Why Republicans think they’re winning the ‘fiscal cliff’

December 31, 2012

Consider the ongoing "fiscal cliff" negotiations from the Republican Party's perspective. Not the revanchist conservatives who never believed they'd need to compromise, but the realists who knew, when they lost the election, that compromise was inevitable.

To Republicans, these negotiations have always had two discrete parts. First, there was the fiscal cliff, with its promise of huge, automatic tax increases. They've always known that the fiscal cliff gives President Obama and the Democrats huge leverage. But after the fiscal cliff comes the debt ceiling, and they've always believed that that's when they'll get their leverage: Just as in 2011, they'll force the White House to cut spending if it wants to avoid default.


Perhaps this is all going according to plan? (Reuters/Jonathan Ernst)

The question for Republicans has always been how to get to the debt ceiling while giving up the minimum in tax increases. Many of them figured that they'd at least have to give on the Bush tax cuts for income over $250,000. 

When these negotiations began, the White House was unyielding on that point, with the president promising to veto anything that didn't raise tax rates for income over $250,000. Asked by House Speaker John Boehner what he'd trade for $800 billion in revenue -- about the cost of the high-income Bush tax cuts -- Obama was firm. ”You get nothing,” the president said. “I get that for free.”

To make matters worse for Republicans, the Senate had already passed a bill letting those cuts expire back in July because Minority Leader Mitch McConnell figured it would be too politically damaging to block. If Mitt Romney had won the election, that bill would have died. But after Obama won on a platform that was barely about anything aside from letting those tax cuts expire, it seemed inevitable he'd get it done. It was his due.

To the GOP's delight, that no longer seems to be the case. In the Obama-Boehner negotiations, the White House offered to raise the threshold from $250,000 to $400,000. McConnell, in his negotiations with Harry Reid and now Joe Biden, has been trying to raise that to $500,000. It's clear to the Republicans that they will get past the fiscal cliff with a smaller tax increase than they thought. Perhaps much smaller. Huzzah!

That will set up a fight over the debt ceiling. The Republicans plan to say that now that they broke their pledge and voted for a tax increase, they'll insist on a dollar of spending cuts for every dollar of debt-ceiling increase -- the so-called "Boehner rule". The White House plans to insist that it won't negotiate over the debt ceiling at all.

Republicans I've spoken to laugh at this bluster. Obama is already negotiating over the debt ceiling, they point out. He began the fiscal cliff negotiations by saying he wanted a permanent solution to the debt ceiling. Then it was a two-year increase in the debt limit. Now he's going to sign off on a mini-deal that doesn't increase the debt ceiling at all. Does that really sound like someone who's going to hold firm when faced with global economic chaos? The White House always talks tough at the beginning of negotiations and then always folds at the end. Republicans are confident that the debt ceiling will be no different.

All this raises the tantalizing prospect for Republicans that they could end these negotiations having given up less tax revenue than they ever thought possible -- less tax revenue than Boehner offered Obama, even -- but still getting their entitlement cuts. Oh, and because there was never a big deal, they won't have to agree to much stimulus, either. All in all, a pretty big win, and it wouldn't have been possible without the White House's baffling inability to stick to a negotiating position.

Olivier Douliery/ABACAUSA.com

To Democrats, the mistake Republicans are making is in assuming that the White House will negotiate over the debt ceiling. They believe White House officials mean it when they say that if Boehner and McConnell choose to crash the global economy, then that's their business. They think Republicans are making a huge tactical error: They're giving Democrats a tax increase now assuming they won't have to hand over another one later, that they can trade a debt ceiling increase for entitlement cuts. But they're wrong. Republicans will quickly find the debt ceiling is a nonstarter with the White House. As soon as Democrats pocket this tax increase, they'll turn around and demand a dollar-for-dollar ratio of tax increases for entitlement cuts. And having already increased tax rates, Democrats can magnanimously agree to raise the new revenue through tax reform of the sort that Romney proposed. But in total, the two deals will raise more in taxes than a single deal ever would have.

Both Democrats and Republicans can't be right. Either Republicans are right that they won't budge on taxes again and the White House will fold on the debt ceiling in a few months or Democrats are right that Republicans will move on taxes after finding the White House resolute on the debt ceiling. The third possibility, of course, is that both sides are wrong, and we actually do break through the debt ceiling, unleashing economic chaos.

Related: Why the White House thinks it's winning the fiscal cliff.

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Brad Plumer | December 31, 2012