It’s Politics. You Negotiate!

So, President Obama has now anted-up and offered Congressional Republicans his deficit-reduction proposal.  His plan to avoid Taxmageddon, better-known as the “Fiscal Cliff,” is a wish list of Administration budget proposals that should offer no surprises, save in one sense.

That the President is offering such a demanding proposal to Congressional Republicans after 2 weeks of back-and-forth budget discussions evidences either a real clumsiness at these negotiations or a disturbing lack of faith in the prospects of a negotiated compromise.  If President Obama and Congressional Republicans are not able to negotiate a budget agreement to deal with Taxmageddon which Senate Democrats can live with, Federal income tax rates will rise on all income tax payers; the estate tax will rise; President Obama’s unsustainable but economically beneficial and popular temporary 2% payroll tax cut will lapse; and the doomsday budget cuts of last year’s “Sequestration,” including about $600 billion in 10-year cuts to military spending that neither party wants, will kick-in at the same time.  Oh, and a .9% payroll tax increase for Medicaid and a 3.8% capital gains tax increase will take effect for individuals making over $200,000 a year and married couples making over $250,000 a year, as part of the funding for the Affordable Care Act.  Taken in isolation, any of these individual developments would represent a setback to which the US economy could adjust.  Taken in conjunction, particularly in the current political context of partisan paralysis and growing unease about the inability of American politicians to negotiate budget agreements across party lines, Taxmageddon and the broader “Fiscal Cliff” represents the kind of blow that will deliver a recession.  This recession will not come overnight; the US economy is not going over any literal cliff.  But over $500 billion would be directly-removed from the economy, and it would be done so in a manner not truly of our elected officials’ choosing and through the loss of a series of tax cuts and budget items many of which were designed to be stimulative.

How did President Obama respond to yesterday’s call by Congressional Republicans to put a budget proposal on the table?  He has called for $1.6 trillion in new taxes over 10 years (including a proposal to tax capital gains at the same marginal rate as personal income)–about 1/2 of what House Speaker John Boehner (R-OH) tentatively agreed to in summer 2011, about $50 billion in new spending to institute an infrastructure bank (a worthy proposal on its own, perhaps, but at least in theory an unrelated item) a comparatively-modest $400 billion reduction in entitlement spending, and Congressional relinquishment of its power to proactively set the Federal debt limit–a controversial power which has recently led to dysfunction in the Federal budgeting process.  The President proposes that Congress exchange this power for the ability to override the President’s unilateral increase of the Federal debt limit through a 2/3 majority of both chambers.

The President has advanced each of these proposals at some time in the past.  And again, taken one by one, they aren’t unreasonable.  But how could he think, after the firm tone Republicans have continued to take on large tax increases–or their willingness to use blunt instruments like the debt limit against the President–that they would agree to these terms now?

So, I say President Obama’s tough offer at this late date represents either an artlessness in cross-party negotiation or a lack of faith about the Congressional bargaining space.  It is surreal for me to say this, but here is a part of political tact that former President George W. Bush was very good at and which Obama appears to be bad at: Offer a brief philosophical rationale (even a poetic one) for your policy choices, put a clear policy proposal (even your idealized version) on the table, and negotiate your way to the best deal you can live with.  Do not make bigger concessions than you can swallow and don’t renege on terms you have agreed to; be consistent in acknowledging the other party’s concessions and in scolding it where it has not seen the light.  W. was actually good at this part.  In their strangely-inconsistent alternation between conciliatory gestures and frustrated insistence that the other party “get serious” about budget talks–a term which I think implies that both parties are further from an agreement on substance than they really are–both parties are playing poker in a situation where there is nothing to gain from it.

So both sides are currently in dereliction of duty.  By now President Obama and Speaker Boehner should both have come forward with proposals that halt drastic cuts to military spending, cut Federal spending (preferably by reforming Medicare and Medicaid), and proposed a minimum of $800 billion (last year’s House ante) in new Federal revenues.  Instead, the President continues to insist that Republicans are being ideological in refusing to raise tax rates on top wage-earners (which the same amount of tax revenue could be raised on the same taxpayers while capping their income tax deductions, which apparently Republicans count as a consolation prize) while Congressional Republicans demand the President stick his neck out and offer a proposal, while they strangely decline to do the same.  In the interest of full disclosure, I am more-sympathetic to the President’s proposal and reasoning than to the rather vague sentiments and insubstantial distinctions advanced by Congressional Republicans.  But until today, neither Democrats nor Republicans had actually made much effort to save us from the coming man-made disaster.  Now that the President has offered a plan, he is open to credible charges of asking for too much, too late.

In the President’s defense, his rather unpalatable offer to Republicans does represent a compromise from the hard line of Congressional Democrats.

Senate Majority Leader Harry Reid, who has recently insisted that entitlement reform is off the table in any such interim budget deal, should also stop drawing lines in the sand and be willing to follow the President’s lead.  He has a majority in the Senate but not a filibuster-proof supermajority; he also stands between a Democratic President and a Republican House dominated by Conservatives.  No good can come from him acting as an additional veto player.  We just held national elections at the beginning of this month; no one in the Federal Government should be campaigning right now.  Both sides should offer at least the outlines of a comprehensive deficit-reduction plan they can live with, so they can begin negotiating their way to mutually-acceptable policy space.

At this rate we’re all in a lot of trouble, because neither side is taking responsibility.


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