Here’s the deal

Politico has posted the full text of the fiscal cliff legislation. I hope you have more luck working with it than I did.

The political logic of the cliff — the fact that, absent compromise tax rates were set to increase on all taxpayers — always meant that a compromise on taxes would favor Obama and the Democrats. The compromise reached is consistent with that logic.

The $450,000 per household threshold on increased tax rates is a little better than I thought the Republicans would get in a compromise. But some deductions will phase out for households making more than $250,000. I can’t tell yet whether this is just a fig-leaf to enable Obama to say kept his promise to raise taxes on this entire cohort or whether it will carry a significant bite.

The political logic of the cliff should favor Republicans when it comes to spending cuts which, in the form of the sequestration, are impending. Just as tax increases for everyone were set to increase — a particularly bad result for Republicans both politically and substantively — unless the Republicans gave ground, spending cuts — a bad result for Democrats — will occur unless the Dems give ground in the next two months.

Unfortunately, Republicans seem as anxious as Democrats to avoid the cuts mandated by the sequestration. They shouldn’t be. Veronique de Rugy puts the cuts in perspective:

The alleged brutality of the cuts is one of the biggest myth of 2012. For the most part, the sequestration “cuts” aren’t really cuts at all. According to the Congressional Budget Office, discretionary spending would grow from $1.047 trillion to $1.234 trillion without sequestration. With the sequestration cuts in place, it will instead grow from $1.047 to $1.147 trillion. Medicare, which also faces cuts in the sequestration process, follows a similar trend. That means that going through with sequestration is just the beginning. It won’t make a dent in the size of our debt, and more cuts will be needed in the future. Yet both sides oppose fulfilling the deal they agreed upon.

Republicans can redeem the advanatage provided them by the sequestration if they limit their negotiations to proposals that make the spending cuts more rational, but not smaller. They should resist Obama’s efforts to broaden the negotiations. And they should laugh off his promised attempt to bring additional revenue increases into the negotiations.

As for debt-ceiling negotiations, they should proceed on a separate track. Obama shouldn’t be put in a position where he can accuse Republicans of bringing on a default when all they are really doing is enforcing the level of cuts mandated by the sequestration.

In sum, Obama has redeemed much of his advantage on taxes. The Republicans haven’t redeemed any of their advantage on spending, but haven’t forfeited that advantage either. Not yet, anyway.