For Just One Day, Let's All Be Patriots

The odds are that many of you reading this didn't vote for President Obama.  In fact, if you are representative of the US population at large, if 100 of you read this, 29 of you weren't eligible to vote, 29 of you were eligible to vote but did not, 20 of you voted for Mitt Romney, 1 of you voted for a third party or independent candidate and only 21 of you actually voted for the President.  21 out of 100.  That's how our elections get decided.

It is also likely that at some point in the past four years and in the next four, President Obama will do something that you don't like.  Whether you are a human-rights activist who is incensed over the continuing practices at Gitmo, a Tea Party member who detests the expansion of the government role in health care through Obamacare, an economic conservative mad about the continuing large federal deficit or a libertarian mad that the President went against his word and went after medical marijuana facilities, there is something for everybody not to like in the way the President has governed.

But, let's make a deal.  Let's agree to put that aside for just one day.  Let's marvel at the wonder of the American Republic and the peaceful swearing in of a President for another four years.  Let's celebrate the beauty of American art, whether it be the poet laureate or the musical stylings of our pop stars.  Let's enjoy the fashion of the First Lady.  Let's admire the marching band in the parade.  Let's enjoy the pomp and circumstance of the Presidential Ball.

Let's just be Americans, for one day.  We can fight about debt ceilings and sequestration and immigration tomorrow.  Today, let's all be patriots.

Is Sanity Returning to the GOP?, Taking Stock of Obama's First Term

GOP Offers Debt Ceiling Sanity....for a few months
Coming out of the House GOP retreat, where they are presumably discussing their strategy and vision for the next 2 years and specifically how they are going to hold on to the House in 2014, comes word that the GOP will offer up a more or less "clean" increase of the debt ceiling to ward off default.

It comes with a few strings attached.  The extension would only be for 3 months, meaning that we would be having the same discussion again in May or June.  It would require both houses of Congress to pass a budget by April 15th or forfeit pay, something that the Senate has not done in several years, a fact that has been a talking point for the GOP.

It is possible that President Obama and the Democrats will have some issue with the proposal.  The 3 month extension falls far short of the kind of extension or even elimination of the debt ceiling that the President had sought, hoping to avert having to deal with debt ceiling issue again in his Presidency.  And Senate Democrats might balk at needing to pass a budget resolution.

But it seems like a savvy move for the GOP.  It would be a tough sell for Democrats to vote against the debt ceiling increase they asked for.  And I don't know very many people who would be too concerned about the possibility of Representatives and Senators not getting paid for a little while.

1 Term Down, 1 To Go
President Obama's will celebrate his second inauguration on Monday.  It will be a more subdued ceremony than the celebration four years ago, when the country was less divided and we hadn't endured such a long economic malaise.  But it will be a unifying moment for supporters of the President and a day of patriotism for all.

While the inauguration is on Monday, the official start of the President's second term is at noon tomorrow, as dictated by the constitution and the President will privately retake the oath of office then, before going through the ceremony on Monday.

Being at the end of the President's first 4 years, I thought it would be a good time to take stock of how the President has done.

(1) Did He Keep His Promises?
Politifact.com (run by the Tampa Bay Times) has did a great job of tracking all of the promises that the President made in the 2008 campaign and how they have turned out.

There were 508 documented promises made and of those, 239 were fully kept, 130 were partially kept and 139 were not kept.  Those not kept were not kept for a variety of reasons - either the President changing his position (closing Gitmo, for instance), simply not pursuing something he promised to do (giving a State of the World address, for instance) or his desired policies changing as a result of negotiation with Congress (extending the Bush tax cuts for upper income limits for instance.)

Giving the President 100% for promises fully kept and 50% for those partially kept, the President gets 304 points out of a possible 508 or a score of 60%.

I said at the beginning of his term that it would be an A-worthy performance if the President could do half of the things he promised to do in 2008.  A score of 60% certainly qualifies.

Grade: A

(2) Did He Achieve His Major Policy Goals?
The President had articulated six clear policy goals for his first term at the outset:
a. Implement a meaningful stimulus
On this issue, the American Recovery and Reinvestment Act achieved almost all of what the President set out to achieve.  It provided aid to states, funds for infrastructure improvements and targeted tax cuts.  Couple this with the (just expired) temporary Social Security tax rate reductions that the President was able to get in 2010 and you have to say the President basically implemented what he set out to implement.  There is much debate on the effectiveness of those policies, but here we are grading whether he did what he set out to do.

Grade: A

b. Implement Health Care Reform That Achieves Universal Coverage
The coverage is not quite universal (2% are excluded), the plan doesn't contain a public option, it does contain a mandate (something he opposed on the campaign trail) and the President gave up very early on including abortion coverage in the plan (another thing he campaigned on.)  Still, President Obama was successful where Presidents Johnson, Nixon, Carter and Clinton failed (President Reagan and both Presidents Bush were not advocates for such a program.)  The carefully negotiated program was passed through congress narrowly and was narrowly upheld as largely constitutional by the Supreme Court.  It is the law of the land and will roll out over his second term.  We will all get to see how successful it is or isn't.

Grade: B+

c. Repeal the Bush Tax Cuts for Those Making Over $250K
The President completely punted on this once, agreeing to a 2-year extension in late 2010, in exchange for some other goodies, such as the Social Security Tax deal.  The President did better recently, at the end of his term, cutting a deal that let the rates rise on individuals making over $400K and couples making over $450K, about half of the population the President was targeting to contribute more.

Grade: C

d. Pass Meaningful Legislation to Deal with Carbon Emissions
A Cap and Trade bill passed the House in 2009 but was never even taken up in the Senate and there has been virtually no leadership from the President on making this stated priority happen.  There were smaller steps that did happen, such as tax credits for energy efficient homes and appliances and extensions of wind and solar subsidies.  But all-in-all, the President hasn't made much progress here.

Grade: D+

e. Provide for Comprehensive Immigration Reform
Perhaps it will be a second term issue.  But the President never even proposed a package of immigration reform, something which he had stated he would do in his first year in office.  He took some action by executive order, such as the regulatory version of the Dream Act, but these actions were taken very late in his term and fall far short of comprehensive reform.

Grade: D

f. End the War in Iraq and Provide Additional Troops, on a Timetable in Afghanistan
The President basically did everything he said he would here.  We are out of Iraq.  We did surge in Afghanistan, but are now winding down our involvement, in line with the time table the President set.

Grade: A

Overall Grade on Priorities: B-

(3) How Did We Fare Economically?
This is a quite complicated question, given the deep recession that was underway at the start of his term. By some economic measures, the President doesn't make the grade, by others he does.

Average Annual GDP Growth During His Term: 2.1% (average 20 years prior to Obama = 3.8%)
Average Unemployment Rate During His Term: 9.0% (average 20 years prior to Obama = 6.0%)
Stock Market Return During His Term: 12.1% (average 20 years prior to Obama = 9.9%)

By the standards of economic growth and unemployment, the last 4 years have not been among our better ones.  Following a deep recession, we have had slow growth with sustained high unemployment over several years.  While unemployment is now falling, it is doing so painfully slowly and at least in part due to less people in the workforce.  By these measures, President Obama doesn't rate well.

However, putting those numbers in proper context is difficult since anyone could have predicted following the financial crisis that unemployment would be elevated and growth depressed, at least for a period of time.  This is where the stock market return comes in.  The stock market price reflects both present economic circumstances and expectations around future economic performance.  On this measure, the President is doing great, far exceeding normal market returns and, given that those are nominal returns and inflation has been very low, real returns exceed by an even greater margin.

Of course, stock market expectations can be wrong.  The stock market was wildly over-priced in 1999 and wildly under priced in 1982.   So while some of change in expectations can be due to averting crises or sounder policies, some is also due to mean reversion or, in common language, irrational panic or optimism abating. 

So, it is difficult as we stand here today to judge the President's economic performance.  We didn't fall off a cliff and into a depression, something that seemed like a real possibility in 2008.  But we also haven't had a "V-shaped recovery" where the economy grows quickly after purging the less efficient elements in a recession.  It is a mixed bag.

Grade; C

The President has a lot to tackle in his second term.  The deficit is still out-of-control, with no path to balance in sight.  Immigration and climate change remain unsolved issues.  The economy, while not in crisis, is certainly not healthy, particularly for the lower-middle class.

I wish him luck as he begins his second term, for all our sakes.

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Our Elected Leaders Punt Yet Again On Real Deficit Reduction, Boehner Narrowly Holds On To Speaker Job, Christie Goes Ballistic

The Fiscal Cliff Deal Isn't Much of a Deal at All
I guess there are things that all sides can claim victory in the fiscal cliff "deal" that was negotiated early in the new year, which was primarily a by-product of discussions between Vice President Joe Biden and Senate Minority Leader Mitch McConnell.

For Republicans, they can feel good that for 99.2% of Americans, the tax cuts that President Bush pushed for in 2001 and 2003, that the vast majority of Democrats and even some Republicans opposed at the time, have no become a permanent reality.  They are law forever.  They can also feel good that the military cuts that were part of the sequestration deal last year are now put off, albeit for only two months.  They can also feel good that they will get another bite at the spending apple in short order with the pending fights over the second half Fiscal 2013 budget and the debt ceiling coming up directly.

For Democrats, they can feel good that they successfully raised taxes on the wealthiest 1% (actually the wealthiest 0.8%, to be precise, but you get the point), that they averted the fiscal cliff cuts for domestic programs, albeit for only two weeks, that unemployment insurance was extended for another year, that renewable energy tax credits were extended for another year and that they really didn't have to agree to any spending cuts to get the deal done.

As for me, I don't feel particularly good about any of this.

Let's introduce a reality into the equation.  The deficit last year was $1.128 trillion.  We took in $2.435 trillion in taxes, 46% from individual income taxes, 35% from Social Security and Medicare Taxes, 10% from Corporate Taxes and 9% from the miscellaneous set of other federal taxes that the government collects, such as excise taxes on gasoline, cigarettes, alcohol, permitting costs, etc. We spent $3.563 trillion, 45% on Social Security and Medicare/Medicaid, 23% of Defense and Military expenses, 10% on unemployment and other income security measures (such as subsidized school lunches), 6% on interest on the national debt and 16% on everything else.

So what did the fiscal cliff "deal" do?  It allowed the temporary payroll tax reduction on Social Security to lapse, which effectively boosts Social Security payroll tax income by 19%, since the total tax (including both employer and employee) rises from 10.4% to 12.4%.  This raises about $120B per year in additional revenue, versus the last two years.

The cliff deal also raised income taxes from 35% to 39.6% for individuals making over $400K and married couples making over $450K and raises capital gains and dividend taxes on those individuals from 15% to 20%, as well as capping deductions on those over $200K/$250K.  Collectively, this raises about $60B per year in additional revenue.

So, all else being equal (and it is obviously not because not everything else is static, but everything else is pretty well in balance), we took a $1.128 trillion deficit and solved 16% of it.  On the 2012 basis, this woud give us about $2.615 trillion in revenue, not quite enough money to fund Social Security, Medicare/Medicaid, Defense and interest on the debt, if you cancelled every single other government program (no FAA, no SEC, no EPA, no FDA, no USDA, no OSHA, no federal court system, no power at the White House, etc.)

In other words, this was a totally and grossly insufficient bill to solve the structural problem that we had.

It amazes me that Democrats now accept 99.2% of the Bush tax cuts that they once opposed, and that we have never been able to afford.  It also amazes me that they reject out of hand even the most modest GOP proposals to rain in entitlement spending, such as shifting the chained CPI for Social Security increases, which would save a ton of money over time and make the system much more stable while having only a gradual effect on today's seniors. 

It also astonishes me that the GOP continue to fight for low taxes without a serious, specific proposal on how they would cut spending.  Since today's revenues don't even cover Defense, Entitlements and Interest and they want even lower revenues than today, to be credible to me, they would need to present a budget that makes deep, deep cuts in Defense and Entitlements to even get close to balance.  They have not, as of yet and, in fact, most have strongly opposed defense cuts, while skirting the issue of entitlements.

Let's not forget also the underlying dynamics that make the future budget reality worse.  The population is getting older and health care costs are still rising (albeit the rate of health care inflation has slowed from the pace of the past decade) so entitlement costs will rise faster than revenues.  Interest rates are at 200 year historic lows, meaning that it is highly probable that interest rates and therefore interest expense will rise in the future, especially with a rising federal debt.  There are some positives - unemployment insurance costs are likely to drop as the economy improves along with some other social programs and the wind-down in Afghanistan will save some on the military budget.  But in balance, the trajectory is towards a worse budgetary situation, not a better one.

Both parties to date are taking unserious positions.  There are only four levers to manage our current situation:
(1) Raise Taxes of Some Form in Meaningful, Broad Way
You can't tax the 1% and get us into balance.  To make a meaningful impact on the deficit, you would need to raise taxes on the majority of the population in some form, either in the form of higher income tax rates, higher payroll taxes or a national sales or VAT tax.
(2) Structural Reforms to Entitlements
Higher participation ages, lower benefits, etc.  You have to "bend the curve" on entitlement spending.
(3) Meaningful Cuts to Defense
We spend 5 times the next nearest country (China) on our military.  Would we be unsafe at 3 times their spending?
(4) Default in Some Way Shape or Form
This is a nuclear option that would cause a depression.  There are two ways to do this - either simply don't pay the bills which would be an utter disaster to financial markets that would immediately spark a deep financial and economic crisis or print money to pay the bills (i.e. have the fed buy up and forgive treasury debt),  which would likely spark hyper-inflation.  Neither of those options is at all appealing, even compared to 1-3.

My other disappointment (or maybe I should be happy, since I didn't love the deal) with the cliff deal is that it doesn't really solve anything.  The federal budget still expires March 1st, so there is another, immediate fight over spending.  Sequestration cuts still hit March 1st also.  And, approximately the end of February, the federal government won't be able to pay its bills unless congress increases the debt ceiling.  In other words, get ready for more melodrama, stern rhetoric and down-to-the-wire posturing that solves nothing before another 11th or 12th hour deal that doesn't do nearly enough.

My final disappointment is in President Obama's inability to lead or paint a vision.  He wasn't even a participant in most of the talks that cut the deal.  He has painted no clear vision for how we get where we need to go with the budget and seems to have no sense of urgency about reducing the deficit.  Joe Biden showed far more leadership that the President in this case, and even Biden's leadership was just to cut a deal in the end, not to really solve the problem.

Prepare to be disappointed again in the coming year.

Boehner Holds On With 2 Votes to Spare
John Boehner will be the House Speaker for the next two years, after successfully beating back dissent from about 8% of his caucus.  While there was no Republican actively running against Boehner, a cast of 17 Republicans (excluding Boehner, who did not vote, as is tradition) either cast protest votes, voted "present" or did not vote.  Some were clear protest votes, for the likes of Alan West (who isn't in the House any more as he lost re-election) and Colin Powell (who has never been in the House), some were semi-serious votes, including 3 for Majority Leader Eric Cantor, who many of the far right view as more sympathetic to their cause than the pragmatic Boehner.  Boehner needed an outright majority in order to not force a second ballot on the issue, which required 218 votes.  The 220 he received was sufficient - barely, to keep him with the Speaker's gavel for the next two years.

All of this supports what I have long said about Boehner - he is a conservative but not a wing nut as many think.  He is hemmed in by a caucus that is well outside the mainstream.  The fact that he almost lost his Speakership simply for supporting the deal he did speaks volumes about where the right-wing in the House sits.  Heck, a significant number of House Republicans even opposed the Hurricane Sandy aid package that was finally passed on Friday (more on that in a second.)

My advice to Boehner?  You know you are never going to be the darling of the right wing, so take your re-election as an opportunity to try to go solve the problems.  The hard-liners will hate it, but they already don't support you.  So cement your legacy and get something done.

Chris Christie Lets Loose on the House GOP
The fiscal cliff deal on January 2nd was the last thing the outgoing House of Representatives did before disbanding to make way for the new House, which was sworn in yesterday.  This greatly upset lawmakers from New York and New Jersey, who had been hoping for and believed they had secured agreement for aid for the battered coastal areas impacted by Hurricane Sandy.

Why the House didn't take the issue up before disbanding is inexplicable to me.  Perhaps John Boehner couldn't swallow asking his conservative members to vote on a spending package right on the heels of a painful vote on the fiscal cliff.  But, come on, when did relief for people made homeless by a hurricane become a partisan issue?

Christie was specific, and named names in his criticism, stating:
"There is only one group to blame for the continued suffering of these innocent victims, the House majority and their speaker, John Boehner."

Boehner scrambled to pull a vote together on the bill, with an initial aid package rapidly set for a vote yesterday and the balance to be voted on January 15th.  The initial package passed the House 354-67, with all 67 "no" votes coming from Republicans.  It is shocking to me that there were 67 members of the new House majority willing to vote no on this bill.  The bill passed the Senate, which always seems much more reasonable an bi-partisan, without a single "no" vote.

The initial aid package contained only $9B, the bigger $51B package is to come in the January 15th vote.  Could that package be in serious jeopardy, given the delay and vote on the first bill?  If it is, it would be utter political suicide for the House GOP.  Nothing makes you look like a wing nut like pushing hard to keep tax cuts on capital gains for people making millions of dollars and then opposing federal funds to help people made homeless by a hurricane.

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Let's All Go Cliff Diving But Please Don't Mess With the Federal Debt Limit

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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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.

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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.

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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.

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