Texas Insider Report: WASHINGTON, D.C. – Simply put: The biggest threat to Barack Obama’s 2nd-Term Agenda isn’t the economy. It’s the mania that has yet to loosen its grip on Congressional Republicans. While financial markets may get jittery, it turns out some savvy investors are treating the cliff as an attractive buying opportunity, and hoarding cash accordingly. Look no further than the Republican’s internal discussions over its own fiscal-cliff positioning.
The current debate within the GOP is between:
- Those who see that Obama has all the leverage in this particular episode, so urge a quick deal on tax rates hoping the party can regroup for a bigger victory on entitlements, and
- Those who still refuse to budge in any way on tax rates.
Which is to say, it’s a debate between the moderately delusional and the utterly, irreconcilably delusional.
“If we go over the cliff, what Republicans will have done is to make Democrats the party of tax cuts, and Obama a president fighting for economic growth,” Bill Kristol wrote Monday.
Polls currently show that Americans will blame Republicans by a 53 to 27 margin; it will surely get worse every hour of 2013 that the standoff lingers, which is why, within a few days or weeks of January 1, the GOP will almost certainly throw in the towel.
“Republicans will fold with lightning speed,” is how Kristol put it. Democrats will propose a bill allowing rates for the top 2% to return to their Clinton-era levels and restore the Bush tax cuts for everyone else.
The standard line on Barack Obama’s fiscal-cliff dilemma is that tactical considerations (i.e., how to get the best deal) recommend jumping over the edge, while strategic considerations (i.e., how to have the most successful presidency) recommend striking a deal.
When it comes to tactics, after all, there’s no point in compromising with the GOP in order to raise tax rates below their Clinton-era levels, at least not when simply waiting until January 1 will restore them entirely, no concessions required.
On the other hand, doing so could trigger a recession that derails Obama’s agenda. As Major Garrett of the National Journal put it a few weeks ago:
“President Obama … has no hope of a 2nd-term legacy of immigration reform, tax reform, or climate-change legislation (if he even wants it) if he drives the nation off the cliff.
“No one will follow Obama back out of the recessionary wilderness.”
There is plenty to be said for this argument — president’s don’t normally find it easier to govern during a recession, of course. But as the fiscal cliff negotiations play out, it’s increasingly proving to be wrong. At this point, both tactical and strategic considerations point toward the necessity of taking the plunge.
The moderately delusional argue that a deal could include raising the top income tax from 35% to 37%, in exchange for certain concessions from Obama, like an agreement in principle on big spending cuts.
Then the GOP can make a more serious push on slashing entitlements by holding up a vote on the debt ceiling next year. The truly delusional — which includes members of the party’s congressional wing — respond that even this sweetheart deal for Republicans would entail “capitulat[ing] to Obama,” as Sean Hannity thundered the other night to Ann Coulter, who somehow represents what passes for reason within the GOP these days.
(“We lost the election, Sean!” Coulter pleaded.)
As a result of all this, two things will almost certainly be true of any deal that gets done before January 1:
- First, it’s going to be worse from the perspective of the GOP than even the moderately delusional Republicans let on now: Obama may agree to a deal that extends middle class tax cuts and allows rates on the top rate to rise somewhere below the Clinton-era level of 39.6, but he’ll almost certainly extract other goodies in return—like an extended payroll tax cut or unemployment benefits.
- Second, in light of that, the truly delusional GOPers, who already think their moderately delusional colleagues are urging a shameful retreat, will promptly go bananas.
“One party proposes 800 billion in tax increases,” Senator Rand Paul recently wrote on his Facebook page, referring to the Democrats.
“In an effort to counter them and continue to be the ‘low tax, small government’ party, the other party’s leadership proposes … wait for it … 800 billion in tax increases.”
The Wall Street Journal editorial page, too, is already in full agitation mode.
The only way the party leadership will be able to appease these holdouts is by promising all-out war on the rest of the president’s priorities, beginning with demands for massive spending cuts when the debt-ceiling has to be raised next year. The Republicans “will give way … but seething,” Josh Marshall has written.
“The right of the party will not accept anything less than another debt-ceiling hostage drama.” If Obama somehow manages to survive that fight, then they will simply seize on the next opportunity to defeat him (like the March 2013 budget vote that will be necessary to keep the government running), or the next one after that.
In fact, we’ve seen this dynamic before. Back in early 2011, the GOP stared down Obama over the legislation that funds the government from year to year. Obama had proposed a $40 billion increase over the previous year’s spending level; the GOP wanted a $60 billion decrease. John Boehner and Obama eventually agreed to cut the budget by some $38 billion relative to 2010 (or roughly $80 billion below the president’s proposal).
But the House GOP considered that three-quarter victory a sellout and vowed to get even, in the form of trillions in cuts when the debt-ceiling came up for a vote a few months later. (It didn’t help that the White House used a variety of tricks to finesse much of the $75 billion in agreed-upon cuts.) The upshot was the massive, economy-crushing crisis that preceded the last-minute debt-ceiling vote that August.
The problem last year, as now, is that most Republicans didn’t believe the voters were against them. In their minds, they simply got outmaneuvered by the Obama administration. In a fair fight, they would surely win, and so they demanded an even higher-stakes rematch.
That’s why going over the fiscal cliff is so critical this time. Here’s what happens if we head into 2013 without a deal:
- Taxes will rise on every American. Thanks to the PR offensive the administration has waged — month after month of accusing the GOP of holding middle-class tax cuts hostage to cuts for the wealthy — and to the president’s structural advantages during a showdown with Congress, the public will immediately and overwhelmingly blame the GOP.
- And what of the economy? It will come through just fine. As others have pointed out, the “cliff” is a lousy metaphor.
The effect of the tax increases and spending cuts scheduled to begin next year is more like a mildly uncomfortable slope, with the toll on the economy accumulating only gradually. A few weeks down this slope — which is likely to be the outer limit of how long the GOP can hold out — will do no damage to speak of.
But the real key here is the political upshot of going over the cliff: Republicans will see in defeat that it’s not Obama who has somehow pulled one over on their leadership or simply played his hand better. Instead, they will see that they have been completely repudiated by the public in a way that even the election didn’t impress on them.
- It will, in other words, be as close as you get in politics to a total victory for one side.
- It will highlight the perils of following one’s base too slavishly, a lesson that will come in handy not just on future fiscal policy fights.
- There will in all likelihood still be a debt ceiling to raise next year, but, one can imagine, also on an issue like immigration.
Which is to say, it’s only by forcing the GOP off the cliff that Obama will find the space he needs to govern.