Wednesday, December 5, 2012

Cliff diving

Fiscally speaking, Obama's position only gets stronger

Why shouldn't President Obama demand Republican support for ending Bush-era tax cuts for the rich? Because if he doesn't find a way to compromise with John Boehner and Mitch McConnell, we will all go over the fiscal cliff?

The truth is Republicans have stronger reasons to avoid the cliff than Obama does and, surprisingly, many more reasons to go over it, as well. Either way, they face political damnation.

If we do take a dive, Boehner and McConnell know that Republicans will get the major portion of the blame. Their refusal to compromise will be portrayed as protecting lower tax rates for the rich. No amount of explaining will change that perception.

Obama will be criticized, too, but not as harshly, and he doesn't have 2014 election worries, either. Republican incumbents (House or Senate) planning on running for reelection will begin their campaigns fearing that intransigence on the fiscal cliff (and the debt ceiling, if it comes to that) will cost them politically.

Theoretically, going over the cliff will position Republicans to reach a "grand bargain" in January that includes tax cuts. The new year will create incentives for both sides to reach a compromise that restores some of the Bush-era tax cuts (except for high-income earners) and maintains the payroll tax exemption that will disappear at year's end.

A January compromise will allow Republicans to claim that they remain the party of tax cuts. Unfortunately for them, to get the cuts that will help maintain their brand (even though Democrats will want them, too), Republicans will likely have to agree with healthcare reforms that they have always opposed, like allowing the government to require competitive bidding for medical equipment and other items purchased by federal health-care programs.

Medicare and Medicaid reforms outlined by the Center for American Progress and generally supported by Democrats are projected to save $385 billion over 10 years, without affecting eligibility or benefit levels. Republicans have their own proposals for saving billions more in healthcare spending, but most of them come from delaying eligibility and raising costs for recipients. The credit for such reforms will go to Obama, not to Boehner, Ryan, Cantor, McConnell, et al.

That same Republican leadership will want to restore some of the cuts to the military budget that will result from going over the fiscal cliff and Democrats will want to do some of that, also. But they won't want it worse than the Republicans will and will be able to bargain for other things they want more, like a little bit more stimulus spending and reduced cuts in education and human service spending.

All of that compromising is going to make Republicans look weak to their core constituencies. It's a painful prospect; agree to tax increases to avoid going over the fiscal cliff and tarnish their anti-tax, anti-government brand, or strengthen the perception that they are defending tax cuts for the rich and agree to a compromise afterward that makes them look like a junior partner in supporting handouts to Democratic constituencies.

The only possible basis for Democrats to oppose going over the cliff is the possibility that doing so will result in instant and significant damage to the economy. (Just three weeks ago in Compromise or Betrayal, I did advocate compromising with Republicans before going over the fiscal cliff. What can I say? Like Obama on gay marriage, my thinking has evolved.)But there are all sorts of ways the government can blunt the immediate effects of tax increases and sequestration, delaying the pain for long enough to pass a fix in January. Obama has lots of cards to play now. After the cliff dive is done, his hand will be even stronger.

1 comment:

  1. Your article makes me realize that I'm more of an idealistic philosopher than a politician. I see the buzz words, like "fiscal cliff" has become, and my reaction is to walk away. Too much propaganda. It gets to be like code words that these clubs (aka political parties) use to trigger programmed reactions to support their viewpoint. Its not very dissimilar to teaching dogs to sit, stay, or the like.
    The bottom line is that they made old promises (ironically COMpromises) to have better fiscal habits in the future and once again they want to avoid the pain of finally living up to the habit. They thus redirect angst to past poor decisions as leverage to making an even poorer one now based on yet more party aligned voting.
    Surely chaos can't be much less productive. Make a budget, stop debating in the news, and move on to the next inefficient task they've become too overpaid to identify with. End the (pardon the buzzword) Bush-era-tax-cuts, pay some bills and stop distracting us from important things like the climate conference. Ohhhhh, so maybe the "fiscal cliff" timing does serve both parties' ignorance of the bigger global environment/climate issues.