Obama seeks to avoid going over half of the fiscal cliff

Throughout the “fiscal cliff” drama, I argued that once the middle class tax increase was called off (as seemed almost inevitable), Republicans would have the upper hand because President Obama fears sequestration more than Republicans do (or should). The key, then, was to keep sequestration on the table or, as I put it, “to go over half of the fiscal cliff.”

Now that we are about to take that plunge, sure enough, Obama is asking Congress for a short-term deficit reduction package of spending cuts and tax revenue that will delay steeper automatic cuts from kicking in on March 1. Republicans seem adamant, however, that additional tax revenue won’t be part of such a deal. Speaker Boehner said:

President Obama first proposed the sequester and insisted it become law. Republicans have twice voted to replace these arbitrary cuts with common sense cuts and reforms that protect our national defense. We believe there is a better way to reduce the deficit, but Americans do not support sacrificing real spending cuts for more tax hikes. The president’s sequester should be replaced with spending cuts and reforms that will start us on the path to balancing the budget in 10 years.

The first sentence is important — Obama proposed the sequester. This fact will make it difficult for him to the blame its economic consequences on Republicans, a growing priority for the president now that the economy has stopped growing.

Difficult, but not impossible. Obama is trying to return the playing field to something like its December 2012 shape by talking about closing tax loopholes. In other words , he wants to recouple spending cuts and tax hikes for the rich. When the Republicans insist they have already done tax increases so now it’s time to do spending cuts, Obama will claim that the Republicans are once again putting the economy at risk in order to protect the rich.

But this time (a) it is Obama’s own idea that allegedly is putting the economy at risk and (b) there is no question of a tax increase on the middle class. So although Obama is not without arguments, his position is nowhere near as strong as it was two months ago. In fact, Republicans may have the upper hand.

What should Republicans do? They should propose spending cuts that make more sense than the blunderbuss reductions in the sequester, but that add up to the same amount. If the Democrats shock the world and agree, great — we will have sensible cuts. If they don’t agree, Republicans can, with some plausibility, blame sequestration on Obama for proposing it and the Democrats generally for not agreeing to modify it.

Finally, in the unlikely event that Obama shows a willingness to discuss entitlement reform in a serious way, Republicans should entertain a “grand bargain.” Otherwise, they should take the spending cuts that Obama graciously handed them, and save entitlement reform for the next time they can exert pressure on the White House.

JOHN adds: I don’t disagree with any of Paul’s observations, but as I have said before, I think it is overwhelmingly probable that the best deal the Republicans will be able to get is the one they already have, i.e., sequestration. So let’s take it: it will be the first significant spending cut in memory. As long as Obama keeps singing the same tune–the only one he knows, evidently–Republicans should just say no.

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