The showdown over the “fiscal cliff” has taken its first major turn, as Representative Tom Cole — a former minority whip and still a leading House Republican — is now urging his party to extend the Bush tax cuts for income under $250,000 a year. Meanwhile, Ari Fleischer is spinning this move as a big Republican win.
It’s not. It’s a recognition by at least some Republicans that their strategy of using the threat of an economic crisis to improve their bargaining position is likely to fail.
The key factor driving the entire negotiation is the baseline. The baseline determines what policies you can assume will happen, as against those you need to bargain for. Republicans want to bargain from a baseline of current tax policies — i.e., the tax code that has been in effect since George W. Bush’s tax cuts in 2001 in 2003. Democrats want to negotiate from a baseline that assumes the tax cuts that benefit only people earning more than a quarter of a million dollars have expired.
Both sides have recognized since the election that Republicans will have to concede some higher revenue. The question is the baseline — will the expiration of the Bush tax cuts for the rich be something they bargain away in exchange for concessions? Or will it be the baseline, meaning Democrats will bargain for additional revenue on top of that level in exchange for spending cuts?
The Republican strategy has apparently been to use the threat of the “fiscal cliff” to force Democrats to bargain from the low-tax baseline. The Bush tax cuts remain fully in effect through the rest of the year, so they would want to strike a deal before January. This strategy assumes that the “fiscal cliff” is a gun aimed at Obama’s head — that the automatic tax hikes and spending cuts scheduled for the start of the New Year will quickly trigger a recession for which Obama will be blamed. (Former House Republican staffer Keith Hennessey lays out this thinking.)
But the Obama administration has never seen it this way. Since immediately after his election, Obama has been calling on Republicans to extend the Bush tax cuts on income under $250,000. If they fail to do so before January, Republicans will be in the position of denying popular tax cuts for all Americans — remember, rich people also get the benefit of having the first $250,000 of their income taxed at lower rates — because they insist on adding unpopular tax cuts only for the very rich. At least some Republicans understand that this isn’t a gun aimed at Obama’s head. It’s a gun aimed at their own. (Cole: “Some people think that’s our leverage in the debate. It’s the Democrats’ leverage in the debate.”)
What’s unclear about the path forward is whether the House Republican caucus is prepared to listen to Cole’s advice, or even whether it can realistically negotiate anything at all. Washington Post editorial writer Ruth Marcus reports on the House GOP’s opening bid to Obama, which makes no concessions at all:
As described to me by several sources with direct knowledge, the “bargain” was that all the Bush tax cuts would be extended. Revenue would be raised through later tax reform — although no amount was specified and, as important, no trigger mechanism put in place to enforce the deal. In return for the vague promise of future revenue, the defense-spending sequester would be canceled, the age for Medicare eligibility would rise and changes would be made to the formula for calculating increases in Social Security benefits.
That is an almost comical offer, suggesting that Boehner has almost no leeway at this point from his conservatives to make any kind of concessions.
Obama, having learned from the 2011 debt ceiling debacle, is already undertaking a campaign-style effort to pressure Republicans. Jay Carney was strikingly blunt in his dismissal of the possibility of hammering out a deal behind closed doors with the House GOP:
“I don’t think there is a lot of faith that a bunch of people sitting around a table in a room are going to solve problems on behalf of the American people … if those sitting around the table aren’t also communicating and engaging with the American people.”
Let’s put all the pieces together. House Republicans remain about as crazed and intransigent as ever, and as a result John Boehner remains almost totally unable to bargain. Cooler heads within the party see this intransigence careening toward a political debacle for the party that will wind up handing Obama even more leverage, and they’re looking toward the path of least resistance to avoid such a debacle. That path is to extend most of the Bush tax cuts, spin it as a partial win, and live to fight another day.