President Obama’s goal in the fiscal cliff negotiations seems clear. He wants to force the Republicans to swallow increases in the tax rates of high-earners and thereby bring in at least one trillion dollars in revenue. Alternatively, if the Republicans won’t swallow rate increases for the “wealthy,” he wants to see everyone’s taxes go up and be able to blame Republicans for it.
The Republican goal also seems clear. They want to make headway on cutting government spending and, in particular, to get started with meaningful entitlement reform.
Speaker Boehner’s negotiating strategy, I assume, is to induce Obama into some spending cuts and some sort of start on entitlement reform in exchange for giving ground on tax rates. In other words, the impending trip over the fiscal cliff is supposed to provide Boehner with enough leverage to make headway on spending cuts.
Unfortunately, that leverage is limited because Republicans likely will be blamed if we go over the cliff. This places Obama in something like a win-win situation, or so he may perceive.
The question becomes whether events other than the fiscal cliff deadline can provide Republicans with the leverage needed to force seriousness about spending cuts. The question takes on particular urgency to the extent that there isn’t enough time before the cliff arrives to hammer out meaningful spending reform, even if Obama is willing to do so.
An alternative “forcing” mechanism does exist – the need to extend the debt ceiling, which will arise early in 2013. Thus, according to Joshua Green of Bloomberg, some conservatives now believe they might be better off accepting the inevitable tax hikes and building their strategy around threatening not to increase the debt limit.
By doing so, Republicans could take on spending without having to play the villain in a scenario that results in a tax hike for the middle class. With taxes off the table, perhaps Republicans could finally get the nation focused on spending, where their position seems stronger politically.
But there are two problems with this strategy. First, as Green points out, the threat of a default on the debt is probably more draconian than the fiscal cliff. If Republicans are seen as the villains in a true default scenario, their public standing would take an enormous hit.
To be sure, Obama likely fears a default more than he does the fiscal cliff, which contains elements that he probably likes. Indeed, we know that the threat of default gained the Republicans leverage in 2011.
But the election has given Obama new confidence in his ability to boss Republicans. A Republican retreat in fiscal cliff negotiations would add to that confidence. Thus, it’s unlikely that Republicans successfully could execute a reprise of the 2011 default threat in early 2013.
Second, Green notes that the public isn’t really in love with meaningful entitlement reform. Polls, he says, “show that Americans overwhelmingly favor raising taxes on the rich while preserving such programs as Medicare and Social Security.” Voters don’t seem to understand that raising taxes on the rich won’t preserve Medicare and Social Security in their present form.
If Green is right, then for now, the Republicans hold two losing hands: taxes and serious entitlement reform. One could argue that it still would be better, from a political standpoint, to fold the losing hand on taxes and leave the fight on entitlement reform for another day. But, as noted, a fight a few months from now involving a potential default doesn’t seem like a winning proposition either.
Green concludes that “the GOP’s best hope to cut entitlements is to negotiate for them now with a president more willing to concede them than most Republicans seem to understand.” Green may be right about the Republicans’ “best hope,” but I’d be interested to know why believes Obama is willing to concede cuts in entitlements.