Fiscal Cliff

Have the Fiscal Cliff Negotiations Reached a Dead End?


Have the fiscal cliff negotiations reached a permanent dead end? 

For several days, discussions seemed to be moving toward an agreement. Both sides had narrowed their disagreements to two key issues: Whether top tax rates would rise on income above $400,000 or above $1 million, and whether a deal would include enough spending cuts to match new tax revenues. President Obama said his proposal raised $1.3 trillion and cut the same amount. House Majority Leader John Boehner counted just $930 billion in cuts, because the remainder of the savings came from reduced interest payments. 

But discussions went off the rails earlier this week when House Majority Leader John Boehner announced that he would be pursuing "Plan B," in which he would introduce a bill to preserve current tax rates on all income under $1 million annually.

Plan B, which Republican leaders now say is likely to pass, is designed both as both a fallback plan and a way to create some extra negotiating leverage for Republicans: If Plan B passes and then we go over the fiscal cliff, Republicans can say that they passed a bill designed to stave off tax hikes on most everyone—but still raise taxes on millionaires. And they can also say that the president threatened to veto it. They can also point out that taxing millionaires at a higher rate is an idea first proposed by Democratic Sen. Chuck Schumer—and yet now Democrats are rejecting it.

The White House isn't happy, and is accusing Boehner of wasting time on a plan that can't pass. And John Boehner is playing tough as well. At an extremely brief press conference yesterday, he offered a Tweet-length ultimatum: "Tomorrow the House will pass legislation to make permanent tax relief for nearly every American," he said. "Then the president will have a decision to make. He can call on Senate Democrats to pass that bill. Or he can be responsible for the largest tax increase in American history."

So is that it? Possibly. President Obama could still decide not to negotiate further, and to go over the fiscal cliff. If that happens, tax rates go up on everyone. If that happens, it's hard to imagine that Republicans and Democrats would not quickly vote to reinstate current tax rates on income under $250,000. President Obama wins. Republicans get nothing: no Social Security changes, no new spending cuts, and higher tax rates on all income above $250,000.

Yet there are risks to this strategy as well.

First there are the potential economic repercussions of going over the cliff, even for a short time, which Obama probably would prefer to avoid. Second, there are the coming debt ceiling negotiations. If Obama pushes Republicans over the cliff now, there's a good chance they'll be even more determined to oppose the White House come the debt ceiling fight.

Which is why I don't think it's all over, at least not yet. There are still subtle signs that this is just a final round of posturing before a last-minute deal shapes up. A number of House Republicans have signaled that while they aren't thrilled with the direction things are going, they want to make a deal, and will probably ultimately support whatever final plan Boehner gives them. And while the White House isn't budging form its previous offers right now, they're also not saying they're done. President Obama is still urging Republicans to accept his offer. Indeed, lines of communication are still open. And both sides still seem to want to make a deal. If they don't, it'll be because they stopped here and never got any closer. But with more than a week left before the deadline, I wouldn't count on that just yet.  

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  1. Which is why I don't think is over

    Which is why I don't think it is over

    corrected for you

  2. The president has steadfastly refused to budge an inch in the budgetary crisis since his reelection. The left and the media have been bashing the Republicans fighting the president ever since first took office (despite the fact that the Democrats held a strong majority for the first 2 years, which is why we got the abomination called Obamacare). But for much of that time, the president has maintained a "it's my way; there is no other way" mentality. Sure, he talks of wanting bipartisan talks, but his actions have been anything but. I don't support much of what the Republicans have done, but he has been even more of a stubborn POS than they have.

    1. He does want bipartisan talks. And during those talks, everyone agrees that his views are awesome and there is no dissent.

      1. Light Workers shall not be questioned.

      2. He compromised by agreeing to allow Republicans into the room.

  3. it's hard to imagine that Republicans and Democrats would not quickly vote to reinstate current tax rates on income under $250,000.

    Not really. They could just pass the same bill again, or more likely, come down a little to let the Dems save face before voting for it.

  4. Of all the theater in all the world political theater is the best!

    1. And the most expensive.

  5. Normally you expect Republicans to cave in these things. They always do. But Obama is such a shit head and so incompetent, he won't even accept them folding. They basically have offered him everything he wants, and he still won't agree. Obama is the most incompetent nastiest President in US history.

  6. House Majority Leader John Boehner...

    Eric Cantor is House Majority Leader. Boehner is Speaker of the House. He worked so hard to get that title.

  7. Republicans get nothing

    Not true. If we go over the cliff, they get the agreed upon spending "cuts" from last summer.

    1. So fiscal conservatives get something - Republicans get nothing.

  8. meh - I think that Obama actually wants the extra revenue in an attempt to pay for the bloated government. Or maybe not.

    Either way, it's a "win" for him - the Republicans get the blame.

  9. The like Boehner "Plan B" probposal, which would effectively acheive what I've been advocating. Just pass the middle-class tax rates, and then let the rest of the fiscal cliff happen.

    There's two danger spots though:
    A) House Republican are reportedly trying to attach a repeal of the sequester cuts for defense. That's a stupid move as it will give the Democrats an excuse to vote against it.

    B) the limit is set to $1,000,000 which is higher than what Democrats have said they will accept, unless it is part of a deal. So it's risky , in that it potentially provides the D's a fig leaf to vote against it.

    However, since the D's already passed the tax cuts for

  10. Argh. Since the D's already passed the tax cuts for

  11. Damn it.

    Since the D's already passed the tax cuts for under $250,000 in the senate they could send "Plan B" to reconcilliation with the Senate bill, and then argue over where the limit is going to be.

    That would allow all of the sequester cuts to take place, which IMO is the best outcome from a libertarian perspective.

  12. What a steaming pile of irrelevance this whole "fiscal cliff" thing is. Raising a few billion a year more in taxes, shaving a few billion a year off the spending growth rate, all of no moment whatsoever to the destruction of capital formation, human capital, and currency debasement that are really setting the future course of our economy.

    Really, who thinks it will make much difference at all if we go over the cliff, if the Repubs win everything they want, or if the Dems win everything they want?

  13. "President Obama said his proposal raised $1.3 trillion and cut the same amount."

    So he's not even pretending to be interested in reducing the deficit and debt?

    1. Doing so would harm the most vulnerable of us. Why do you hate the powerless?

      1. Why do you hate the powerless?

        Because, being powerless, they are the safest ones to hate. Duh.

      2. But "reducing the deficit and debt" would NOT harm the most vulnerable. Check out Singapore and HongKong - they run no deficits yet their citizens have become vastly more prosperous over the years precisely because of such policies.

        Whereas in the USA, ever since the war on poverty started, there's been no progress in reducing poverty. Poverty is now defined in relative terms which means, mathematically speaking, it's impossible to eliminate.

        You need to draw on experience to see what works, and experience tells the open-minded that increasing deficits and debt does not work in the long-term... see

    2. The dumbest follow-up I've seen his supporters make on this is, "Well, when the economy picks up, things will be fine!"

      They can't exactly point out where the economy is going to improve to get us back to even the levels of the Bush years, but their faith certainly is remarkable.

      1. This really seems like we're living through a Randian collapse.

        How long until the Dems start pushing for a "freeze" for "breathing room?"

  14. Adding to the pile of things I've seen published re: the 'fiscal cliff' that cause a mixture of explosive vomiting and stunnned wonder at the mass-delusions shared by some 'economic journalists'...

    I bring you = "10 people responsible for the Fiscal Cliff"

    I promise you, you will be trying to prevent your skull from exploding starting at *#10*...


    Arthur Laffer.
    Laffer was the economist who proved the existence of the free lunch. His Laffer Curve showed, in theory, that cutting tax rates would actually increase tax revenue. He gave intellectual cover to those conservatives who wanted to cut taxes, but who didn't want to be seen as contributing to a big deficit. He gave them a guilt-free way to cut revenue.

    There's only one problem: Laffer's ideas didn't pan out in practice: Tax cuts don't pay for themselves. Tax cuts are a major cause of our $16 trillion national debt

    Next is how Pete Peterson, by constantly talking about Deficits, made us feel 'guilty' about them. And Guilt is something we shouldn't feel!

    Then its Bill Clinton, who "made budget surpluses look easy"! Which they're not, apparently. And that's unfair! Its the *good luck* he had that led us to spending binges.

    he eventually gets around to actual, current elected officials. I don't believe the word "Spending" appears once in his piece.

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