Two Stepping to the Cliff

The issues involved in the so called “fiscal cliff” have been written about ad infinitum. With the first general meeting held at the White House and all coming out spouting optimistic platitudes the level of optimism has gone way up. But the issues are not only large in quantity but do not lend themselves to quick resolution. There is no question that some of the issues involved are indeed solvable today (AMT Patch, Agreement on Sequester Delay, Agreement to kick the “tax reform” question down the road, payroll tax holiday issue, and the unemployment benefit question). Both sides appear to have settled in on a “two-step” process that would allow delay of as much as possible, with some “good faith” down payment to show everyone how serious they all are about: (pick one)

1) Simplifying the tax code

2) Protecting our Defense Budget

3) Making the rich pay their fair share

4) Solving the Deficit Problem

5) Putting Medicare, Medicaid and (Social Security?) on a “sustainable path” forward.

I do believe that all involved are as committed as they can be to kicking as much of this down the road as possible. The problem comes on the down payment on increased revenues. Both sides are stuck on extension of the Bush tax cuts, and how a “two step” process will treat that problem. It does not seem, from my perspective, that the President can agree to extend, even for the shortest term, the Bush rates for those at the top. The Republicans, in my opinion, cannot agree to what the President needs without some concessions on “entitlements”. There simply is not enough time before December 31 to reach a substantive accord on entitlements.

Of course there are some pretty smart staffers from both teams in the negotiating room, and maybe they will come up with something that solves this problem. One alternative mentioned is shifting the threshold number on the Bush tax cuts from $250,000 to $1,000,000, meaning that only those earning one million and above would be subject to the increase in marginal tax rates. That approach may have some promise, but it still leaves the Speaker with the issue of what he gets in return. And while the President certainly is holding, in my opinion, all the cards on the tax rate issue I had mentioned in an earlier post the issue of the debt ceiling being raised, and how the President would try to incorporate that issue into these negotiations. Politico, in a story yesterday, mentioned exactly that, and pointed to the Speaker’s reluctance on that score. From Politico:

Then there’s the debt ceiling, which is increasingly creeping into the year-end discussion. The nation’s borrowing limit needs to be raised in the first quarter of 2013, according to the Treasury Department. Obama would like to see the debt limit boosted as part of an overall budget deal, say Hill insiders, but Boehner is unwilling to give ground on that issue if he feels Democrats are not really serious about negotiating a compromise.

So the President is not holding all the cards, and raising the debt ceiling just introduces another layer of complexity to an already difficult negotiation. The President is reportedly cool to the idea of just driving over the cliff, but I think, as pointed out in my earlier post, that it may be, for Speaker Boehner, the only viable option. All the noise on driving over the cliff is coming from the Democrats, but it may be Speaker Boehner with his foot firmly on the gas pedal.

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