A third option changes the negotiation

The conventional wisdom on the fiscal cliff is that there are two options: (1) an Obama-Boehner deal; or (2) no deal, in which case there is no legislation before the end of the year and we “go off the fiscal cliff.” Even those who acknowledge the possibility of other legislative paths appear to treat the Obama-Boehner negotiation as if it were the only alternative to a failure to legislate.

I won’t rehash my argument that the President is no more willing to risk a no deal scenario than Republicans, and therefore that he and his advisors are bluffing when they say they are willing to “go over the cliff” if a new bill is not to their liking. But after talking to Republican friends on Capitol Hill, I am confident that I have convinced no one of this point. It appears many key Republicans believe that a no-bill scenario is unacceptable and must be avoided at any cost.

If enough Republican Members of Congress believe this, and if the President knows they believe this, then Speaker Boehner has literally zero leverage in his negotiations. The President can dictate his terms because Republicans think he is willing to walk away from a bad deal and they are not.

At the same time many conservatives on and off Capitol Hill are talking about their policy views on what a possible Obama-Boehner deal should (or even “must”) include. I hear and read that marginal rates must not increase, or that we shouldn’t raise taxes by the $1.6 trillion the President demands, or that there must be a procedural path to enact tax reform, or that the defense sequester must be mitigated, or that a deal must include significant spending cuts and entitlement reforms. While I share these policy views, it seems absurd to be simultaneously making these demands of your negotiator while giving him no leverage.

If, however, there is a third option, one that is terrible but not inconceivable, then there is at least some minimum floor to the negotiations. If a third option exists, then Speaker Boehner and the Congressional Republicans he represents can reject demands from the President that are worse than that third alternative. Even a highly undesirable third legislative option changes the negotiating dynamic, if it is minimally tolerable in the extreme. If most Republicans would prefer that third option to a no-deal “go off the cliff” scenario, then the Speaker has at least a little leverage to reject or ignore outrageous demands from the President. He can say, “No thanks, Mr. President, we’ll just go with option C, whether you want us to or not.” The negotiating term for option C is a new and stronger BATNA: Best Alternative To a Negotiated Agreement. The risk of going over the fiscal cliff is irrelevant because Republicans have a backup plan if there is no deal with the President.

This doesn’t mean Republicans want to go with option C, or that they like option C. It instead means their negotiator now has the ability to walk away from a really terrible deal with the President, and that he can therefore demand a bit more from the President in exchange for cooperation on a deal. Option C is useful to Republicans even if their strong preference, for non-policy reasons, is to negotiate a deal with the President.

I think option C is S. 3412, a bill passed by the Senate in July. The short description is that this bill “extends the middle class tax relief for one year and allows tax cuts for the rich to expire.” More precisely, here is what the bill does (Joint Tax table is here):

  • It extends for one year all current income tax rates for incomes <$200K (single) and <$250K (married);
  • For one year it keeps the capital gains rate at 15% for the same incomes as above;
  • For one year it (explicitly) raises the capital gains and dividends rates to 20% for incomes >$200K/$250K;
  • It extends for one year other provisions of current law, important and not-so-important:  marriage penalty relief and the child credit, education tax relief, and a handful of smaller provisions; and
  • It patches the AMT for 2012.

There are corollary policy consequences to enacting S. 3412 as-is. Unlike the explicit capital gains and dividend rate increase on “the rich,” these consequences are implicit, meaning they would happen because S. 3412 didn’t prevent them from occurring.

  • Income tax rates on incomes >$200K/$250K would increase to 36% and 39.6%, their pre-2000 rates;
  • If no new legislation is enacted in 2013, we would again face the same kind of cliff at the end of tax year 2013 as we are facing now; and
  • The spending sequesters would still happen beginning in January 2013, since S. 3412 is silent on the sequester.

On July 25th S. 3412 passed the Senate on a 51-48 near party line vote, in which Senators Lieberman and Webb joined all Republicans in voting no. This Senate vote is critical to my argument. Senate Democrats have already passed this bill, so it is rhetorically infeasible for them to now say no to it. If there is no Obama-Boehner deal, the Speaker has the ability to bring this bill to the House floor and present it as a take-it-or-go-off-the-cliff offer to Congressional Democrats. Many (most?) House Republicans would oppose it, but enough of them would join with Democrats to pass the bill and avert the cliff scenario.

S. 3412 is a terrible, horrible, no good, very bad bill. I hate S. 3412 because it allows taxes to increase by $80ish B (that’s a guess) next year. I hate that it raises revenues by increasing marginal rates rather than through tax reform-induced economic growth and by eliminating or scaling back tax deductions. I hate that it raises taxes on successful small business owners. I hate that it raises capital gains and dividend taxes. I hate that it creates more uncertainty and another cliff at the end of 2013. I hate that it doesn’t contain any spending cuts or entitlement reforms.

In addition I hate this bill because I helped enact, design, and defend the tax rates on income, capital gains, and dividends now in effect, first as an aide to Senate Majority Leader Trent Lott, and then as an aide to President Bush.

I detest S. 3412 and do not want it to become law.  But I fear that Congressional Republicans are so afraid of being blamed for a no-bill scenario that they will agree to support a hypothetical Obama-Boehner deal that is even worse. They should not do that. They must not do that.

If you share my policy views but think the President is not bluffing, and if you think that America cannot, under any circumstances, risk a no-bill scenario, then S. 3412 is your Option C. It does exactly what President Obama has been calling on Congress to do, it allows tax rates to increase on the rich. It just doesn’t also do other things that we know he wants to do, but which he has not been making the centerpiece of his kick-Republicans-around PR campaign. S. 3412 does not raise taxes by $1.6 trillion, but instead by $80ish B (not counting the AMT patch). It does not guarantee the President $800B – $1T over the next decade, because it tees the fight up again a year from now when the political and legislative dynamics may be different. And it does not include the debt limit increase the President is demanding in end-of-year legislation, and which if enacted now would deny Republicans a tool to demand future spending cuts.

Even more importantly, S. 3412 has passed the Senate entirely with Democratic votes and is therefore a viable legislative alternative in an endgame take-it-or-leave-it scenario. Messrs. Boehner and McConnell could, later this month, announce, “Negotiations with the President have broken down because he refused to cut spending enough. We are therefore not going to stand in the way of S. 3412 becoming law. We oppose this bill and we will both vote no. We imagine most other Republicans will do the same. But it will be brought up for a House vote, and we expect enough House Republicans will join the Democrats in voting for this policy that we will avoid an end-of-year disaster. We will oppose President Obama’s tax increases, but we will not prevent them from becoming law because we do not want to risk a recession next year. The President will get his tax increases when Democrats [and a handful or two of House Republicans] vote for them now, and we will continue to press for spending cuts and tax reform in 2013.”

I hope this scenario does not occur, and I do not want to see S.3412 enacted into law, but having it as a viable legislative fallback helps the negotiating dynamic with the President. There is no reason why Republicans should feel pressured to accept any offer from President Obama that they deem to be worse than this bill, an $80ish B tax increase that extends for one year tax rates for only the “middle class.” Congressional Republicans have no need to fear the policy effects or political blame of the fiscal cliff because they have a less-worse alternative available.

Suppose, for instance, that in his private discussions with Speaker Boehner the President is characterizing himself as “coming down to $1.2 trillion” of higher taxes over the next decade (I’m guessing). S. 3412 contains a tax increase of less than one-tenth that size. Now it sets up between $800B and $1T of higher taxes over the next decade, if you guess that each subsequent year it would be extended again as-is. I hate temporary fiscal policy extensions almost as much as I hate S. 3412, but there is no reason why Congressional Republicans should feel obliged to support massive tax increases of more than this range in an Obama-Boehner deal.  The extended size of S. 3412 should be a ceiling for tax increases in an Obama-Boehner deal, not a floor.

It gets tricky when we try to compare Option C, S. 3412, with a hypothetical Obama-Boehner deal, both because we don’t know what might be in such a deal, and especially because it’s a multi-dimensional comparison. A deal could be better than S. 3412 in some areas and worse in others.  I will try to unpack those questions soon.

For now, however, it is important to understand that, even if you are unwilling to challenge President Obama’s bluff, Republicans have a third option, a legislative alternative to an Obama-Boehner deal.  And that gives them and their negotiator at least a little bit of leverage.

(photo credit: gfpeck)

I escaped Washington, DC and now teach at Stanford's Graduate School of Business.

Posted in budget, taxes
47 comments on “A third option changes the negotiation
  1. Walter Sobchak says:

    Eh. I would rather they go over the cliff.

    • Ernie Banks says:

      I think Hennessey’s analysis is faulty. If SB 3412 passes, Obama can simply veto it because it doesn’t meet his minimum demands. Then the “third option” goes poof.

      I agree with you, Walter. I’d rather see us go over the cliff. I’d position it completely differently, though. Republicans say that we have a federal budget crisis, and it is vitally important to cut the deficit in a significant way. Obama’s plan doesn’t do enough – we need shared sacrifice from everyone. If Obama is willing to consider changes to entitlements, then these tax increases are not necessary. But he isn’t, so we must pay for them. The right plan is tax and entitlement reform. But this president won’t consider either one. So let’s pay our bills instead of screwing the next generation.

      • Micha Elyi says:

        Sure, “Obama can simply veto it”, Ernie Banks, but then Obama and his Democrat cronies can eat the blame.

        Unmentioned by Mr. Hennessey is that the bill, if brought to the floor, could pass without a single Republican vote as long as only enough Republican members show up to form a quorum and they all vote no. Bwahahahahahaha!

  2. Policy is complicated. Libertarian Republicans have decided after long observation and thought that a small set of principles guide public policy to the correct path. Spend a lot less through government, reduce the federal payroll, regulate only what is absolutely necessary in business, and remove government mandates like Obamacare which increase the costs of health care, hiring, and working. I agree.

    The worst part of Republican infighting is that it suggests to many undecided voters that Republicans are hacks and a free market philosophy hides their heartlessness.

    A large middle of independents sit on the fence. The Left says that if government spends less money, it will kill private sector jobs through lack of Keynesian demand. Government workers don’t want to be fired. People like the idea of a protective government, and 40% of the public gets a government check. Why should they believe that they would be better off without big government? Why not tax the rich? Why not go on as before?

    Leftist politicians proclaim attractive goals and principles as if they were possible, and make their goals seem possible through emotion. They fight for every inch. They present a vision of a glorious future. They fight for that future with conviction, not daunted by the contradictions and idiocies which they proclaim. They make aggressive moves toward their goals and then compromise on how much they win.

    The Republican opposition shows fear. They want a better future within the bounds of morality and reality, but they don’t act like this is supremely important. They say that reality requires conservative policies, and then they make compromises which ignore that reality. This makes them appear opportunistic, trading away the results which they say are necessary. They compromise on how much they lose.

    If Conservative and Libertarian policies are good for almost everyone, then why don’t Republicans act like it? An observer on the fence can infer that Republicans don’t really believe in the reality they describe. For example, they started a fight over the debt ceiling, saying correctly that increased debt is dangerous to the productivity and living standard of our country. They said that spending must be controlled, and correctly that the disruption from a temporary government default was worth it, because otherwise we would go over the cliff to high taxes and a lowered living standard.

    Then, they made a deal with no spending cuts of importance. What about the cliff? Why start the fight in the first place? Someone on the fence sees this as political posturing, not an analysis backed by conviction. This demeans the Republican and Conservative brand.

    That debt deal and the current negotiations give approval to the Democratic vision. The Democrats seem credible when they say: “Republicans start fights they don’t believe in, but they have opposed us enough to cause the next recession. They want to block our policies for their own political gain, but they don’t want to stand by their own plans and take responsibility. They risked default without believing their own analysis. They say higher taxes are bad, but they are only trying to protect their rich supporters”

    It is not enough to have a good policy, one must fight for that policy as if it were actually good. People judge conviction as much as the facts.

  3. maxparrish says:

    Dr. H…

    For several years I have enjoyed your posts, don’t stop. But I do wish Mr. “B” of the GOP would give you 30 minutes to explain your views because they are on the right track. While your third way it is along lines that I have always thought doable, let me suggest a modification….

    Mr. B has made a classic blunder, he has created a battle on two fronts in which he is likely to lose both (tax increases AND the fiscal cliff). He has (like many errant mid-level corporate managers) attempted to lead and take responsibility on these fronts without the power or duty to do so. He will own someone elses results, and the GOP will be held accountable for its “bi-partisanship agreement” on a program that will be both evil and stupid. Such is needless.

    Here would be my advice, take a page from Queen Nancy on Bush’s SSI reform – don’t lead and don’t get into negotiating contest with the enemy. Yes defend your voting block’s core interests, but don’t let them tag you with ownership. As a minority in the House, she still won that battle by being smart.

    Mr. B. should have given on the expired tax breaks from the outset – the “rich” will be hit harder, and nothing will change that. However, why must the GOP also become the “enemy” of the middleclass voter by leading in even more tax increases (via ‘bi-partisanship’ agreements) and/or entitlement cuts? After the election, we must rebuild our credability with the middle-class, so let the President demand the bad news. STOP saving Obama’s bacon by being the bad guy..

    Specifically here is my suggestion:

    Don’t go along with Obama’s proposed 1.6 trillion dollar tax increase (which must be paid by even more taxes ) and some unknown amount in entitlement cut promise. Get off that premature bus – cease a negotiating process on the whole ‘fiscal cliff’ issue, and as Obama asked do what both parties agree on, return to Obama’s original threat and demand. Look cooperative, surrender intelligently. Do so by extending the middle class and upperclass tax brackets four two to four years, BUT raise taxes for those in the last two brackets by eliminating their usual deductions (home mortgage, etc.) and pocket the 800 billion dollar in new revenue as a “down payment”. Then go home for Christmas.

    Obama will sign it. It is what he has litterly demanded in his campaign, but in a form he does not like. Yet, I doubt he would reject thatform and let us fall over the cliff. And AT LEAST the tax increase will be in the form advocated by most new liberal economies and the S-B commission – keep marginal rates lower by eliminating deductions. It would be a grave mistake to concede to higher rates.

    (Mr. B should keep the payroll tax break, the small business deductions, the unemployment extensions, and the annual AMT fix.)

    At the same time the GOP should prepare for round two next year. Once more announce that the President is the leader, and it is up to him to make new tax proposals and budget cuts beyond what was given by the House by ‘taxing the rich’. He should be a leader and do so in his next annual budget. But next time he should know this, the GOP will not make more tax cuts and will not sacrifice Medicare for Obamacare. They will not accept more another round of taxes beyond what has been provided, at least not without serious proposed budget cutting. They should endorse and adopt any compromise consistent with the President’s own Bowles-Simpson compromise of lower marginal rates with fewer deductions, and they should adopt the 3 to 1 cut/revenue formula in it as the gold standard of seriousness (and put Obama on the defensive, since he rejected his own commission without saying so).

    (And he should publically ask the President if he wants the sequester, because he will get that to if he desires to own it.) Be nice, but make sure the public knows that they elected the President to lead and provide own the solutions that he demands. After making a major downpayment on new revenue, Mr. B now expects the President to step up in January.

    In round two, he starts to act like Ms. Pelosi and starts a new fight over Obamacare vs Medicare. He does not have to “own” something he does not like. Currently, he does. You might be forced to act evil, but you don’t have to be stupid.

    Mark Hamilton

  4. Andrew says:

    Is there any realistic chance of geting rid of Boehner as leader? The scenario we find ourselves in seems so foreseable (particularly the lack of automatic cuts that matter to democrats). Is it just wishful thinking that he losses his speakership before the next election?

    • Ernie Banks says:

      I don’t think that Boehner is so bad. He’s got a rotten hand, and he’s playing it as best he can. The battle was lost when the fiscal cliff was created in Summer 2011.

      More than a clever negotiating strategy, he needs an aggressive PR campaign. The Republicans are letting the Democrats define the debate (“defend tax cuts for the rich”). They need to take the PR offensive instead (“bankrupting our country”) and propose solutions (entitlement and tax reform).

      • DBinNJ says:

        Ernie, he has the hand he dealt himself. He’s an oaf bordering on being a sniveling dolt.

        1- pass a bill the makes the tax rates permanent for everyone making under $250k and send it to the Senate. Let them do some honest work, if that’s possible.

        2- pass another bill making the tax rate for those making over $250k permanent and adjourn for the holiday. Tell Harry and the Prez that they will work on the ‘other stuff’ next year after they pass a spending bill for the next FY.

        PBHO gets his class warfare campaign issue and the Rs take away the meme that they are only for the ‘evil rich’. PBHO and the Dhims then own the economy and rescession to follow.

  5. […] HENNESSEY: A Third Option Changes The Negotiation. “This doesn’t mean Republicans want to go with option C, or that they like option C. It […]

  6. George says:

    Let it burn. The people voted for socialism. Let them have it good and hard.

    We just need to start planning for what comes after the US is finished. I would prefer that rather than trying to struggle along with a government that is not legitimate and has no basis in law. We have a perfectly good Constitution that no one is using so it is not like we would have to start from scratch.

    Give Obama all he desires with the knowledge that the end will come all the sooner. It is obvious we are well past the point where there is any turning back. If you can’t turn back then you need to push on through.

    Let it burn…

    • kid from killeen says:

      After Rome fell Constantinople stood for a thousand years. Texas, my friend. Texas!

      • Greg in Denver says:

        I am also a L.I.B. – we in Colorado also are not in a terrible position, we do own quite a bit of the water that Texas uses…

        Let it Burn, damn the leftists to their own vile hell.

    • Rob in Houston says:

      Wait a second there Kemosabi, with a really good bonus, I might make $250 when you add in my wife and it goes nowhere. Texas is spread out, my fuel bills are though the roof to get to work. You know what $250 is, that is the folks that really bust their freaking hump to bring home for the family – not someone working at Staples. I get to work 70-80-(sometimes 90) hour weeks for that and you think that I should be punished. How about we punish those loafing around and sucking off the tit of America – those are the ones that need to be punish. Sorry if you bought in to SS, it is and always was a Ponzi scheme (well except for the first few years). Toss me in a higher bracket and I will sit on the money and cost the economy more than Barky and Bonehead takes from me.

  7. Mark Buehner says:

    Don’t tax bills have to originate in the House?

    I do agree with you though. Here’s the thing, if we go off the cliff everything in this bill will happen anyway… except it will hit the middle class too. Hard, if the AMT isnt patched. We can’t let Republicans get blamed for that, it could literally put Democrats in charge of the House in 2014 and probably a filibuster proof senate as well.

    • Samuel says:

      Exactly, unlike Obamacare (which originated as a House Bill, amended by the Senate), this actually does have an Origination Clause problem. A bill raising revenue like this has to come from the House.

  8. TMLutas says:

    President Obama vetoes the bill. The media cover for him (again). Eventually the public forgets the details by the next election and blame Republicans. This is the problem with your option C. It neglects the further components needed to force Obama to own his own actions. The GOP does need an option C. I agree with you there. You’ve only made half of an option C with this post. I’d like to see your opinion on the rest of it.

    • Mark Buehner says:

      If you posit that Obama is going to veto anything that isn’t exactly what he wants… what’s the point of even brainstorming any further?

      But Obama wont, and cant. He has made this entire argument about tax cuts for the middle class. If he gets exactly those cuts… in a bill his own party wrote no less, and then veto’s it because it doesn’t address the spending he wants, he will own it, media or no. We can’t get into this kind of despair mode where everything the other side does is certain to work and the media can cover up for anything. We took a licking, but the wheel turns. This is still the same country that elected Bush twice and a Republican House.

      This is a good plan, certainly a good help in bargaining if nothing else. Lets not toss it out because we fear the opposition is just so powerful that nothing we do matters.

      • Ernie Banks says:

        Nah. Obama would veto it. Mark is making a critical mistake: he thinks Obama would compromise. He doesn’t know how to do that. It is outside of his skill set. He thinks compromise means that other people do what he wants.

        This is simple, hardball politics. The only way you get a compromise is if you have a valid alternative. The only alternative on the table is the fiscal cliff. Either you take his deal, or you take the fiscal cliff.

        The other thing to keep in mind is that Obama is all about who he can blame. For the first 4 years, he blamed Bush. He’d like nothing more than to blame the House Republicans.

        Instead of accepting blame, the Republicans need to shift the debate. Call Obama’s plan irresponsible. If you want a massive entitlement state, you have to pay for it. Instead of drawing a line in the sand over tax increases, draw one over fiscal sanity.

        Don’t like tax increases? Support Republican efforts to reform entitlements and taxes. But doubling the federal debt every 8 years has to stop. The printing presses over at the Fed are overheating.

  9. Steve in SoCal says:

    I like option C, but as others have pointed out, we’re debating against ourselves.

    Put the S/B plan to a vote in the house. Let it pass with help of D’s.

    Pass a bill with the AMT patch, extend all but the 2% tax increases and then give it to the Senate/President and say, where do you want to pick up the other 1T+ in revenue savings? It was Obama who on the campaign trail said all we needed to do was tax the rich “pay their fair share.”

    OK now. We’ve done that. And let the president “lead.” He won’t of course, so then the R;s can pass basically anything they want and hand it to the president and say (By way of the Senate or the Senate not taking it up). After several votes, the R’s can let the debt ceiling come up and since at that point, the Presidnet won’t have proposed anything, they can say we will lead and then we can get on about the business of showing what a complete shill the Presient’s plan is.

    • Mark Buehner says:

      Obama will veto the bill he’s been saying for weeks that he wants? The one written by Democrats? That include the tax hikes he campaigned on? On what pretext would he do that?

  10. Bill says:

    It seems to me this ignores one other option, and a few inconvenient realities, that are also blowing in the wind right now.

    First, what about all the talk of ignoring the cliff and using the debt ceiling debate as the leverage? That seems to offer considerably more leverage than your Option C and provides some opportunity to address both taxes and the sequestration effects.

    But Obama isn’t ignoring that leverage, either, and that’s the inconvenient reality that means Option C is unlikely to work… as someone else mentioned, he quite possibly vetoes it without the addition of some debt ceiling extension. To imagine that rate increases are the only thing that he wants, or needs, out of this negotiation is tremendously short-sighted.

    And, of course, it would behoove anyone purporting to show leadership for the country to look beyond the immediate political calculations and consider the effects on the country as a whole if Option C is exercised… which, as the author points out, likely leads to a repeat of this entire dysfunctional circus at the same time next year. Think whatever you will about tax policy and government spending, don’t make the mistake of believing that these repeated failures in governance don’t make us look like a third-world banana republic to business leaders and other countries… and that WILL have a long-term detrimental effect on the economy and status of the United States.

    Whether it’s now or early next year ahead of the debt ceiling, it’s time to show we can make something work for longer than a year in this country.

  11. Albin says:

    The Seate bill is not enough, for example in itself it says nothing about the new debt ceiling which at minimum would have to be approved to coincide with the bill’s expiration. That done, it would leave the new Congress to remind us what we’re all forgetting now: that there is life and tax policy after this debt deal. Nothing would motivate the business lobby and Congress better than expiration of the unaffordable Bush tax holiday, to start serious work on tax simplification and elimination of loopholes and special interest deductions.

  12. treeamigo says:

    The Republican Congress under Bush spent the money that could have gone toward preserving the Bush tax cuts. They ALL need to expire. If Congress wanted them to continue then Congress should have spent less.

    Then the Dem Congress got elected in 2006 amd Obama in 2008 and they spend $1 trillion a year more than Bush ever did. So ALL the tax cuts need to expire AND we need to find either $1 trillion a year in spending cuts or $1 trilliona year in tax hikes. Stop the phony debates about peanuts- neither Boehner nor Obama have a real plan to fund their government. Going over the cliff is just an entre’ – the main course will be unbelievable and inevitable

  13. Anonymous says:

    First, the democrats will vote to kill any bill in Congress. Neither the media nor their constituents will hold them accountable. Obama will veto it, and as with vetoing any bill that passes, he won’t be held accountable for the “cliff”. If the GOP is so sure that the media blame game will fall on them, they need to understand that that’s going to be the case no matter what they support. Any victory will be Obama’s, any blame will be theirs. Deal or no deal, whatever the final deal looks like.

    The thing is, Obama’s dead-set on the deal falling through. Macro-economically, we’re in for at least another few years of recession, and the closeness of the election has convinced him that he can’t depend on Blame Bush next time. From his point of view, the “fiscal cliff” (terrible phrase) is the drama he frames around the new blame game. He gets to repeal the Bush tax cuts on all Americans, plus a cut in military spending, and none of it’s his fault. He can patch entitlements with a new stimulus later. Once we’re over the cliff, he imagines, he can push through whatever policy he wants as an emergency measure. There’s no deal he will take from the GOP because he’ll get to dictate terms later anyway, plus a political meltdown for the republicans and coverage for him. No deal the GOP can offer matches what he gets from walking away. That’s also why he’s refusing to make an offer; what if the GOP says yes?

    The reality is that this will turn into a blame game. Whatever the GOP does, they’ll be blamed for the continued recession. By the media, by the democrats and by Obama.

    So if we can’t win politically, let’s at least get the policy right. There is no way that Obama will propose a deal that’s better than just walking away. So why not let the 2% spending cut happen, along with the tax increases?

    We need it because whatever happens with tax policy, we’re in for a longer recession. The real “cliff” isn’t a rounding-error level change in federal spending. It’s the US going into a fiscal death spiral. Obama’s presided over vast increases to federal spending, and a 2% across the board cut won’t even roll one year’s worth of growth back. Economists say the point of no return is debt equal to 90% of GDP, a point we passed several years ago. The GOP taking a principled position on spending is necessary to the country’s future, and since that’s clearly not enough for Boehner et al. I’ll point out that it puts him on the right side of history. When spending implodes, he’s in a position to say, “I told you so.” rather than having his fingerprints on the decision.

    That’s the real cliff. Boehner can’t escape blame for Obama refusing to cut a deal, no matter how much he capitulates. He can still win the argument on the deficit, which in very short order will be far more important.

  14. Mark Buehner says:

    Some of you folks are missing a key ingredient here- the 2013 recession. If we go over the cliff, Obama and the media will blame republicans for not extending middle class taxes for the recession and probably win that argument.

    If we give Obama what he wants on middle class taxes, he will own the 2013 recession and we may FINALLY win the critical philosophical argument about tax and spending negative effects on economic growth. We HAVE to see that truth fully demonstrated, or everything else is meaningless because the American people are much happier whistling past the graveyard with the nonsense Keynsianism Obama peddles. Thats the single most important thing. Otherwise Americans will happily let the train smash into the nitroglycerine factory before they reconsider.

    If we let the tax cuts on the middle class expire, it will be at least an extra year or two before Obamanomics is entirely discredited… and Dems will likely run the House and the Senate during that time. The single most important immediate issue is not getting the blame for the 2013 recession, and since Obama is claiming its about middle class taxes, we need to take that off the table.

    • batman says:

      Are you basically saying that the Republicans should bring up the President’s bill, vote present, with all yes votes from Democrats, and then watch the economy crash so that the 2014 election will go to the Republicans?

      Do you really think that will work, let alone be the patriotic choice?

  15. john galt - America's Chronicle says:

    An imperfect option since it doesn’t resolve the economic problem and the Republicans will still be blamed for having tax hikes on the rich – and get the H. Bush “read my lips” syndrome.

    The best 3rd option is spelled well in the piece, “The Fiscal Cliff Sting” ( at http://www.AmericasChronicle.com ) which sets up the Democrats with the blame on a tanking economy and avoids the “read my lips” syndrome.
    Both of these two goals are necessary for regaining the Senate in 2014.

  16. Ed says:

    No, they should demand a “balanced” approach which, by the way, the voters support. Give Obama his tax rate hikes but tie them to spending benchmarks. The higher rates only take effect if *actual* spending goes down year-on-year by $200B. No need to be specific about the cuts – if Obama and the Democrats want their tax rate hikes (which they don’t really of course), let the pressure be on them.

    Pass this bill and shut up until the Senate has passed a bill to be reconciled in conference.

  17. […] Were the Republicans to take this advice, here’s a way they should considering doing […]

  18. […] know how anyone can doubt at this point that Obama has no problem going over the fiscal cliff, but Keith Hennessey for one, […]

  19. joe says:

    As long as we are throwing out ideas, pay all government employees in cash on the gross amount of salary. If at the end of the year they don’t pay their correct amount they are immediately fired. It would be shocking how fast a deal would be done and how taxes would suddenly decrease.

  20. Del says:

    I am pleased to see you raise option C. For some time now I have wished that we could get this “Middle Class Tax Cut (MCTC)” issue off the table. In itself, the MCTC will generate very little of the additional revenue needed to address the secular deficit. But with the MCTC “resolved” by Congress, the discussion can turn to the really important deficit issues. Especially the upcoming Entitlements’ train wreck.

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