Negotiating Towards the Cliff

As someone who predicted a month ago that we would go over the “fiscal cliff”, and also that the debt ceiling introduction would complicate the negotiations you might expect that after yesterdays rhetoric I would be here saying I told you so. But yesterdays tough day for negotiations does not have to mean driving over the cliff. The President is being criticized for submitting a one sided offer, but it is an opening offer that will require some work by both sides.

I still believe that the President wants a deal, and it is in the country’s best interest that we have one. A drive off the cliff which was not corrected in the first weeks of January would ultimately throw the country back into recession, with some estimates of negative GDP growth of 4%. That is a big hit. So what is really going on in Washington?

Democrats who see total leverage for the President are only looking at the issue of the top tax rate rising. On that score they are correct. That rate is going up no matter what. The question now comes on all of the other important items that are being dealt with through these negotiations. Alternative Minimum Tax, the Debt Ceiling, the Capital Gains Tax Rate, the sequester, (and especially for Republicans the defense sequester). On these items, and especially on the debt ceiling, the Republicans have significantly more leverage than they do on the issue of the Bush Tax Cuts. While both sides posture the hard liners advocate burning down the house. Ultimately the deal, if made, will likely enrage the base of each side. So where do we go from here?

The President’s initial offer now requires a Republican counter-offer. Lets face facts. The President cannot negotiate with himself, especially on cuts to entitlements. The Republicans are the ones making the call for such cuts, but up to this point have essentially refused to identify a specific program. If they think the President is going to bail them out of a political problem of their own making they should think again.

Tax rates for the top 2% are going up, but there is going to have to be some deal on administering fiscal medicine at some point. The Republicans are stuck between a rock and a hard place on that point. They claim to want spending cuts NOW, but they are for eliminating the sequester. They claim to want entitlement reform, but they know that the American public is not with them on that medicine. A portion of their Party wants MORE spending on Defense, and Farm Bill spending and Transportation spending is near and dear to many Republican members. How about the $50 billion for helping the victims of Hurricane Sandy? It has always been politically difficult to identify spending cuts that are specific. We are all for deficit reduction except when we are told what it is that entails. And that factoid is why the Speaker has not as of yet presented a counter-offer.

A deal is still possible, but for now the line shows “no deal” as the betting favorite, with corrective action taken in the first two weeks of January, once the tax rate question has been settled by the Bush cuts expiring. A final note: Please do not believe the drivel being put out there that the fiscal cliff is not real, or the ramifications of failure are not substantive. They are. Adults in the room please step forward.

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Remembering George Harrison

Today is the anniversary of the death of George Harrison, the Beatle who was maybe the lowest key individual in the band, but certainly had a unique talent. Harrison came truly into his own as a solo artist, as he did not usually get to put more than one of his compositions on any Beatles album. Here are two versions of one of my favorite Harrison songs, one done by his good friend Eric Clapton and his band, as well as the Harrison version.

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Solving Parliamentary Snarls in Methuen

As a former Mayor it is usually a wise thing to be seen and not heard on local issues. Sometimes not being seen or heard is preferable. I have decided to take a middle ground, and offer some commentary on procedure, and leave the substance for current office holders. (There are many advantages to being a former official).

The issue at hand is Mayor Zanni’s submission of a “reorganization” plan to the City Council dealing with the City of Methuen’s Information Technology Department. The Mayor has recommended privatization, with the work of the Department to be handled by a private company, which would require the “layoff’ of three of the four Departmental employees. The Mayor submitted the plan to the Council, and has included as a part of that submission the contract with the new company he is recommending. The City Council took up the plan, but appeared to vote against it by a 7-2 margin. In reality they voted against a procedural motion “to table”, and did not vote on the proposal itself. Boring and mundane parliamentary issues, but they are relevant. The Council intent, based on the debate, was to vote against the proposal.

Mayor Zanni has pointed to the Methuen Home Rule Charter, which says that reorganization plans submitted by the Mayor to the City Council shall go to a public hearing within 30 days of that submission, and then be voted on by the City Council within ten days of that hearing. The actual charter language:

Every such reorganization plan shall, upon receipt by the Clerk of the Council, be referred to an appropriate committee of the City Council which shall, not more than thirty days later, hold a public hearing on the matter and shall, within ten days following such hearing, report either that it approves or that it disapproves of the plan. A reorganization plan shall become effective ninety days after the date it is received by the City Council,unless the City Council has, prior to that date, voted to disapprove the reorganization plan, or, unless a later effective date is specified in the plan. A reorganization plan presented by the Mayor to the City Council under this section may not be amended by it, but shall either be approved or rejected as submitted and shall not be subject to the objection as provided in Section 2-9(c)

It is quite clear that the public hearing is required. There is however a bit of a wrinkle. The Mayor has included the contract itself as part of the reorganization. From my perspective the Mayor, whatever you think of the plan itself, has been transparent about his intent. His inclusion of the contract is understandable, and shows where he would like to end up if the reorganization were adopted. It has however created a slight procedural issue as to whether the contract itself was being voted on as part of the reorganization. That procedural issue has likely caused a few hard feelings on both sides, but can be dealt with effectively by “two-stepping” the process going forward. Treating the reorganization under the charter as separate from the contract itself could and should solve the problem. The Mayor is entitled to a public hearing, and should receive one. The Council should be comfortable knowing that they are going to public hearing on the concept, and that a vote for “first read” or to go to public hearing would not constitute adoption of the contract. After that occurs the Charter calls for an up or down vote within ten days on the Mayor’s proposal. It would be at that meeting where a contract could be voted on if the Council chooses to adopt the Mayor’s plan.

I will now go back to being seen, but not heard!

The Eagle Tribune editorial on the need for a public hearing.

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Municipal Bond Tax Exemption at Risk

There has been plenty of talk about “tax expenditures” at both the federal and state levels, with all tax breaks under heavy scrutiny. One that has received a little attention, but deserves some more discussion, is the municipal bond tax exemption. Investors, under current law, derive interest that is exempt from federal taxation when they invest in municipal bonds. That interest exemption is highly attractive to investors, especially those in the upper income tax brackets. It has helped to create a municipal bond market in the United States of about $2 plus trillion, and the “tax expenditure” will cost the U.S. Treasury about $230.4 billion in foregone revenue over the five fiscal years 2012-2016, according to the U.S. Office of Management and Budget.

For many years the relative efficiency of this tax break has been kicked around, with the general consensus appearing to be that the break is skewered in favor of those in the top marginal tax brackets. Without getting into the weeds it is sufficient to say that the theory is that the federal government gives up more via the “tax expenditure” than localities save in lower yields on their bonded debt. This relative “inefficiency” in the market, which in theory forces up the yields on municipal debt, is estimated to cost the U.S. Treasury about $6 billion per year. (Center for American Progress “Doing What Works- Bring Back Build America Bonds”)

Many have advocated for a system where localities would receive a direct subsidy from the federal government for a portion of the interest paid on bonded debt. The federal stimulus program contained such a program, called “Build America Bonds”, which paid 35% of the interest costs on eligible debt. (See the above link for such advocacy). (That two year program was not renewed by Congress)There is no question that such advocacy has plenty of merit, and does address some of the inequities that are involved in the current subsidy. I do not have an argument with the analysis. I do have an argument with the prospective viability of the proposed solution, which would replace “foregone revenue” with the need for an annual appropriation. Requiring Congress to appropriate annually is a recipe for disaster for municipalities, and could lead to cuts or outright elimination of the subsidy, leaving municipalities with substantially higher borrowing costs, or (even worse) being shut out of the credit markets.

Simpson-Bowles advocated elimination of the muni-bond exemption, and President Obama advocated capping it in his jobs bill that failed to pass the Congress last year. Both approaches, in my opinion, fail due to an emphasis on two things:

1) The cost to the U.S. Treasury.
2) The benefit to high tax bracket taxpayers.

1)The cost to the Treasury in foregone tax is real, and always needs to be considered. But an elimination of the tax break for municipal debt could collapse municipal access to credit markets, and would begin an inexorable rise in demand for other federal subsidies to assist localities with infrastructure projects. (see Build America Bonds). Some federal subsidy is a given, or else municipal access to credit markets will be further limited, or much more expensive.

2) As mentioned above I do agree that the data presented shows a larger benefit for upper income taxpayers. But that so called “inefficiency” (call it $6 billion) for top tier earners is a small price to pay for municipal access to inexpensive credit. That credit has proven to be less expensive over the years than the more credit worthy 20 year Treasury Bonds. (see above listed American Progress report). The goal of the subsidy has never been about providing tax shelter to upper income people, but rather about providing localities access to capital markets at affordable rates. When looked at from that perspective the current tax exemption, even if slightly inefficient, has worked for municipalities.

As the old saying goes if it ain’t broke, don’t fix it. Republican opposition to direct federal subsidies for municipal interest is clear, and not likely to change anytime soon. That is why the Build America Bond program was allowed to lapse, and why talk about ending or capping the tax exemption for municipal bond interest is a bad idea that will hurt municipalities and local taxpayers. Federal lawmakers should resist the temptation to grab this relatively small pool of money, and fight to ensure that municipal credit markets continue to provide localities with available and affordable capital. The best way to do that is to leave the tax exempt status of municipal bonds unchanged.

The Governing story on this issue is linked here.

Here is a second Governing article, sounding the alarm for municipalities.

Here is a CNN Money story on the issue.

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The Filibuster Blues

Republicans are screaming bloody murder over the potential rules changes on the filibuster being proposed in the U.S. Senate by Harry Reid and the Democrats. A look at the actual proposal shows that it honestly does not amount to a hill of beans, and the Republicans are likely screaming bloody murder in order to make sure that the proposal does not actually go any further. As we take that look we also shockingly find a substantial amount of hypocrisy on this issue from both Mitch McConnell and Harry Reid. I am sure you are as shocked as I am.

Majority Leader Harry Reid has proposed that the filibuster be ended only for motions to bring bills to the floor. The filibuster would remain for the consideration of the bills themselves. Yes you heard that right. The filibuster is being deployed in order to stop the Senate from actually considering bills. Reid’s proposal will leave in place the ability to filibuster the bills themselves, and will not reduce the votes needed to invoke “cloture”. (Stopping the debate). The idea that the filibuster is being employed to stop bills from actually coming to the floor is in my view totally ludicrous. The Reid proposal would also bring back the requirement that those employing the filibuster be required to actually take the floor and speak. I have heard some Republicans actually say they do not have a problem with that (Tom Coburn). I believe that the filibuster should require actual effort, something that is usually absent in the U.S. Senate.

Another Republican objection centers around Reid’s intent to make these rule changes by a simple majority vote, rather than by a two thirds vote. Some of the biggest hypocrisy comes on this question, and it comes from both sides. That hypocrisy, in my view, is one of the fundamental problems with government these days, and shows how little respect is given to the intellect of voters. What we find is that each Party changes their position on these procedural issues depending on whether they happen to be in the majority in the Senate. Many great columns on this in the last few days. Lets look at Ezra Klein’s take on this.

McConnell is referring to the Democrats’ proposal to change Senate rules with 51 votes rather than 67. But his outrage isn’t particularly convincing. As Senate whip, McConnell was a key player in the GOP’s 2005 effort to change the filibuster rules using — you guessed it — 51 votes. As he said at the time, “This is not the first time a minority of Senators has upset a Senate tradition or practice, and the current Senate majority intends to do what the majority in the Senate has often done–use its constitutional authority under article I, section 5, to reform Senate procedure by a simple majority vote.”
Now, Reid, at the time, was steadfastly opposed to changing the rules with 51 votes. He condemned the idea as “breaking the rules to change the rules.” So McConnell isn’t the Senate’s only inconsistent member on this point. But the fact is that McConnell was right the first time: The reason that Republicans believed they could change the rules with 51 votes in 2005 and Democrats believe they can do the same today is that they can.

You remember the “nuclear option”? That was when the Republicans (circa 2005) threatened to end the Democrat’s filibuster rights on Presidential judicial nominations. (The Dems were using the filibuster to block or slow the judicial nominees of President Bush). The Republicans backed off when the “Gang of 14” negotiated an agreement on those nominations. (Lots of “gangs” in the Senate). Bottom line is the Republicans were more than willing to consider limiting filibusters in the interest of moving along some of the business of President Bush. They were frustrated with dilatory tactics by Democrats. Today it is Democratic frustration with Republican obstruction. And to be fair the Republicans have pushed the envelope hard, vastly increasing the utilization of the filibuster over the past two years (over 100 filibusters according to “No Labels”). The Senate just cannot move, and the gridlock is seriously impacting our ability to respond to issues of vital national importance. Reid’s proposal likely does not go far enough, but it is a start. I believe that is true today, and I would have the same position if the Republicans had the majority. Elections have consequences.

And since we are on the Senate the entire ridiculous process of advise and consent on presidential nominees should be streamlined with the idea of giving Presidents the staff they need, and the judiciary the judges needed, without waiting years in some cases for hearings and votes. Anonymous holds ought to be done away with, and the Senate should actually do some work and get these nominees vetted and voted within 90 days. Tell a Senator that and you would likely hear howls of outrage, and how that time-frame could never be met. And the way they work they might be right. Planning fundraisers, attending lunches, starting work late and leaving early makes it quite difficult to get any real work done. Our dysfunction in the Senate is not entirely due to filibusters, but also has plenty to do with the aversion to work shown by so many Senators. Can you imagine any entity, faced with the fiscal problems coming due on December 31st, leaving for holiday vacation? Spare me the nonsense about staff negotiations continuing during the Thanksgiving break. They are not engaging in serious work despite the pressure facing us as a country. It has become so standard that they are not even criticized for it any longer. That constitutes my Senate rant.

Some pretty good coverage of the filibuster issue for the last few days. All you ever wanted to know about the filibuster:

Ezra Klein takes on Mitch McConnell.

The Caucus blog over at the New York Times looks at the filibuster dispute.

Politico looks at the Republican threats over the filibuster rule change.

The New York Times gives some historical perspective, including the willingness of both sides to “fill the tree”, a euphemism for denying the minority opposition the right to offer amendments to bills. That is a major bone of contention between Reid and McConnell, as Reid has “filled the tree” on more than a few bills. Just as his Republican predecessors have done.

The new website of a group of Democratic Senators, including Elizabeth Warren, that are advocating for “filibuster reform”.

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Happy Birthday Joe DiMaggio

One of the all time baseball greats was born on November 25th, 1914. DiMaggio broke the hearts of Red Sox fans for many years, and was one of the greatest players in baseball history. His marriage to Marilyn Monroe captivated the nation, and though he is gone his legacy lives on. He holds the record for consecutive games with a hit at 56, a record that many feel can never be broken. He was immortalized in song as well, by Simon & Garfunkel. And what a great song it is. “A nation turns its lonely eyes to you”!

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Politics, Presidents, and Making the Wheel Turn

One new David Brooks column on Abraham Lincoln, and a review of Robert Caro’s LBJ books by Thomas Meaney, in “The Nation”, have made for some great Thanksgiving reading. Connected? I think so.

Brooks, in his column, masterfully writes of the inherent contradictions of those who successfully navigate our political system. His focus is Lincoln, and the new Spielberg movie on Lincoln’s life. Brooks talks about the distaste for politics that many feel today, but takes pains to show that much good can come of that craft by showing what a master practitioner can accomplish. I have not yet seen the movie, and have just started reading the Doris Kearns Goodwin book “Team of Rivals” but Brooks hits home some points that need to be made. Brooks talks of the “compromise” our system requires, and he is not speaking of compromising political ideals, but of actually compromising yourself to achieve noble ends. What does he say about Lincoln?

It shows that you can do more good in politics than in any other sphere. You can end slavery, open opportunity and fight poverty. But you can achieve these things only if you are willing to stain your own character in order to serve others — if you are willing to bamboozle, trim, compromise and be slippery and hypocritical.

The challenge of politics lies precisely in the marriage of high vision and low cunning. Spielberg’s “Lincoln” gets this point. The hero has a high moral vision, but he also has the courage to take morally hazardous action in order to make that vision a reality.

To lead his country through a war, to finagle his ideas through Congress, Lincoln feels compelled to ignore court decisions, dole out patronage, play legalistic games, deceive his supporters and accept the fact that every time he addresses one problem he ends up creating others down the road.

Lincoln, as a President trying to achieve a legislative end, (passage of the 13th Amendment barring slavery), had to get into the legislative weeds to achieve success. The legislative weeds are not for the faint of heart, even back then. Brooks points out all of the necessary, difficult things (low cunning)that are required to achieve that legislative success. Brooks references the “need to deal with other people”, and those other people come to the table with all sorts of different agendas. Brooks has it right. It is one thing to speak in moralistically superior tones about “being above that”, but when you hear that nonsense you can usually count on the person speaking it having no legislative accomplishments or experience. Since Lincoln’s time that aspect of this business has not changed all that much. Legislative accomplishment is as much about people as it is about issues, and requires extraordinary time to be put in to fully “understand” those people. Lincoln’s greatness stemmed from his fundamental understanding of people, and how best to utilize others to promote what we all understand today as a morally superior cause. Quite clearly the consensus in Lincoln’s time was not so clear, and his tactics created much angst. Today he would probably be the recipient of some harsh editorial criticism. The old saying that the more things change, the more they stay the same comes to mind.

Proof of that axiom comes by way of Lyndon Baines Johnson, the former Majority Leader of the U.S. Senate, former Vice President, and President. LBJ was a master legislative craftsman, likely the greatest Majority Leader that has ever walked the halls of the Senate. Robert Caro has spent over 30 years researching LBJ, producing some of the greatest books I have ever read. “The Path to Power”, “Means of Ascent”, “Master of the Senate”, and “The Passage of Power”, with the final volume being worked on as we speak. The best of this great group is, in my opinion, “Master of the Senate”, which shows LBJ turning the Senate from a unmanageable legislative body with little by way of achievement into a body that produced impressive legislative results. Those results, more often than not, came from Johnson’s raw manipulation of people and process. Those manipulations included deceiving both the southern segregationist wing of the Democratic Party, as well as the northern liberal bloc. Johnson bent both sides to his will, and moved legislation through the Senate that, without exaggeration, no other man could have done.

The Passage of Power details Johnson’s ascension to the Presidency, and his monumental legislative achievement in moving the Kennedy Civil Rights program through Congress. Caro details how the sausage was made, and while it was not pretty it laid bare the differences in approach to legislating these matters between LBJ and JFK. (I come at this as a JFK man, but the truth is the truth.) Upon assuming the Presidency Johnson quickly identified the timing problems inherent in the Kennedy approach, and swung into action. Timing problem? LBJ had been schooled in the Senate on the knee of the master, Senator Richard Russell of Georgia. Russell, an arch segregationist, had beaten back civil rights legislation in the Senate for decades by slowing the progress of many other pieces of critical legislation, holding them hostage until he had won his inevitable filibuster of the civil rights bill of the session. Russell’s holding of the other legislation was always invisible, with southern committee chairs finding multitudes of reasons nominally not related to civil rights for holding bills up. LBJ, to his chagrin, found the “traffic buildup” in front of the 1963 Civil Rights Bill to be monumental, including most of the annual Appropriations Bills, as well as the Kennedy Tax Cut bill, and Kennedy Education bills, as well as President Kennedy’s nominations that required Senate approval. These “hostages” would not be released until Richard Russell had beaten back yet another Civil Rights bill. Johnson also faced the fact that the Civil Rights bill had not even passed the House in November of 1963. It was stuck in the House Rules Committee, where the Chairman, in concert with his fellow Southerners, was indicating that no action could be taken until January of 1964. Under that time frame LBJ knew what to expect: From “The Passage of Power”:

“We’re going to have to do it now,” he told Katherine Graham in another call. “If we don’t, they’re going to start quitting here about the eighteenth of December, and they’ll come back about the eighteenth of January. Then they’ll have hearings in the Rules Committee until about the middle of March. And then they’ll pass the bill and it will get over [to the Senate], and Dick Russell will say it’s Easter and Lincoln’s Birthday, and by the time he gets them [the civil rights bill], he will screw them to death because he is so much smarter than they are.”

But LBJ, once schooled by Richard Russell, was now the one giving out the lessons. Despite the legislative backup, despite the fact that the Southern legislative general was Richard Russell, and despite having NO TIME, LBJ got all of the bills, including Civil Rights, passed. Like Lincoln LBJ used tactics that many considered deplorable. But he saw the larger moral imperative, and took actions that provided African-Americans with rights that had always seemed out of legislative reach. Without LBJ that day of reckoning would have been delayed, to the detriment of our nation, for some unknown period of time.

Caro relates a conversation recalled by Agriculture Secretary Orville Freeman with Richard Russell in “The Passage of Power”:

“He said that Lyndon Johnson was the most amazingly resourceful fellow, that he was a man who really understood power and how to use it,” Freeman recalls. And then, Freeman recalls, Russell said, “That man will twist your arm off at the shoulder and beat your head in with it.” “You know,” Russell said, “we could have beaten John Kennedy on civil rights, but not Lyndon Johnson.”

The irony of the fact that LBJ rose to power in the Senate largely through the efforts of Richard Russell could not have been lost on Russell.

Legislating is a science, and in Lincoln and LBJ, we see two American giants, flaws and all, achieving great ends by mastering that science. Great ideas and flowing rhetoric win elections. But real progress usually comes through application of that difficult, and compromising, art known as legislating.

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Happy Thanksgiving!

A very Happy Thanksgiving to all! I hope you enjoy a wonderful day with family and friends. Would it be Thanksgiving without Arlo Guthrie and Alice’s Restaurant?

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Attack of the Pods

Please don’t ask why this post is here on a political web site! I just love coffee! Some interesting gift ideas.

http://live.wsj.com/public/page/embed-3897AF15_BADE_47B4_AD77_1AD07FE15944.html

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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.

http://c.brightcove.com/services/viewer/federated_f9?isVid=1

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