down the road" type of bill that delays the sequestration.
But frankly, I'm happy to go cliff-diving. It'll be fun to watch the federal deficit shrivel up to a fraction of its former self overnight. We'll actually be living within our means (or closer to it) when the cliff happens.
Alas, it will almost surely be temporary. President Obama is no doubt looking ahead to January 3rd, when the new Congress goes into session and he has more House and Senate seats to work with. He still obviously won't have a majority in the House or the 60 seats to stop a filibuster, but the difference between having to win over 17 House Republicans instead of 25 and 5 Senate Republicans instead of 7 will make a difference in how good a deal the President can get.
Regardless, we will survive a few weeks of Clinton-era tax rates, fragile economy and all.
The meatier issue staring us in the face is the debt-ceiling, which the country is scheduled to hit on Monday. There is a little time on the clock - similar to last year, the Treasury can buy some time by not making pension contributions and delaying paying for other expenditures - typically these tricks can buy about two months, although they will likely buy longer than that if we also go over the cliff and borrowing needs are a lot less.
Coinciding with the debt ceiling issue is the issue of the remaining budget for Fiscal 2013. The continuing resolution that everyone agreed to in order to avoid this showdown at election time covered funding of the federal government through March of 2013. Beyond that, new legislation will need to be passed.
I mention these two issues together, because it poses an obvious question - why are Republicans threatening to mess with the debt ceiling again? They have control over what we spend beyond March. The House can choose to pass much smaller appropriations, if it deems fit to do so. Charge less on the credit card if you wish, but quit threatening not to pay the bill. The whole notion that congress can refuse to permit the debt that is necessitated by laws it passed seems absurd every time it comes up. And failure to raise the debt ceiling will have much more severe consequences over the long term than going over the fiscal cliff for a few weeks.
Let's hope rational heads prevail and it doesn't come to another default showdown. But given the history, anything is possible.
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Thursday, December 27, 2012
Friday, December 21, 2012
The GOP is Playing a Very Bad Game of Chess - But Does That Mean Anything for a Cliff Deal?
December has not exactly been the GOP's proudest moment. They have been out-flanked every step of the way by the Democrats and have looked disorganized, unreasonable and even downright silly. Two events cap how badly they have navigated the fiscal cliff debate:
(1) McConnell Filibusters Himself
President Obama, as part of one of his offers on the cliff, had proposed as part of the resolution, that Congress do away with the need to periodically increase the debt ceiling. The President's thinking was - Congress has to authorize all of the actual expenditures that lead to a debt-ceiling hike being necessary in the first place, so the vote is redundant and all it does is create conflict and risk the US credit rating. The GOP, of course, has no desire to give up leverage on the debt ceiling, which they hope to use to extract additional spending cuts, including entitlement reform.
Hoping to embarrass Obama by showing how little Democratic support his proposal hid, Mitch McConnell proposed a bill that would permanently eliminate the cap on the debt ceiling. His thinking surely was that Democrats in the Senate were not ready to sign off on such a bill. The only problem is that they absolutely were and Senate Majority Leader Harry Reid moved quickly to vote to pass the bill.
All of this put McConnell in the position of realizing that this bill that he has proposed, but opposed, would actually pass. McConnell promptly filibustered a vote on his own bill in order to kill it. That's right, HE proposed the bill, then filibustered it.
That's a high score on the stupid-meter if I've ever seen it.
(2) Boehner Better Get a Plan C
There is no doubt about the going-in GOP position to the negotiations - that they didn't want any income taxes to go up (they were less worried, as far as I can tell, about payroll taxes going up, but income tax rates were critical.) The House has already passed a bill, essentially with only GOP votes, to extend all of the tax rate cuts at all income levels.
Realizing that there was no way that the President was going to sign off on such a bill and that he would likely slam the GOP for holding middle-class tax cuts hostage to tax cuts for the very wealthy, Boehner rallied this week around a "Plan B" - a plan to extend tax rate cuts for everyone under $1 million in income. Surely, he must have thought, if the President vetoes that bill (or the Senate refuses to take it up), it will be the Democrats who will be blamed for holding middle class tax cuts hostage, since he would have compromised and agreed to let rates rise for the richest.
There was only one problem with Boehner's plan - his own caucus didn't support it. Boehner had to suddenly cut bait and not even vote on the proposal yesterday, after it became clear it would fail broadly in a floor vote.
So the GOP is clearly is disarray at the moment, and the polls reflect this. His approval rating is up to 56% in the Gallup poll (and at similar rates in other recent polls), the highest in over 3 years. A solid majority (52%) believe that the GOP needs to give more on the fiscal cliff, while a much smaller minority (40%) believe that the President hasn't given enough.
All of that said, I don't know how this will play out. Knowing how badly they've fumbled and that the nation is uniting against their point of view, the GOP should give ground. A conservative friend of mine, certainly no fan of the President or the Democrats (he told me the last time he voted for a Democrat was a state senate race in Virginia in 1988), put it very clearly - "we had an election over this. We lost. We need to get over it." But the modern GOP is a complex animal. Certainly Boehner and the mainstream Democrats in the Senate from purple states (see John McCain or the departing Scott Brown) want a deal. But the Tea-Party loyalists who won primary battles on the basis of their ideological purity, may not care a whiff that the public is against them. If they can't even get behind a $1 million+ rate hike increase, what are the odds that they can support a deal that the President can live with?
The best chance for a deal is a coalition of most of the Democratic party with the most moderate elements of the GOP. Until the new House is sworn in come January, there are only 193 Democrats in the House, with 218 votes needed to pass a compromise, meaning that any deal that attracted all of the Democrats would need 25 Republican votes. Realistically, any deal that attracted significant GOP support would likely lose some Democratic support from the far-left, so a more realistic scenario might be a deal that say wins all but 20 of the Democrats and wins 45 Republican votes. Such a deal would require some hard selling in the House by Boehner and Pelosi.
In the Senate, assuming the deal is not deficit-reducing and subject to reconciliation, which is a safe assumption since the "base case" of going over the fiscal cliff is likely far more deficit-reducing than anything that will be agreed to, you would need all the Democrats and Democratic-leaning Independents plus 7 Republicans to break a filibuster. There are a lot more moderate Republicans in the Senate, so this seems a much easier goal to reach with a deal than in the House.
Of course, come January, both the Senate and the House become more Democratic, meaning a deal would require less GOP support to pass. And with Congress headed home for the holiday and not due back until December 27th, the time window to get a deal done before the cliff goes into effect is running short.
I think at this point it is 50/50 that we get a deal before the New Year. Unfortunately for congress and the President, the Mayan Zombie Invasion (or whatever nonsense was supposed to happen today) didn't happen, so they will have to deal with this issue.
Expect a deal of some sort early in the New Year if we don't get more 11th-hour heroics in the next week and a half. It might look something like having rates rise on those making over $400 or $500K, having Social Security indexed to chained CPI rather than regular CPI-U, patching the AMT and repealing some of the DoD sequestration cuts.
If you like this site, tell your friends.
(1) McConnell Filibusters Himself
President Obama, as part of one of his offers on the cliff, had proposed as part of the resolution, that Congress do away with the need to periodically increase the debt ceiling. The President's thinking was - Congress has to authorize all of the actual expenditures that lead to a debt-ceiling hike being necessary in the first place, so the vote is redundant and all it does is create conflict and risk the US credit rating. The GOP, of course, has no desire to give up leverage on the debt ceiling, which they hope to use to extract additional spending cuts, including entitlement reform.
Hoping to embarrass Obama by showing how little Democratic support his proposal hid, Mitch McConnell proposed a bill that would permanently eliminate the cap on the debt ceiling. His thinking surely was that Democrats in the Senate were not ready to sign off on such a bill. The only problem is that they absolutely were and Senate Majority Leader Harry Reid moved quickly to vote to pass the bill.
All of this put McConnell in the position of realizing that this bill that he has proposed, but opposed, would actually pass. McConnell promptly filibustered a vote on his own bill in order to kill it. That's right, HE proposed the bill, then filibustered it.
That's a high score on the stupid-meter if I've ever seen it.
(2) Boehner Better Get a Plan C
There is no doubt about the going-in GOP position to the negotiations - that they didn't want any income taxes to go up (they were less worried, as far as I can tell, about payroll taxes going up, but income tax rates were critical.) The House has already passed a bill, essentially with only GOP votes, to extend all of the tax rate cuts at all income levels.
Realizing that there was no way that the President was going to sign off on such a bill and that he would likely slam the GOP for holding middle-class tax cuts hostage to tax cuts for the very wealthy, Boehner rallied this week around a "Plan B" - a plan to extend tax rate cuts for everyone under $1 million in income. Surely, he must have thought, if the President vetoes that bill (or the Senate refuses to take it up), it will be the Democrats who will be blamed for holding middle class tax cuts hostage, since he would have compromised and agreed to let rates rise for the richest.
There was only one problem with Boehner's plan - his own caucus didn't support it. Boehner had to suddenly cut bait and not even vote on the proposal yesterday, after it became clear it would fail broadly in a floor vote.
So the GOP is clearly is disarray at the moment, and the polls reflect this. His approval rating is up to 56% in the Gallup poll (and at similar rates in other recent polls), the highest in over 3 years. A solid majority (52%) believe that the GOP needs to give more on the fiscal cliff, while a much smaller minority (40%) believe that the President hasn't given enough.
All of that said, I don't know how this will play out. Knowing how badly they've fumbled and that the nation is uniting against their point of view, the GOP should give ground. A conservative friend of mine, certainly no fan of the President or the Democrats (he told me the last time he voted for a Democrat was a state senate race in Virginia in 1988), put it very clearly - "we had an election over this. We lost. We need to get over it." But the modern GOP is a complex animal. Certainly Boehner and the mainstream Democrats in the Senate from purple states (see John McCain or the departing Scott Brown) want a deal. But the Tea-Party loyalists who won primary battles on the basis of their ideological purity, may not care a whiff that the public is against them. If they can't even get behind a $1 million+ rate hike increase, what are the odds that they can support a deal that the President can live with?
The best chance for a deal is a coalition of most of the Democratic party with the most moderate elements of the GOP. Until the new House is sworn in come January, there are only 193 Democrats in the House, with 218 votes needed to pass a compromise, meaning that any deal that attracted all of the Democrats would need 25 Republican votes. Realistically, any deal that attracted significant GOP support would likely lose some Democratic support from the far-left, so a more realistic scenario might be a deal that say wins all but 20 of the Democrats and wins 45 Republican votes. Such a deal would require some hard selling in the House by Boehner and Pelosi.
In the Senate, assuming the deal is not deficit-reducing and subject to reconciliation, which is a safe assumption since the "base case" of going over the fiscal cliff is likely far more deficit-reducing than anything that will be agreed to, you would need all the Democrats and Democratic-leaning Independents plus 7 Republicans to break a filibuster. There are a lot more moderate Republicans in the Senate, so this seems a much easier goal to reach with a deal than in the House.
Of course, come January, both the Senate and the House become more Democratic, meaning a deal would require less GOP support to pass. And with Congress headed home for the holiday and not due back until December 27th, the time window to get a deal done before the cliff goes into effect is running short.
I think at this point it is 50/50 that we get a deal before the New Year. Unfortunately for congress and the President, the Mayan Zombie Invasion (or whatever nonsense was supposed to happen today) didn't happen, so they will have to deal with this issue.
Expect a deal of some sort early in the New Year if we don't get more 11th-hour heroics in the next week and a half. It might look something like having rates rise on those making over $400 or $500K, having Social Security indexed to chained CPI rather than regular CPI-U, patching the AMT and repealing some of the DoD sequestration cuts.
If you like this site, tell your friends.
Wednesday, December 12, 2012
Is Anyone Really Surprised by the Disfunction in Washington?
The hand-wringing in the press and in commentaries has been predictably vicious this week - why can't Washington work together? Why aren't our elected officials reaching compromise?
My question is - is anyone really surprised that we are approaching the edge of the "fiscal cliff" without a solution?
There is nothing in the history of negotiations between House Speaker Boehner and President Obama that indicates a strong capability to come to compromise. And interestingly, those are probably the two most moderate voices in the room - Boehner's caucus consists of a lot of die-hards who have no interest indealing while Boehner actually wants a deal and many on the left would be happy to let negotiations fail and blame the GOP.
I always knew that if there was going to be a deal - and there still could be - although a "grand bargain" that permanently solves problems around revenue and entitlements seems increasingly unlikely (another interim patch seems more likely) - it would happen in the 11th hour. Politics these days simply doesn't allow anything different.
Let's face it - the House GOP and the Democrats in the Senate and the White House were elected by different constituencies to do different things. And they are both representing what they ran on.
So how did we elect people with such divergent agendas?
Well - we did - but not the way you might think.
Democrats got 1% more votes than Republicans in House races this fall. Democrats won the national congressional vote 49.1% to 48.1%, a smaller, but still decisive margin from President Obama's popular vote total. In other words - very few people actually split their tickets to get the result we got.
So how did the GOP swing a House majority with 1% less votes than the Democrats? It all comes down to districts and there are 3 principle causes of the districting advantage for the GOP that leads to a House that is so different from the national vote:
(1) Inherent Demographics
Democrats tend to live in cities. Republicans tend to live in suburbs, exurbs and the countryside. This alone wouldn't create a House imbalance. But it's a question of proportion. Take Pennsylvania as an example - in the City of Philadelphia, Democrats win about 80% of the vote in a normal election. In outlying Bucks County, Republicans normally win about 60% of the vote. If you look at three congressional districts, one in Philadelphia and two in Bucks County, you will get 1 Democrat and 2 Republicans in congress, even though the total vote between the three districts will be roughly 50/50.
(2) Gerrymandering
Every 10 years, the 50 states (or at least the 43 that have more than 1 House seat) redraw district lines. In a few states this is done by a non-partisan judicial commission. In most states, however, lines are drawn by the state legislature and the Governor. In 2011, when lines were being redrawn, Republicans controlled completely 25 state legislatures with 9 that were either split-control or nonpartisan and only 16 controlled by Democrats. Republicans also controlled redistricting in big prize states like Texas, Florida and Pennsylvania. When you get to draw the lines, you will draw them in a way that favors your party - mainly by concentrating your opponents in a few districts and spreading out your supporters to win more districts.
(3) The Voting Rights Act
The Voting Rights Act of 1965 did a great many things intended to support the electoral rights of minorities in the United States. One aspect of the law required the creation of "minority majority" congressional districts - that is, principally districts with high concentrations of black voters intended to promote the election of black congressmen. While the law did serve that purpose - black representation in Congress increased significantly, it also created inherent gerrymandering, in a way that favored the GOP, since it essentially concentrated black voters in a few districts, creating a few overwhelmingly Democratic districts but many more mildly Republican districts.
Items 1 and 3 have existed for a long time (at least since the 60s), but in the past, other forces gave the Democrats more parity - from the 60s through the 80s there were a large swath of Southern Democrats who largely got wiped out in the Republican takeover of 1994 (and finished off in the past few years.) Also, the urban-rural and black-white vote polarization has actually increased significantly over the past 20 years. And Democrats controlled far more state houses in the past 50 years than they did until the Republican gains in 2009 and 2010.
All of this leaves us with a situation where Democrats would have to win the national congressional vote by at least 2% in order to win the majority in the House - not an impossible task in the right year, but a pretty big intrinsic disadvantage.
All of this leads us to the balance of power that we have today - and our present confused, divided nation.
If you like this site, tell your friends.
My question is - is anyone really surprised that we are approaching the edge of the "fiscal cliff" without a solution?
There is nothing in the history of negotiations between House Speaker Boehner and President Obama that indicates a strong capability to come to compromise. And interestingly, those are probably the two most moderate voices in the room - Boehner's caucus consists of a lot of die-hards who have no interest indealing while Boehner actually wants a deal and many on the left would be happy to let negotiations fail and blame the GOP.
I always knew that if there was going to be a deal - and there still could be - although a "grand bargain" that permanently solves problems around revenue and entitlements seems increasingly unlikely (another interim patch seems more likely) - it would happen in the 11th hour. Politics these days simply doesn't allow anything different.
Let's face it - the House GOP and the Democrats in the Senate and the White House were elected by different constituencies to do different things. And they are both representing what they ran on.
So how did we elect people with such divergent agendas?
Well - we did - but not the way you might think.
Democrats got 1% more votes than Republicans in House races this fall. Democrats won the national congressional vote 49.1% to 48.1%, a smaller, but still decisive margin from President Obama's popular vote total. In other words - very few people actually split their tickets to get the result we got.
So how did the GOP swing a House majority with 1% less votes than the Democrats? It all comes down to districts and there are 3 principle causes of the districting advantage for the GOP that leads to a House that is so different from the national vote:
(1) Inherent Demographics
Democrats tend to live in cities. Republicans tend to live in suburbs, exurbs and the countryside. This alone wouldn't create a House imbalance. But it's a question of proportion. Take Pennsylvania as an example - in the City of Philadelphia, Democrats win about 80% of the vote in a normal election. In outlying Bucks County, Republicans normally win about 60% of the vote. If you look at three congressional districts, one in Philadelphia and two in Bucks County, you will get 1 Democrat and 2 Republicans in congress, even though the total vote between the three districts will be roughly 50/50.
(2) Gerrymandering
Every 10 years, the 50 states (or at least the 43 that have more than 1 House seat) redraw district lines. In a few states this is done by a non-partisan judicial commission. In most states, however, lines are drawn by the state legislature and the Governor. In 2011, when lines were being redrawn, Republicans controlled completely 25 state legislatures with 9 that were either split-control or nonpartisan and only 16 controlled by Democrats. Republicans also controlled redistricting in big prize states like Texas, Florida and Pennsylvania. When you get to draw the lines, you will draw them in a way that favors your party - mainly by concentrating your opponents in a few districts and spreading out your supporters to win more districts.
(3) The Voting Rights Act
The Voting Rights Act of 1965 did a great many things intended to support the electoral rights of minorities in the United States. One aspect of the law required the creation of "minority majority" congressional districts - that is, principally districts with high concentrations of black voters intended to promote the election of black congressmen. While the law did serve that purpose - black representation in Congress increased significantly, it also created inherent gerrymandering, in a way that favored the GOP, since it essentially concentrated black voters in a few districts, creating a few overwhelmingly Democratic districts but many more mildly Republican districts.
Items 1 and 3 have existed for a long time (at least since the 60s), but in the past, other forces gave the Democrats more parity - from the 60s through the 80s there were a large swath of Southern Democrats who largely got wiped out in the Republican takeover of 1994 (and finished off in the past few years.) Also, the urban-rural and black-white vote polarization has actually increased significantly over the past 20 years. And Democrats controlled far more state houses in the past 50 years than they did until the Republican gains in 2009 and 2010.
All of this leaves us with a situation where Democrats would have to win the national congressional vote by at least 2% in order to win the majority in the House - not an impossible task in the right year, but a pretty big intrinsic disadvantage.
All of this leads us to the balance of power that we have today - and our present confused, divided nation.
If you like this site, tell your friends.
Sunday, December 2, 2012
An Emboldened President Obama Lobs a Gernade, Is This the Ultimate Long Game?
I recall the tax debate of 2010 quite well. President Obama had campaigned in 2008 on extending the Bush tax cuts for those making less than $250K per year and not continuing them for everyone else. The debate took to the Sunday airwaves, but in the end the President blinked. All of the Bush tax cuts were extended for two years, in addition to a new Social Security tax reduction of 2% for the next two years. In the end, it was darn close to a complete victory for the GOP on taxes at least - although really very little happened to reign in the structural sources of spending.
We are 29 days from the fiscal cliff this time, so there is still a chance for the President to blink, but he is acting anything but compromising this time around. His opening volley to the GOP, delivered by Treasury Secretary Tim Geithner to House Speaker John Boehner, is everything that liberals would want and conservatives would hate. It includes:
* Allowing the Bush tax cuts for those making over $250K to expire
* Further reducing tax deductions on the wealthy to raise additional revenue
* Reducing Medicare benefits to upper income taxpayers
* Reducing farm subsidies
* Claiming credit for cuts that are naturally happening in Defense from the wind down of the wars in Iraq and Afghanistan
The GOP predictably hated the proposal. It is basically a non-starter in the conservative GOP House. I suspect it was quite obvious to the President that this would be the case. I'm not sure he cares.
The President's basic negotiating mistake in almost every key piece of policy in his first term was negotiating from weakness. The President has been giving away the farm before the conversation started and then negotiating from the compromise. And often, there has not been a GOP counter-proposal, so the President has wound up negotiating with himself, putting forward increasingly conservative policy proposals until the GOP decides to accept one.
What the President is doing is daring the GOP to make a counter-proposal. He's put forward the most popular tax increases - solid majorities favor raising taxes on the wealthy and put forward fairly vague promises of spending cuts against programs which are not particularly popular.
He is basically saying - "your move, John Boehner".
On the one hand, the President appears to hold all the cards this time:
* The Bush tax cuts WILL expire for everyone with no action, as will all the sequester spending cuts and the GOP is powerless to stop it without agreement from the Democrats
* Obamacare taxes and health insurance exchanges WILL take place under current law
* The President doesn't have to face re-election again - the House GOP does - you would think they have the larger incentive to get something done.
The GOP has held on to one card, however, and that is the federal debt ceiling. It will need to be extended in 2013 and they can again hold it hostage for their goals, in spite of the potential damage to US credit. But even on this topic, the President could go bold and claim constitutional authority to pay debts that are the result of previously authorized spending, although the constitution is fairly explicit in giving Congres the power to borrow money, not the President. But it would likely be tied up in court for a while and be very bruising to the GOP's public image.
Did the President play a very long game to construct this situation? There is a solid argument for it. The "fiscal cliff" was set-up by three pieces of legislation that the President negotiated:
* The 2009 passage of Obamacare, which set the bulk of the associated taxes to go into effect on Jan 1, 2013
* The 2010 extension of the Bush tax cuts, which set them to expire on Jan 1, 2013, along with the payroll tax reduction
* The 2011 debt ceiling deal, which set the automatic sequestration cuts to go into effect on Jan 1, 2013
I noted all of this when I wrote about my proposal to whack the deficit by doing nothing - and that is certainly still an option available to the President.
Nobody in Washington wants to eat that many peas at once. But, in negotiations that it appeared to everyone he was losing in 2010 and 2011, the President set up this gun to the head, where he can negotiate back from a policy base where all of the above things happen and, because of the timing he set up, he can do it all without having to worry about another election.
So, what will happen?
Privately, most in the GOP concede that they will have to give some ground on tax rates, although no one is talking about it in public. A possible compromise would likely look something like this:
* Allow rates to go up some, but set the threshold higher than $250K. It might look something like a 37 or 38% rate on incomes over $500K or $750K.
* Give some ground on Capital Gains and Dividends, allowing rates to rise, but not to the full level of ordinary income - perhaps increasing rates on both from 15% to 20%.
* Increase premiums in Medicare on higher income seniors
* Some reductions to domestic discretionary spending and defense spending, but less than would be automatically implemented in sequestration
* Some type of bi-partisan commission to study more fundamental tax reform.
The GOP realizes they have to give some ground to the President and that his hand is strong this time around. But they probably won't give away the whole farm.
If you like this site, tell your friends.
We are 29 days from the fiscal cliff this time, so there is still a chance for the President to blink, but he is acting anything but compromising this time around. His opening volley to the GOP, delivered by Treasury Secretary Tim Geithner to House Speaker John Boehner, is everything that liberals would want and conservatives would hate. It includes:
* Allowing the Bush tax cuts for those making over $250K to expire
* Further reducing tax deductions on the wealthy to raise additional revenue
* Reducing Medicare benefits to upper income taxpayers
* Reducing farm subsidies
* Claiming credit for cuts that are naturally happening in Defense from the wind down of the wars in Iraq and Afghanistan
The GOP predictably hated the proposal. It is basically a non-starter in the conservative GOP House. I suspect it was quite obvious to the President that this would be the case. I'm not sure he cares.
The President's basic negotiating mistake in almost every key piece of policy in his first term was negotiating from weakness. The President has been giving away the farm before the conversation started and then negotiating from the compromise. And often, there has not been a GOP counter-proposal, so the President has wound up negotiating with himself, putting forward increasingly conservative policy proposals until the GOP decides to accept one.
What the President is doing is daring the GOP to make a counter-proposal. He's put forward the most popular tax increases - solid majorities favor raising taxes on the wealthy and put forward fairly vague promises of spending cuts against programs which are not particularly popular.
He is basically saying - "your move, John Boehner".
On the one hand, the President appears to hold all the cards this time:
* The Bush tax cuts WILL expire for everyone with no action, as will all the sequester spending cuts and the GOP is powerless to stop it without agreement from the Democrats
* Obamacare taxes and health insurance exchanges WILL take place under current law
* The President doesn't have to face re-election again - the House GOP does - you would think they have the larger incentive to get something done.
The GOP has held on to one card, however, and that is the federal debt ceiling. It will need to be extended in 2013 and they can again hold it hostage for their goals, in spite of the potential damage to US credit. But even on this topic, the President could go bold and claim constitutional authority to pay debts that are the result of previously authorized spending, although the constitution is fairly explicit in giving Congres the power to borrow money, not the President. But it would likely be tied up in court for a while and be very bruising to the GOP's public image.
Did the President play a very long game to construct this situation? There is a solid argument for it. The "fiscal cliff" was set-up by three pieces of legislation that the President negotiated:
* The 2009 passage of Obamacare, which set the bulk of the associated taxes to go into effect on Jan 1, 2013
* The 2010 extension of the Bush tax cuts, which set them to expire on Jan 1, 2013, along with the payroll tax reduction
* The 2011 debt ceiling deal, which set the automatic sequestration cuts to go into effect on Jan 1, 2013
I noted all of this when I wrote about my proposal to whack the deficit by doing nothing - and that is certainly still an option available to the President.
Nobody in Washington wants to eat that many peas at once. But, in negotiations that it appeared to everyone he was losing in 2010 and 2011, the President set up this gun to the head, where he can negotiate back from a policy base where all of the above things happen and, because of the timing he set up, he can do it all without having to worry about another election.
So, what will happen?
Privately, most in the GOP concede that they will have to give some ground on tax rates, although no one is talking about it in public. A possible compromise would likely look something like this:
* Allow rates to go up some, but set the threshold higher than $250K. It might look something like a 37 or 38% rate on incomes over $500K or $750K.
* Give some ground on Capital Gains and Dividends, allowing rates to rise, but not to the full level of ordinary income - perhaps increasing rates on both from 15% to 20%.
* Increase premiums in Medicare on higher income seniors
* Some reductions to domestic discretionary spending and defense spending, but less than would be automatically implemented in sequestration
* Some type of bi-partisan commission to study more fundamental tax reform.
The GOP realizes they have to give some ground to the President and that his hand is strong this time around. But they probably won't give away the whole farm.
If you like this site, tell your friends.
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