“Fiscal Landscape-Shift” Maneuvering Begins

There’s a lot of confusion and cross-talk over the meaning of the initial post-election maneuvering of the president and the House speaker over negotiations to deal with the so-called “fiscal cliff”–the impending expiration of the Bush tax cuts and the imposition of across-the-board spending cuts as agreed to at the end of the 2011 debt-limit negotiations. John Boehner has reiterated his party’s absolute opposition to any tax rate increases on the very wealthy–which will happen automatically if the Bush cuts are allowed to expire–but has opened the door to higher revenues via the usual “loophole closing” mechanisms that GOPers often talk about in conjunction with further tax rate cuts–in exchange, of course, for both “entitlement reform” and a cancellation of the scheduled defense spending cuts. The president’s reiterated his demand for a “balanced” approach to deficit reduction that demands revenues, and more specifically “a bit more from the very wealthy.” Meanwhile, like some clunky deus ex machina, deficit hawks, including some Democrats and maybe a few Republicans, are ginning up a new, well-funded campaign to push for adoption of the Bowles-Simpson framework for a big deficit reduction deal that would involve new revenues and “entitlement reform.”

As Jonathan Chait has been pointing out for some time, this isn’t just a return to the dynamics of the debt-limit talks. Aside from the fact that Obama has just won re-election after talking frequently about demanding more taxes from the wealthy (a position that remains exceptionally popular), Republicans aren’t the ones with a big hostage right now. If nothing happens, tax rates go up automatically. It’s Republicans who badly need something from Obama–an agreement to boost defense spending–and Republicans who are in danger of looking unreasonable by threatening the economic recovery in order to preserve lower taxes for their donor class. As Chait’s pointing out now, so long as Obama can make a credible threat to do nothing if Republicans don’t make major concessions–and then maybe come back with a free-standing bill to lower taxes on middle-income families, daring Republicans to block it–the GOP is in danger of losing on everything it cares about.

There are, in my opinion, three things Obama must do to strengthen his hand even more: (1) stop talking about the “fiscal cliff” as though life will end if the Bush tax cuts expire or Pentagon cuts take effect, however partially or briefly; (2) tell Democrats in no uncertain terms to keep their distance from the Simpson-Bowles effort (if a revenues-for-entitlement-reform deal eventually proves essential, control over its dimensions should under no circumstances be forfeited to “independent” deficit hawks); and (3) force Boehner and other Republicans into the big leap from “more revenues” to “higher rates,” or at least the permanent cancellation of some features of the Bush tax cuts benefitting the wealthy. Congressional Republicans cannot be allowed to enjoy the luxury of fearing Grover Norquist more than Barack Obama, restive financial markets, or defense contractors altogether, at this point. And if Boehner and company refuse to take that step, Obama should make his own non-negotiable demands–such as taking actual benefit cuts for Medicaid, Medicare and Social Security recipients off the table (with or without some wiggle-room for additional means-testing in the latter two programs, again keeping the focus on protecting low-to-moderate income Americans).

Whether or not Obama pursues this exact strategy, he has absolutely no reason to bend to GOP demands at this point. He’s got the upper hand until he chooses to lower it.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.