Wednesday, January 02, 2013

Uggh, my money is on McConnell

Yesterday, I wondered where Obama thinks he's going to get the leverage to insist that any future spending cuts be paired with further tax hikes. As reflected in today's Politico reporting, Obama and the GOP leadership are living in alternate universes. Obama thinks he's broken a psychological threshold along with the Republican no-new-taxes-taboo and that he can wield public opinion to make his all-spending-cuts-to-be-balanced-with-more revenue rule stick. McConnell & co. think they have Obama over a barrel with the debt ceiling and sequester cuts looming.

My money is on McConnell. Reid might have been a match for him. Obama and Biden weren't.  Agreeing to only a two-month postponement of the sequester cuts, McConnell's main demand, looks like a disaster -- unless Obama is ready to finally go over a cliff. The only precedent for that: he did let the sequester become law in the first place in late 2011, rather than intervene and strike another all-cuts-no-revenue bargain. That's a thin reed of hope.

What I can't see is Republicans agreeing to further tax hikes, e.g., through Obama's proposed 28% deduction cap for wealthy taxpayers.  They acceded to a very limited tax increase only under extreme duress -- when the only alternative was larger tax hikes. Their "principles" are therefore intact. The notion that a taboo was broken is nonsense.

When Obama started challenging the GOP after Labor Day in 2011, I hoped that the debt ceiling debacle had fundamentally changed his approach to political combat.  The Politico tick-tock indicates that it did not, fundamentally:
But Obama decided not to walk away from negotiations, despite earlier claims by his aides that he would be willing to go over the cliff. Biden emerged as a key voice in encouraging the president to stay on track with a deal.

The president did not believe the dynamic would suddenly shift in his favor after Jan. 1, rejecting the conventional wisdom in Washington that all sides would have more flexibility after higher tax rates took effect. Republicans were no more likely to compromise after the deadline than before it, the White House concluded. And there was a very real fear that a resolution wouldn’t come for weeks, perhaps not before the country hit the debt limit in late February — a nightmare scenario that the president believed would destroy not only his leverage but also the still-fragile economy.

That's a blink at the brink. Obama has repeatedly made the argument from responsibility -- he will not countenance harm to millions of Americans to "score political points"  -- and at this juncture in 2010 I think he was right to do so.  But there comes a point when you have to be willing to inflict short-term pain to advance your long-term objectives -- in this case, substantial new revenue.  I believe that the just-skirted cliff was that point -- because, as many have pointed out, it wasn't really a cliff; effects could have been long delayed, and Republicans would have literally been forced into refusing tax cuts of Obama's design.

What about the "defeat" on the other side? On Twitter last night, many were crowing about the House Republicans' angst and disarray and Grover Norquist's nominal defeat -- which Norquist, rightly to my mind, refuses to admit. To say that Republicans agreed to a tax hike is a matter of semantics. They agreed to the smallest tax hike that was obtainable. For all the lacerations on the House floor, here is the Republicans' real position:
“Each of us could spend the rest of the week discussing what a perfect solution would have looked like, but the end result would have been the largest tax increase in American history,” McConnell said shortly before the vote. “The President wanted tax increases, but thanks to this imperfect agreement, 99 percent of my constituents won’t be hit by those hikes.”

On “Meet the Press” Sunday, Obama said he’s open to major entitlement reforms and, to Republicans’ thinking, has already won all the new taxes he could possibly get. Without a deadline forcing tax increases, the thinking is that Obama will be hard-pressed to win any new revenues, just as he failed to do in 2010 and during the 2011 debt ceiling talks.

“They know that the debt ceiling has to be passed,” a Senate GOP source said Tuesday morning. “What we’ll know at that point is that the president got his beloved tax hike, it’s done. Were still going to have this debt, and we need to get serious at that point. Taxes are off the table, that’s done.”

The source added: “The reason they got this one is that everybody’s taxes were going to go up and there was a deadline. That doesn’t exist anymore. What’s their threat going to be? This is gone now.”

I think Obama is dreaming.  At best, I can see a standoff in which he gets a more or less clean debt ceiling hike and further sequester postponements, if a) Republicans balk at forcing a federal default and b) they still hate the sequester cuts as much as Obama does. But how is he going to force them to accept more revenue, e.g., through capping deductions for the wealthy at 28%, which would bring in as much again as this deal's rate hikes and smaller deduction curbs?

If the sequester were postponed for a year and Obama really managed to refuse to countenance a debt-ceiling negotiating deadline, perhaps a broad bargain could be worked out pairing deduction curbs (which Republicans are theoretically for) and entitlement trims (though Republicans will never agree to the only kinds of Medicare reforms likely to be effective, those that give the government added pricing power).  But absent the pause enabled by a long sequester postponement, it will be one crisis standoff after another. It's cliffs all the way down.

I hope to be nominated for one of the Dish's newly-renamed Dick Morris awards for bad predictions on this one.

Update: Ezra Klein has a five-point argument for why Obama will not cave in debt ceiling negotiations and is likely to get something like the 1-to-1 ratio of revenue increases to spending cuts he has set forth. His crux, in my view, addresses the central question of just what Obama is and is not likely to do or accept at crunch time:
I don’t think the White House has a shred of credibility when they say they won’t negotiate over the debt ceiling. They may not call what they’re about to do negotiating over the debt ceiling, but that’ll be what they’re doing. That said, I’m quite convinced that they don’t intend to be held hostage over the debt ceiling. As a former constitutional law professor, the president sees himself as a steward of the executive branch and is deeply hostile to setting the precedent that congressional minorities can hold presidents hostage through the debt ceiling. At some point in the coming talks, Boehner or McConnell or both are going to realize that the White House really, seriously will not accept a bargain in which what they “got” was an increase in the debt limit, and so they’re going to have to decide at that point whether to crash the global economy.
  As the cliche goes, read the whole thing.

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