Friday, November 09, 2012

Fiscal cliff notes: speak however, but wield that stick

Re the fiscal cliff: Obama has promised repeatedly, from the December 2010 press conference in which he announced his Bush-tax-cut-extension-for-payroll-tax-cut-and-unemployment-benefit-extension deal, to the present, that he would not agree to another extension of the Bush marginal rate cuts for the wealthiest 2% this time around.

He gained further leverage when the "sequestered" budget cuts triggered by the failure of the budget supercommittee last November became law -- and Republicans began screaming about the mandated defense cuts far louder than Democrats have protested the domestic cuts.  Once Obama refused to lift a finger to stop the sequester, I began to wonder whether the Budget Control Act of August 2011 wasn't a 60-yard punt.  If so, he is now taking possession.

After coming close to ratifying a truly crappy grand bargain with Boehner in July 2011, has Obama learned to use the leverage he's gathered?  Signs are that he may have. Here's what he told the Des Moines Register a couple of weeks ago:
LAURA HOLLINGSWORTH: But particularly, sir, if you were granted a second term, how do you implode this partisan gridlock that has gripped Washington and Congress and basically our entire political structure right now?

THE PRESIDENT: Well, Rick, let me answer you short term and long term. In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won’t be pleasant. But I am absolutely confident that we can get what is the equivalent of the grand bargain that essentially I’ve been offering to the Republicans for a very long time, which is $2.50 worth of cuts for every dollar in spending, and work to reduce the costs of our health care programs.

And we can easily meet -- “easily” is the wrong word -- we can credibly meet the target that the Bowles-Simpson Commission established of $4 trillion in deficit reduction, and even more in the out-years, and we can stabilize our deficit-to-GDP ratio in a way that is really going to be a good foundation for long-term growth. Now, once we get that done, that takes a huge piece of business off the table.
Re that 2.5-to-1 ratio: in the busted deal with Boehner, the ratio was more like 5-to-1, with the Medicare eligibility moved to age 67 to boot.  Here's hoping he doesn't revert to negotiating with himself.

More leverage flows from the election.  In July 2011, Obama urged Americans to call their Congressional reps and say they wanted a balanced deficit reduction deal, with new revenues to balance spending cuts. People called, and polls showed then as now (and always) that strong majorities preferred a mixture of tax increases for the wealthy and spending cuts to spending cuts alone. But of course the House GOP, holding the country's ability to pay its debts hostage, didn't care, and they had that overwhelming leverage. This time, the Democrats hold the cudgels -- including, as Jim Messina pointed out yesterday, fresh evidence of popular support:
Jim Messina, the campaign manager who oversaw the creation of the system that surprised Republicans by getting more Obama supporters to the polls than Republicans had expected, argued that the results should be viewed as vindication for the president’s call for higher taxes on the rich as part of any deal to reduce the deficit.
 [Update: Obama himself was quite pointed about this in an 11/9 statement:
...this was a central question during the election. It was debated over and over again. And on Tuesday night, we found out that the majority of Americans agree with my approach—and that includes Democrats, independents, and a lot of Republicans across the country, as well as independent economists and budget experts. That’s how you reduce the deficit—with a balanced approach.
There is one offset to the leverage afforded to Democrats by the expiration of the Bush tax cuts and the scheduled defense cuts: we're approaching the debt ceiling again. Time to start minting those platinum coins.

Update: this just in as I prepare to hit send: Boehner is back to his old bullshit, calling for compromise while refusing to raise taxes:
Speaker John Boehner on Friday pressured President Barack Obama to take the lead on a deal to avert tax increases, saying “this is an opportunity for the president to lead. This is his moment to work on a solution that can pass both chambers.”

But Boehner remained unyielding on raising taxes on upper income Americans – a top priority for Obama – saying that “raising tax rates will slow down our ability to create the jobs that everyone says they want.” Boehner instead called for lowering tax rates while eliminating certain deductions and loopholes as part of a larger tax reform bill.
Chuck Schumer has indicated that a marginal rate increase for the top 2% could be swapped for loophole closures that primarily hit the wealthy. That could only work, Bowles-Simpson-wise, if hikes for capital gains and interest on are on the table. I think, though, that that top marginal rate has taken on major symbolic significance for Obama. We'll see.

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