If The White House and the GOP can't come up with a deal to avert the Fiscal Cliff, then January 1 will be the first day of a huge fight between both sides, seeking to paint the other as the main reason that taxes have gone up on the middle class.
The presumption is that The White House would have the advantage in this scenario, as the Republicans could be painted as blocking a deal for the sole purpose of keeping taxes low for the rich (The counter-argument is that The White House could be blamed for letting taxes rise for the sole purpose of raising taxes on the rich). Furthermore, polls (like this one) make it fairly clear that Republicans would probably get the blame.
In today's Morning Money letter, POLITICO's Ben White makes another interesting point about the calendar.
If Republicans hold the line and refuse to support a deal that includes new revenue through higher marginal rates and the government goes over the cliff in January, Obama is likely to hammer Republicans as the culprits (something the public is already inclined to believe) with two massive bully pulpit events: His second inaugural address and the State of the Union speech. Republicans, while attempting a PR push of their own, simply lack the means to command anywhere near the same audience these two events provide the president.
In a widely circulated blog post yesterday, Republican Keith Hennesey concluded that "The President Is Bluffing" about his threats to oppose a full extension of all tax cuts if it comes down to the wire.
Hennesey broke his reasoning down into four points
- If there is no bill, the U.S. economy will probably dip into recession for much/most/all of 2013, and it’s impossible to predict whether such a recession would be short-lived.
- A 2013 recession would be terrible for the country and terrible for the Obama Presidency. It would limit the President’s options across his entire policy agenda, economic and non-economic. And it could define and dominate his entire second term.
- President Obama believes #1 and #2, and therefore avoiding the risk of triggering a recession with his veto is an even higher policy priority than his fiscal policy goal.
- The President wants to get things done. He cares more about his own chances for policy success (across the entire breadth of his agenda, whenever he figures out what it is) than he cares about relative political blame. A scenario in which Republicans get most of the blame for a veto-triggered recession is still a loser for him if it means he can’t accomplish his second term goals.
The problem really is that Obama might reasonably conclude that there's some time to go into January without a deal without causing a recession. Economists are mixed on this, but very few have argued that a recession would happen starting day one.
Between the polls and Obama's big opportunities to slam Republicans publicly, Obama may feel he has the ground to go over the Cliff.
The GOP seems to recognize this. Earlier this week, Eric Cantor succinctly explained the President's advantage, and thus the necessity to be somewhat flexible on revenues.
"Well the president got reelected and we know at the end of this year taxes are going up on everybody — everybody, rich, poor alike — we have marginal rates across the spectrum going up as well as [capital] gains, dividends, AMT, death tax, everything, right? This is the so-called fiscal cliff. So we know that is reality...That's what's changed, we know that. So why would we want to punish folks to see their taxes go up."
Between now and the end of December there will be a lot of headlines about progress stalling out or whatnot. But the fundamentals of the situation haven't changed in awhile.
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