$1.6 Trillion? Obama Doesn't Want a Deal

President Barack Obama has responded to House Speaker John Boehner's gesture last week towards reaching a deal to avoid the Jan. 1 "fiscal cliff" of tax hikes and spending cuts, putting a specific demand on the table: $1.6 trillion in new tax revenues, reached by raising tax rates on the wealthy in addition to other "tax revenues." The offer is twice as high as a deal Obama scuttled last year, suggesting he may be prepared to let talks fail again.

Last week, Boehner proposed raising "revenues," but not "rates"--the same position he took during negotiations on raising the debt ceiling in the summer of 2011. Then, Boehner had agreed on raising revenues by $800 billion--all without raising tax rates. The White House had been prepared to agree on the deal, until President Obama decided to demand an additional $400 billion from increased tax rates, destroying the "grand bargain."

The day after the 2012 election, Boehner essentially repeated his principles for a deal, without offering a specific number. In a stage-managed speech in the East Room of the White House, complete with a standing ovation by and a multicultural tableau of staffers behind the President, Obama welcomed the gesture and repeated the word "revenues" without mentioning "rates," suggesting that he might be prepared to accept Boehner's terms quickly.

Obama's actual offer, however, indicates that he is spoiling for a fight. He clearly hopes to use his re-election to assert greater leverage within the talks--though Boehner's Republicans, too, were returned to power by the same electorate. His goal is not merely to reach a compromise at a higher number than the $800 billion deal that fell through last time; rather, his aim is to force Republicans to agree to the higher tax rates necessary to reach that number.

Such an agreement would likely provoke a revolt within the Republican caucus that would end Boehner's speakership. Indeed, one of Boehner's goals last week--in addition to showing the public that Republicans are willing to make a deal--may have been to trigger conservative opposition, thus showing that his hands are tied and he has no room to budge. On cue, Senate Minority Leader Mitch McConnell vowed publicly not to allow tax hikes to pass.

Obama is also interested in creating impressions. He huddled with his most radical allies at the White House today--including MoveOn.org--to reassure them that he would fight hard for Republican concessions. Today's $1.6 trillion offer may be part of that display. Alternatively, Obama may have chosen the number so that the halfway mark between this offer and Boehner's last from 2011 would be $1.2 trillion--exactly what Obama demanded last year.

But knowing that Boehner cannot accept tax hikes and remain in charge of the House, $1.6 trillion seems less like a serious opening gambit and more like the highest possible demand that would be guaranteed to prevent a deal without seeming entirely unreasonable. Obama may prefer to go over the fiscal cliff, which would raise taxes by default and cut defense spending and entitlements with both parties sharing the blame. That's what $1.6 trillion buys today.





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