An Unbalanced Approach

How Obama's opening bid stalled the fiscal cliff talks

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December 1, 2012

President Barack Obama's opening bid in negotiations over the so-called fiscal cliff was neither balanced nor especially concerned about reducing the deficit despite the president's claim to favor a "balanced approach" to solving the country’s fiscal crisis, Republicans said.

GOP leaders roundly rejected the offer, which reportedly included $1.6 trillion in tax increases, $50 billion in new stimulus spending, and a major mortgage refinancing proposal (cost unspecified). The proposal would also eliminate the statutory requirement that Congress approve increases in the federal government’s borrowing authority.

The White House did not offer any concrete commitments on spending cuts or entitlement reform.

Senate Majority Leader Mitch McConnell (R., Ky.) said he "burst into laughter" when Treasury Secretary Timothy Geithner outlined the proposal at a meeting with GOP leaders on Capitol Hill. He called the plan "almost comical."

Conservative columnist Charles Krauthammer called it an "insulting deal."

"Robert E. Lee was offered easier terms at Appomattox," he said on Fox News. "Not only are there no cuts in this [proposal], there’s an increase in spending with a new stimulus. I mean, this is almost unheard of."

The White House proposal was adopted from the president’s most recent budget proposal, which did not receive a single Democratic vote in either chamber of Congress.

Independent analysts panned Obama’s budget for its reliance on phantom spending cuts and for failing to adequately address the burgeoning national debt.

On top of the $50 billion in stimulus spending, the White House also proposed tax and spending measures, such as an extension of unemployment insurance ($30 billion), that total more than $400 billion. The $1.2 trillion (over 10 years) in automatic spending cuts scheduled to take effect at the end of the year would be deferred for one more year.

House Speaker John Boehner (R., Ohio) offered a pessimistic take on Friday and told reporters the president’s offer "wasn’t a serious one." 

"There’s a stalemate," he said. "Let’s not kid ourselves. Right now we’re almost nowhere."

Following his meeting with Geithner on Thursday, Boehner warned: "There is a real danger of going off the fiscal cliff."

"Appalling," one GOP aide said of the White House offer. "If I were Boehner, I’d be pretty pissed off. It’s definitely a wake up call."

The Wall Street Journal’s Kim Strassel wrote that the president's proposal is a telling example of why Obama deserves his reputation "as the modern president least able to forge a consensus."

It is not the first time the president has demanded stimulus spending in budget negotiations. However, the $1.6 trillion in new taxes is roughly twice the amount discussed in previous talks with Congressional Republicans.

Though GOP leaders acknowledge that their political leverage is somewhat diminished following the president’s reelection, they are unwilling to agree to what one aide described as an "unconditional surrender" on taxes.

The two parties remain deadlocked over the fate of the Bush-era tax rates for high-income families and small businesses. Republicans have agreed to offer new revenue by capping or eliminating deductions for wealthy earners, but most are opposed to higher rates.

After initially hedging on the issue, Obama now insists "there can be no deal without rates on top earners going up," in the words of White House Press Secretary Jay Carney.

The president has repeatedly called on House Republicans to pass a permanent extension of the Bush-era tax rates on incomes below $200,000 and has sought to redeploy his extension campaign operation to rally support for his position.

Speaking to crowd in Hatfield, Pa., on Friday, Obama accused Republicans of holding "middle-class tax cuts hostage."

"If Congress does nothing, every family in America will see their income taxes automatically go up on January 1st," he said. "That’s sort of like the lump of coal you get for Christmas. That’s a Scrooge Christmas."

The House has already passed a bill extending all of the Bush rates but Senate Majority Leader Harry Reid (D., Nev.) has made clear he does not intend to bring it up in the Senate.

Democrats are increasingly confident that House Republicans will cave.

Republicans are willing to offer more tax revenue as part of a deal if Democrats agree to meaningful changes to entitlement programs such as Medicare, which is the primary driver of the national debt.

Some GOP lawmakers such as Rep. Tom Cole (R., Okla.) have suggested that Republicans should simply give the president what he wants.

"I think we ought to take the 98 percent deal right now," Cole said of extending the Bush-era tax rates except for those on high incomes. "It doesn’t mean I agree with raising the top two. I don’t."

Cole and others have argued that Obama’s greatest leverage lies in his ability to blame Republicans for the tax increase every American will face if all the Bush rates are allowed to expire.

"If Rs are smart and take tax issue off the table, focus will shift to D refusal to cut spending," former White House Press Secretary Ari Fleischer wrote on Twitter.

The editors of National Review argued, "It would be better to pass legislation extending the middle-class tax cuts and to allow the top rates to rise as scheduled" than to accept the latest offer from the White House.

A House leadership aide dismissed Cole’s proposal as "one guy’s idea" that members would not support.

However, aides do concede privately that for Democrats to be insisting on a permanent extension of nearly all of the Bush-era tax rates is a long-term victory for Republicans.

"Looks like Pres George W. Bush is a winner of fiscal cliff deal," tweeted Brad Dayspring, former communications director for House Majority Leader Eric Cantor. "AT LEAST 98% of one of his signature laws preserved by Dem President."

Still, a number of influential conservatives are suggesting Republicans might be better off "going over the fiscal cliff," and are challenging the conventional wisdom that Obama would claim the political high ground in such a scenario.

"He’s going to have a recession, nine percent unemployment, two million more unemployed, and a second term that's going to be a ruin," Krauthammer said. "That is not a good proposition if you are Barack Obama."

Keith Hennessey, a former director of the National Economic Council under George W. Bush, wrote that Obama’s threats to veto extension of the rates on high earners is a bluff.

"President Obama’s veto threat decision is not just about fiscal policy, and it’s not just about who gets blamed for a legislative failure," Hennessey wrote. "It’s about whether the President wants to cause a recession in 2013 and hamstring his second term. No matter what he or his advisors say, he cannot afford to take that risk."

The president has just as much of an incentive to avoid the fiscal cliff as Republicans do, the House leadership aide told the Washington Free Beacon.

"The part that most people are missing here is that the president doesn't want to have a destroyed economy on his hands in January," the aide said. "He doesn’t want a second recession. He’s got Democrats like [Sen.] Patty Murray saying, ‘Let’s go over the cliff.’ He’s got to worry about keeping his own party in line."

Sen. Patty Murray (D., Wash.) recently said that extending all of the current tax rates would be "a worse idea" than raising taxes on every income level.

Some Republicans fear they are playing into the president’s hands by continuing to negotiate a deal behind closed doors as opposed to in public via congressional committees, where Democrats would be forced to take positions on a host of taxation and spending issues.

"Secret negotiations are a terrible practice," said Sen. Ron Johnson (R., Wis.). "I don’t know what the Democrats’ plan is. The American people deserve to know."

Another GOP Senator, who spoke to the Washington Free Beacon on background, was even more blunt.

"The White House is playing Republicans like a fiddle," he said.