Today in ‘fiscal cliff’: Democrats strengthen their hand on the debt ceiling

December 6, 2012

A small but growing number of Republicans are urging their party to concede on higher tax rates. Now Democrats are starting to strengthen their hand on the debt ceiling. My colleague Greg Sargent reports that the Business Roundtable is poised to support President Obama's proposal to give the White House the authority to raise the debt ceiling without Congress's approval, as such standoffs are really bad for business and for consumer confidence. 

Harry Reid
(Mandel Ngan -- AFP/Getty Images)

Certainly, Senate Majority Leader Harry Reid (D-Nev.) is feeling bullish about the president's debt-ceiling demands. On Thursday morning, Senate Minority Leader Mitch McConnell (R-Ky.) offered to hold a vote on Obama's debt-ceiling proposal, assuming an actual floor vote would scare off rank-and-file Democrats from the controversial idea and call the Democrats' bluff. But Reid simply replied that he'd happily take him up on his offer and hold a vote on the floor this afternoon. McConnell then blocked the vote on his own bill — presumably to avoid turning his attempted political maneuver into an unexpected show of unity from the Democratic caucus. All this suggests that Democrats are willing to hold a hard line to keep Republicans from using the debt limit as leverage again.

Meanwhile, the conservative Republicans who took the hardest line against the debt-ceiling hike last year seem to be losing their hold on the GOP leadership: Thursday, Sen. Jim DeMint — a tea party favorite and one of the most conservative Republicans — announced that he'll be leaving the Senate for the Heritage Foundation. Heritage is also where two conservative House Republicans showed up for an event after Boehner had removed them from plum committees for bucking the party leadership too many times. That suggests that ideological conservatives are likely to take their fight outside of Congress rather than try to threaten Boehner from within — a shift that could bode well for bipartisan deal making.

That said, one of the scariest parts of the "fiscal cliff" has faded into the background in recent days: the big, dumb cuts from the sequester. The prevailing assumption is that legislators will finally deal with the sequester by replacing it with other major spending cuts — presumably to entitlements, which Republicans say is their condition for a big deal.

But so far, there hasn't been much indication of where a compromise will lie, as Democrats are refusing to deal on spending cuts until Republicans give in on taxes. And in terms of sheer numbers, the two parties are just as far apart on spending cuts as they are on taxes: Boehner wants $800 billion in entitlement cuts alone, and while Obama has proposed only $400 billion in spending cuts. (By comparison, Obama wants twice as much in tax revenue, $1.6 billion, as Boehner says he wants to give.)

Some members of Congress already believe the clock will run out before Congress can agree to big structural reforms on entitlements. "It's hard to see us getting to a grand bargain," Rep. Peter Welch (D-Vt.) told me. "I don't think they're going to get a deal on spending." Instead, Welch predicted that the sequester would be delayed or amended for the short-term, passed together with an agreement on Bush tax rates. It would be the equivalent of "going small" on the fiscal cliff rather than using it as a major platform for sweeping deficit reduction. It would disappoint the deficit hawks, but it'd still be one way to avert the worst of the fiscal cliff. 

Cliff notes:

— Do plunging interest rates prove that deficit hawks are wrong?

— Third Way says no, arguing that higher interest rates are on the horizon if we don't go big on deficit reduction.

— The bond market could win big if the stock market freaks out from a cliff dive.

— Poll: Most Republicans think the anti-tax pledge is a bad idea.

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