Is Obama over-playing his “fiscal cliff” hand?

The “fiscal cliff” consists of two elements — tax increases and spending cuts. The tax side is essentially a win-win for President Obama. Either he extracts a large amount of money for the government through across-the-board tax hikes he can blame on Republicans or he extracts a smaller amount of money from well-off Americans, thereby satisfying his emotional desire to stick it to Republicans and the well-off.

The spending cuts, by contrast, represent pure loss for Obama. He has no desire to cut spending, and doing so will limit slightly his ability to govern as he sees fit.

Taxes appear to be Obama’s main focus, and understandably so. They relate to politics and emotion, whereas spending cuts relate to mere governance.

But Obama doesn’t want a decoupling of the two issues. If taxes fall off of the table, he is left with a pretty weak hand. Thus, it’s better for him to resolve both issues at the same time

Why, then, hasn’t Obama been more willing to compromise? Probably because he understands the emotional force of the tax issue for Republicans and wants to maximize the concessions he can leverage off of it. This might explain, for example, why Obama could believe that raising the tax rate spike point from $250,000 to $400,000 (or a slightly larger number) might buy him (1) relief from the impending big spending cuts, (2) the ability to make only minimal concessions on entitlements, and (3) no more debt-limit negotiations for two years.

If Obama believed this, it was a miscalculation. Not because Republicans don’t give primacy to the tax issue, but because they are too resolute on taxes to be bought off at $400,000 (or even, perhaps, at $1 million).

Eventually, however, Republicans are going to have to take a hit on taxes in order to avoid a massive hit from the electorate. Taking that hit will not constitute their abandonment of core conservative principles. Avoiding a tax hike on all payers of federal income taxes is closer to a core conservative principle than avoiding a tax hike on high earners. And, like it or not, that’s the choice Republicans will face.

Their other choice is whether to make concessions to Obama on spending cuts and entitlement reform in order to protect those who earn from $250,000 to (say) $400,000 from a tax increase. For me, the correct answer is that few if any concessions should be made for that purpose.


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