Politico reports that the outlines of a “fiscal cliff” deal are known to all the players involved: The top tax rates will rise and upper-income tax breaks be pared back to provide $1.2 trillion in revenue, in return for $400 billion in spending cuts. House Republican leaders, according to this report, have no leverage and know it. They know that the public will blame them if middle-class taxes rise as a result of a political impasse. This may well be the result Obama would most like: an across-the-board tax increase he can blame on Republicans.
Republican sources tell us that the Politico outline is what the Democrats are trying for, not the likely shape of a deal. We certainly hope so. If that deal were the only one on the table, we would oppose it and urge conservatives in Congress to oppose it too. It would be better to pass legislation extending the middle-class tax cuts and to allow the top rates to rise as scheduled than to enact such a deal, which would put Republicans on record behind a tax-heavy solution to our long-term debt problem. If Republicans really are in as weak a position as the article says they are, then the spending cuts would likely be shams anyway.
We think the Republicans have more strength than generally advertised. President Obama faces two risks of his own: first, that tax increases on a weak economy will produce another recession and second, that voters will blame any middle-class tax increases on the Democrats, as the party in power and the party associated with taxes. Republicans could, to be sure, get most of the blame. Nobody can be sure of that, though, and polls that purport to predict how people will react to future events should be read skeptically. In that uncertainty lies Republican leverage.
If Republicans continue to be in disarray, however, they will be unable to use what leverage they have. Congressional Republicans are sending no consistent message at the moment. So here’s a little advice:
First, for Republicans who want to keep spending and taxes to a minimum but are prepared to raise taxes in exchange for spending cuts: Understand that you do not advance your goals by publicizing your willingness to break anti-tax pledges. This is particularly true for Senate Republicans, since they are irrelevant to any deal. There is only one thing Obama can get from Senate Republicans — for them to undercut the House Republican negotiating position — and too many of them are giving it up for free.
We have more sympathy for those Republicans who are urging the White House to show some leadership on restraining the growth of Medicare and Social Security — but they too are making a mistake. Republicans cannot politically sustain a public position of being willing to raise taxes on the rich only if popular benefits are cut. If they come across as being willing to shield the middle class from tax increases only if entitlements are cut, that position will hurt them still worse. Entitlement reform is a possible result of this deal only if Obama leads on it publicly. Since he does not seem inclined to do that, Republicans should stop expecting entitlement reform as a likely outcome of negotiations.
What Republicans should be saying is that they want to avoid tax increases on anyone; that they especially want to avoid taking back the middle-class tax cuts that their party passed over the opposition of most Democrats; that they want to foster economic growth rather than hinder it; that out-of-control spending is what Washington should tackle; that they are prepared to negotiate; and that they very much hope that the unreasonable zeal of Democrats for higher taxes and spending does not prevent a constructive deal.
We are, as we trust the foregoing explains, pessimistic that any deal worth supporting will emerge from the president’s talks with Speaker Boehner. House Republicans need to prepare for the possibility that taxes are indeed going to go up across the board and that Obama, the Democrats, and the media will blame them for it. Their first order of business should be to pass an extension of all the tax cuts. It may soon prove marginally helpful to be able to say that they passed a bill to block tax increases on the middle class, and are ready to do it again.