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Republicans and the Fiscal Cliff



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My new Bloomberg View column runs through a few scenarios of how the fiscal-cliff negotiations could play out. My tentative conclusions: Republicans do have some leverage, and they should use it to push for entitlement reforms. They shouldn’t, however, invest too much hope in a deal:

The White House has already rejected Boehner’s offer, saying that the top tax rates have to go up and a new millionaire surtax be added. It wants twice the revenue that just letting the top rates increase would yield.

Why is Obama demanding so much revenue? Perhaps he wants to use the demand as a bargaining chip. Perhaps he is willing to let negotiations fail and blame the Republicans for the resulting middle-class tax increases. Or perhaps he thinks the Republicans have been neutered by the election and will go along with whatever he wants.

If that’s what he’s thinking, he will probably be disappointed. Republicans seem unlikely to accept steep tax increases on the rich — increases they would have to vote for, not just allow to take place — unless they get entitlement reforms to their liking. That wouldn’t mean just increased co- pays in Medicare or higher eligibility ages, but something akin to Paul Ryan’s premium-support plan. No way would Obama, who just campaigned hard against that idea, agree to it. 

One point I didn’t make in the column because it seemed obvious: House Republicans should pass a bill extending all the Bush tax cuts — something they will probably have to do several times.



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