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December 6, 2012

Why Obama is Pushing Republicans Over the Fiscal Cliff

 
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Ever since passage of the Budget Control Act of 2011, most people have assumed that, eventually, some sort of deal would get done. Both sides have something to lose, the thinking went, so both sides will eventually compromise to spare the country from going over the fiscal cliff.

And everyone also assumed that, while the outcome of the election would tilt the balance of power, still both sides had something to lose, so a deal would get done.

And that makes sense, if you assume both sides have something to lose.

But what if, even before the election, one side thought it did NOT have much to lose? What if, in fact, one side thought it had almost nothing to lose and much to gain, and the outcome of the election simply confirmed this calculation? What then?

This is my estimation of why the Obama administration is not only willing to go over the fiscal cliff, but in fact is eager to, and is pushing Republicans over the cliff.

You want evidence that the Obama administration is pushing Republicans over the cliff?

  1. Obama doubled his previous demands for new tax revenue, from $800 billion to $1.6 trillion.
  2. Obama is demanding an end to debt limits, something he knows Congress will NEVER give up.
  3. Tim Geithner showed up at a negotiating session to reduce the deficit with a demand for increased spending.
  4. After the meeting, Geithner said the Obama administration is "absolutely" willing to go over the fiscal cliff.

Okay, but WHY would Obama want to go over the fiscal cliff? Here are several reasons, all reflecting my view that Obama believes he will gain politically (possibly winning the House back at the midterm elections) by sending the economy into the toilet and blaming Republicans:

  1. As a political leftist, he wants to deliver higher taxes on the wealthy, and going over the cliff accomplishes that.
  2. As a political leftist, he wants to deliver cuts to defense spending, and going over the cliff accomplishes that.
  3. When there is some eventual deal, it will undoubtedly involve tax cuts (from the new higher baseline) for the middle class, so Obama can claim to have cut taxes for the middle class.
  4. As winner of the recent election, he is confident that he has won the narrative--Republican policies were responsible for the economic meltdown, he repeatedly claimed, and Republicans got the blame, as the election confirmed (at least in his estimation). And when the economy goes straight back into the toilet as a result of the fiscal cliff tax hikes (which he knows is likely), he will succeed in pinning the blame on Republicans for that, too.
  5. When the Republicans get blamed for the bad economy, at the midterm election Democrats will gain and might even take back the House.
  6. With a Democrat House, or at least a more favorable mix, during his last two years he can consolidate and advance his legacy.
  7. As a Democrat, he is willing to take enormous political risks to accomplish his policy goals--something Democrats have always been more willing to do than Republicans. Republicans always fear that their hold on power is tenuous, and they are terrified of losing it, so they tend to compromise and avoid political risk.

So yes, my theory assumes that the Obama administration is willing to sink the economy in order to gain at the midterm elections. I know that's cynical.

Now, here's the interesting thing: If John Boehner shares my calculation, and is indeed not playing Avoid the Cliff but instead is playing Who Gets the Blame?, his budget offer of $800 billion in new revenue is not a betrayal of conservative principles, but rather is a skilled bluff, knowing the offer would be rejected. Boehner is playing so that, when no deal gets done and people get hurt, he can claim that Republicans made a serious offer that included politically painful tax increases, but it was the petulant and unreasonable Obama overplaying his hand and demanding too much that sunk the economy.




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