Obama and Congress Stage Another 'Show' on Fiscal Cliff

Obama and Congress Stage Another 'Show' on Fiscal Cliff

The last few weeks were apparently so much fun, DC has decided to get the gang back together to stage another round of talks on the “fiscal cliff.” Last night, the White House announced that Obama will cut short his Christmas vacation and return to DC to resume negotiations on avoiding automatic spending cuts and tax increases set to take effect Tuesday. Congress had already announced its intention to go back into session Thursday. This flurry of activity, however, is nothing but theater. 

Last week, House Republicans failed to bring to a vote Speaker Boehner’s “Plan B,” which extended tax breaks for everyone making less than $1 million a year. House Leadership simply didn’t have the votes to pass its plan. It is unclear what additional progress can be made in the five remaining days. 

The chief problem for the GOP, which is increasingly desperate to reach a deal, is that Obama and the Democrats have very little incentive to reach a deal. Going over the cliff results in deep cuts to Defense spending and a large bucket of new tax revenue. Both of those items are on the DNC’s wish list. 

When the hit to the economy becomes clear, Obama, with a powerful assist from the media, can simply blame the GOP for going over “the cliff.” The public will be easily persuaded, because one of the only things they know about negotiations so far is that Republicans in the House didn’t have the votes to pass their “plan.”

Worse than this for the GOP, however, is that Obama actually has a powerful incentive to ensure we go over the cliff. Before the end of the month, he can go before Congress to deliver his State of the Union address and push lawmakers to back a tax-cut for the middle class, restoring the tax provisions that expired for them at the start of the month. He can further tie the tax cut to a sizable hike in the debt ceiling. 

To oppose a debt ceiling hike, the GOP would have to oppose tax cuts. To support tax cuts, they would have to support lifting the debt ceiling. Why would Obama negotiate away that kind of leverage?

Obama, however, must look like he is trying to negotiate a resolution.  He has to hint that he is willing to make concessions, but make sure they are vague enough that the GOP can’t offer a specific counter. Obama’s stage-craft is just a prelude, though, to the looming talks over the debt ceiling, which will likely have to be lifted in February or March. 

Even if Congress were to somehow duct-tape together some kind of deal to postpone the cliff for a few weeks, the debt ceiling debate is the real fight ahead. Those machinations will make the current “fiscal cliff” talks look like regional community theater.