Surreal: Obama's Fiscal Cliff Proposal Stuns Washington

Posted: Nov 30, 2012 9:31 AM

Republicans have been asking for the White House's plan for some time now -- well, they finally got one.  Oh my:

House Republicans said on Thursday that Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, an immediate new round of stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits. The proposal, loaded with Democratic priorities and short on detailed spending cuts, was likely to meet strong Republican resistance. In exchange for locking in the $1.6 trillion in added revenues, President Obama embraced $400 billion in savings from Medicare and other entitlements, to be worked out next year, with no guarantees. He did propose some upfront cuts in programs like farm price supports, but did not specify an amount or any details.

And senior Republican aides familiar with the offer said those initial spending cuts might well be outnumbered by upfront spending increases, including at least $50 billion in infrastructure spending, mortgage relief, an extension of unemployment insurance and a deferral of automatic cuts to physician reimbursements under Medicare … The upfront tax increases in the proposal go beyond what Senate Democrats were able to pass earlier this year. Tax rates would go up for higher-income earners, as in the Senate bill, but Mr. Obama wants their dividends to be taxed as ordinary income, something the Senate did not approve. He also wants the estate tax to be levied at 45 percent on inheritances over $3.5 million, a step several Democratic senators balked at. The Senate bill made no changes to the estate tax, which currently taxes inheritances over $5 million at 35 percent.  

No wonder Mitch McConnell openly laughed at this outline; how else should one respond to a preposterous farce?  Republicans should counter-offer in kind, demanding full Obamacare repeal, across-the-board tax cuts, the Wyden/Ryan Medicare plan -- and maybe toss in articles of impeachment just for kicks.  Let's unpack the Times' report piece by piece:

(1) Obama is asking for $1.6 Trillion in tax hikes, double the number he and Boehner reportedly (almost) agreed upon last summer during the previous crisis.  Not only does he want to raise marginal tax rates on "the rich," he's also shooting to raise capital gains and dividends taxes, too.  According to NBC News, those revenues would amount to nearly $1 trillion.  Then comes an undefined $600 Billion in unspecified "new revenue," presumably from tax increases to be named later.  This element of the broader package alone is more than enough to tear the whole thing up and walk away.

(2) There are no guaranteed entitlement reforms.  There are no specified spending cuts.  Obama is willing to consider some "savings," but those would have to be discussed some other time in the future. This is what Obama fancies to be his "concession." And it comes in exchange for...Republicans agreeing to the taxmaggedon described in item #1.  As I said, surreal.

(3) There's another stimulus in this puppy.  Remember, this is supposed to be a deficit reduction plan, yet it calls for *at least* $50 Billion in new spending on infrastructure and other projects.  As the Times reports, some aides on the Hill believe the plan's guaranteed spending increases could actually outnumber its (still unspecified) cuts (!)...  

(4) Obama's proposal goes so far on investment and death tax hikes that even Congressional Democrats are looking at each other and slowly backing away.

(5) And, oh yeah, it abolishes the debt limit.  Poof.  Limitless "legal" debt for the federal government.

I understand that this is just an opening offer; both sides generally commence negotiations with a very robust ask, recognizing that they'll have to back down on certain elements at the bargaining table.  But this isn't a starting point.  It's an insult.  Allahpundit is beginning to convince himself that Obama has joined the cliff-diving brigade and is therefore hoping to either (a) bully Republicans into a chain-reaction cave of epic proportions, or (b) make his demands so unreasonable that GOP leadership simply cannot relent, allowing him to stick them with the blame when the economy goes up in smoke.  What should Boehner and McConnell do?  Walk away, counsels Charles Krauthammer:

Second Third look at "let it burn"?  NRO's Jim Geraghty is thinking about it long and hard:

House Speaker John Boehner says there’s been “no progress” in the budget talks in the past two weeks. At this moment, Republicans in Congress need to examine which presents a more dire threat to the country: A) A double-dip recession driven by the sequester and the expiration of the Bush tax cuts, or B) the public’s belief (verified through polling) that our giant debt, our ticking time bomb of entitlements, and our gargantuan government can be solved by “asking the richest Americans to pay a little bit more,” as Obama insists. 

Option A is terrible, but Option B is the giant locked door blocking all of the real solutions. So if we must have tax hikes, let the tax cuts for every income level expire and let everyone of every income level pay higher taxes. Destroy the illusion among so many voters that they can get all the government they want without paying more in taxes.

Jim's core question is a difficult one.  Is another painful recession (with Republicans likely getting pounded with blame) more or less harmful to the long-term interests of the nation than allowing the general public to cling for a little longer to the dangerously wrong belief that fiscal solvency is just around the corner, if only the rich may a tad more in taxes?  Before you rush to answer that question, understand that the fallout won't occur in a political vacuum.  If Republicans take the hit and get wiped out in 2014, we could have another 2009 on our hands, with no ability to block catastrophic liberal policy misadventures, which would plague the nation for decades to come.  As I see it, GOP door number one is to negotiate earnestly and try to fashion the, um, least bad deal possible to avert the cliff (which assumes Obama isn't hell-bent on going over the side).  I still think this is the likeliest outcome -- for now, at least.  GOP door number two is walking away and bringing the pain, even if it means political disaster in upcoming cycles.  That's the approach Geragthy is kicking around.  GOP door number three is stating opposition, but giving Obama what he wants via mass "present" votes.  This might spare Republicans a political massacre, but it would also help The One continue the charade and superficially delay America's bitter medicine...which we're going to have to swallow sooner or later.  Obama would just have to hope that the implosion comes sometime after January 20, 2017.  Bad options, all.  

UPDATE - I might have an idea for a potential door number four, which I'll flesh out in an upcoming post.

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