Fourteen days to the fiscal cliff: Boehner on a tightrope

Boehner made some important concessions this weekend in the fiscal cliff talks. Unfortunately, they don't do anything to correct our fiscal dysfunction. Photo: Associated Press

WASHINGTON, DC, December 17, 2012 — John Boehner is walking the edge of the fiscal cliff, and if the whole country doesn’t go over the edge, he very well might.

Boehner is trying to find the edges of a deal with President Obama and Congressional Democrats. The initial bargaining position of the GOP in the fiscal cliff negotiations had rejected increased tax rates and tying a vote on the debt ceiling to resolution of the fiscal cliff. The two issues are related, not least because the Budget Control Act of 2011 that raised the debt ceiling last time created the fiscal cliff. But Republicans had insisted that the two issues be kept separate now.

Democrats have denounced Republican intransigence on the tax issue (the Democrats’ own insistence that tax rates must rise is equally intransigent, a fact lost on most observers). There were already signs that Republican leadership was more flexible on this than widely assumed, not least their removal of Tea Party Republicans from some prominent leadership positions. Perhaps fearful of being called “intransigent,” Boehner blinked. He’s ready to raise taxes on the rich.

The Tea Party segment of the GOP is not as effective as it once was, and Grover Norquist’s capacity to strike terror into GOP hearts seems to be waning, but Boehner would be a fool to underestimate their capacity to make him pay for moving on taxes. “Read my lips” is a phrase that still gives makes Republican hearts burn, and Boehner seems determined to play that scene out again.

If Boehner yields on taxes, the GOP will get no credit for any good that happens after a deal, and it will probably get much of the blame for any bad. The only thing that will pull a deal with higher tax rates from the category of unmitigated GOP disaster will be dramatic entitlement reform.

The odds of that are small. Obama’s liberal base has much more clout than the GOP conservatives. Boehner’s inclinations are conciliatory; the left’s are not.

Obama has said that he’ll be prepared to later negotiate changes to entitlements once the GOP goes along with tax hikes. He may be entirely sincere, but he faces a time inconsistency problem: What’s to his advantage to commit to today is not to his advantage to deliver tomorrow. If the GOP doesn’t have Obama’s commitment to negotiate on entitlements in blood, along with the commitments of Harry Reid and Nancy Pelosi to go along with it, there will be no meaningful negotiations on entitlements once a tax hike is passed.

Obama and the Democrats make the repeated claim that a tax hike must be part of a package to raise revenues so that closing the deficit won’t disproportionately hit the middle class. Boehner’s proposal to raise taxes on people making over $1 million will have very little impact on the deficit, and everyone knows it. More will be raised by pushing the hikes down to people who make over $250,000, but that will also do little to close the gap. The ugly reality is that the middle and lower classes will pay to close the gap, and they’ll have to.

Entitlements are where projected deficits are growing fastest. There’s no Social Security trust fund to draw on (to pay its debts to Social Security, the government must cut spending out of the general fund or raise taxes), Medicare and Medicaid growth can only be slowed by cutting services (that means “death panels,” whatever you want to call them), and cutting those programs goes straight to the heart of the non-wealthy.

And so Obama wants to put off negotiations on the one thing that shouldn’t be put off, Boehner is prepared to give up a meaningless hike in tax rates rather than fight for meaningful tax reform (which can raise meaningful amounts of money), and nothing reported on the fiscal cliff negotiations has any real capacity to fix our underlying fiscal problems. If it weren’t for the shootings in Newtown, we could properly call this a tragedy.

Newtown reminds us that there are tragedies that make the fiscal cliff look like a farce, but if this farce isn’t tragic, it can still be disastrous. Boehner will accomplish nothing with his current gambit except undercut his own position, the GOP, and any chance at meaningful fiscal reform. This supposes, of course, that he really doesn’t have Obama’s signature in blood on an agreement to negotiate entitlement reform.

Now that tax rate hikes and extending the debt ceiling are on the table, Democrats will insist on more. The “chained CPI” that Boehner included in his offer makes excellent economic sense, hence it will incite contempt. Unless he faces rebellion from within his caucus, look for Boehner to negotiate downward on the threshold for raising taxes.

If we go over the fiscal cliff, taxes go up on the middle class and wealthy anyway, and while he doesn’t want the spending cuts that are part of the package, expanding income taxes would suit Obama and the Democrats just fine. Obama has less to lose by going over the fiscal cliff than do the Republicans, who according to opinion polls will get most of the blame while Obama gets his higher taxes, and so Boehner walks out on his tightrope. There are angry Republicans, gleeful Democrats, and a hostile press waiting below if he falls.



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Jim Picht

James Picht is the Senior Editor for Communities Politics and teaches economics and Russian at the Louisiana Scholars' College in Natchitoches, La. After earning his doctorate in economics, he spent several years working in Moscow and the new independent states of the former Soviet Union for the U.S. government, the Asian Development Bank, and as a private contractor. He returned to Ukraine recently to teach principles of constitutional law and criminal procedure at several Ukrainian law schools for a USAID legal development project. He has been writing at the Communities since 2009.

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