"Barack Obama's dual agenda" (the fiscal cliff) Economist

[applegrove]

Barack Obama's dual agenda (the fiscal cliff)

the Economist

http://www.economist.com/blogs/democracyinamerica/2012/12/fiscal-cliff-3

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AMBIGUITY reigns in the twisting, turning dramatic series that is the fiscal-cliff negotiations. On Monday, it appeared Barack Obama and John Boehner were close to a deal. Liberals were angered by some of the apparent concessions: raising the income threshold at which tax increases kick in from $250,000 to $400,000 per year ("muddying the message", some cried), switching to chained CPI for social-security cost-of-living increases, accepting a two-year waiver on the debt ceiling rather than declaring it permanently off-limits for negotiation. But Mr Boehner blew that apart on Tuesday, rejecting the White House compromise and announcing a retreat to "Plan B": having the Republican House pass a bill that hikes taxes only for income over $1m per year, with no other spending measures or tax compromises. Had Republicans smelled weakness in the Democratic position? Or was Mr Boehner bolting because he was unable to get his tea-party wing online for any deal?

Then, on Wednesday, the game shifted further, as the conservative Heritage Foundation and Club for Growth both attacked "Plan B" as a tax-hiking sellout and warned Republican lawmakers not to vote for it. Was even Mr Boehner's symbolic conservative gesture of defiance too centrist? Were the Republicans falling apart, as John Chait argued? On the other hand, Grover Norquist's Americans for Tax Reform (ATR), keeper of The Pledge, declared it would issue an indulgence to any lawmakers who have signed the no-tax-hikes-ever pledge but vote for Plan B, on the casuistic argument that Plan B does not technically raise taxes on income above $1m per year, but prevents them from being raised on income below. Late in the day, Mr Boehner gave an exceptionally terse 51-second press conference, announcing the House will vote on Plan B. As that vote approaches today, the world watches with bated breath: will Mr Boehner hold his party together, prevent more than 24 representatives from defecting, and get the Republican House to pass a bill on strict party lines that (with apologies to the Jesuits at ATR) everyone in the world understands as a tax hike on millionaires? If he does, the bill is obviously going nowhere in the Democratic-controlled Senate. Will its passage lead to a new round of negotiations over a real compromise? Or will both sides allow the country to sail over the fiscal cliff, with Mr Obama hoping the public continues to blame Republicans for the failure of negotiations, while Mr Boehner hopes that the passage of Plan B allows him to blame it on Mr Obama?

The answer to that last question has a lot to do with the incentives facing Mr Obama at this point. It's not simply that he may get a better deal on taxes and spending cuts, from a Democratic perspective, if he allows the fiscal cliff to kick in on January 1st. It's also that letting the fiscal cliff kick in may better serve his other main incentive: dividing and weakening the Republican Party.

Mr Boehner's Plan B is an attempt to defray blame for the fiscal cliff onto Democrats, but if the country actually goes over the cliff, Plan B is unlikely to shield Republicans. Pressure from business groups and from taxpayers to reach a compromise deal before the economy suffers serious damage will become immense. Polls are consistently showing Americans more likely to blame Republicans than Democrats if negotiations fail. The president's initial $250,000 tax-hike cutoff still enjoys majority popular support; his secondary $400,000 cutoff is already a substantial compromise. The GOP is suffering tremendous political stress while the standoff continues, and that stress will become unbearable once tax hikes and defence sequesters kick in. Mr Boehner will have to come up with a Republican position that Democrats can accept, and it is likely to be very close to the offer Mr Obama put forth on Monday.




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1. My prediction of the final deal: 500k cutoff. That's my guess. nt