Reminder: The Fiscal Cliff "Solution" Sets Up Yet Another Ugly Fight

Posted: Jan 03, 2013 10:16 AM

Enjoy the communal sigh of relief while it lasts, America.  Sure, the endlessly-discussed "fiscal cliff" has been averted thanks to a flawed, 13th-hour deal -- but the high-stakes partisan wrangling is just beginning.  We'll get to the road ahead in a moment, but first, a word or two about the compromise itself.  Let's stipulate right out of the gate that it stinks.  It was jammed through in late night votes at the last possible minute, it scratches the Left's "fairness" itch to no constructive end, and the CBO calcluates its tax hike to spending cut ratio is roughly 41 to 1.*  Pathetic.  Nevertheless, Phil Klein captures things pretty well with his appraisal of the deal as "objectively bad, but relatively good."  He runs through the handful of reasons why it isn't an unvarnished disaster:

At the start of 2013, income taxes were scheduled to go up on nearly every American, but if this deal becomes law, roughly 99 percent of taxpayers would be protected from those tax hikes. For over a decade, Democrats opposed the Bush tax cuts and prevented them from becoming permanent. Now, they have voted overwhelmingly to preserve about 84 percent of the dreaded cuts, which for years they demagogued as only benefitting the very rich. Lawmakers also agreed on permanent changes that minimized the tax increases on estates and capital gains. In addition, the deal permanently prevented the Alternative Minimum Tax (originally passed in 1969 to capture a small number of rich households who were avoiding taxes) from hitting tens and millions of Americans. From a more technical standpoint, this also means that the deal locks in a Congressional Budget Office revenue baseline that will be as low as possible. So, if future Republicans propose real tax reform, we won’t end up with estimates saying that their proposals would cost trillions of dollars, because such proposals will no longer be judged against an unrealistic baseline that assumes all of the Bush tax cuts would otherwise expire and open the floodgates to new revenue. A less publicized but still significant positive from the deal is that it formally repeals the CLASS Act, a long-term care entitlement that is part of Obama’s national health care law. There’s a lot to hate in this deal, no doubt. But any honest assessment of it must grapple with the reality of Obama as president, Harry Reid as Senate Majority Leader and $4.5 trillion in automatic tax hikes hitting in the new year. With this in mind, I’d rate the deal as objectively bad, but relatively good.  

I'd again emphasize that the Bush tax rates on 99 percent of Americans are now permanent.  House Republican leadership fractured on the question of final passage, with Paul Ryan, Cathy McMorris Rodgers and Boehner himself voting aye (Speakers rarely cast votes), and Eric Cantor and Kevin McCarthy voting no.   The GOP's rank and file opposed the bill by nearly a 2-to-1 margin, with a handful of Democrats joining the "no" crowd.  Thus, most tallies in favor of sending the bill to the president's desk came from Democrats; Boehner shelved the House's "majority of the majority" rule of thumb to allow an up-or-down verdict on the bill.  Will this fuel an internecine revolt against him, or are most members willing to forgive their cornered leader's power play -- particularly after the pre-Christmas "plan B" fiasco?  We'll know soon enough.  The new Congress is sworn in today, and the Speaker election is expected around noon.  Rumors of Boehner's demise may have been premature.  We'll see.   Meanwhile, the president has returned to Hawaii to resume his an additional cost of $3 million to John Q. Taxpayer.

Which brings us to what lies ahead.  Obama delivered a useless, petulant, counter-productive speech on New Year's Eve, which incensed House Republicans and threatened to derail the ongoing McConnell/Biden negotiations.  (Sidebar: It's noteworthy that once Harry Reid left the room, a deal finally got done).  Obama's remarks weren't merely about gloating, base-pandering, and demagoguery -- which are all staples of the president's rhetorical repertoire, of course.  No, they seemed primarily designed to lay the groundwork for the next round of cliff-esque drama, due in February or March.  For all his gloating about Republicans being forced to permit Democrats to enact some tax rate increases, he quickly cautioned that forthcoming deliberations over debt reduction would also require "revenue" increases on "the rich" and "large corporations."  This was Obama's unsubtle way of warning Republicans that he'll be demanding even more tax increases this winter when the debt ceiling debate sets this city aflame.  Also keep in mind that the new cliff compromise kicks the controversial sequestration cuts down the road for two more months. The automatic sweeping cuts that were to be the legally-mandated consequence of a "Super Committee" failure to settle on a spending cut package have been postponed.  That failure is at hand, but the cuts are not.  Surprise.  So the central spending reduction gimmick from the last debt ceiling deal has thus far resulted in zero cuts, and has been shoved off yet another debt ceiling brawl is looming because we've already blown through those additional trillions.

This, I think, provides a real opening for Republicans to finally regain their political footing.  Obama and his Congressional allies exploited the GOP's unpopularity and internal chaos to force tax rate increases on "the rich."  Indeed, Washington just birthed a dreadful bill that postpones the only real spending cuts on the table and jacks up taxes.  It's a fairnesspalooza.  But it will accomplish nothing.  We'll still have a massive deficit, our debt will continue to swell, and the $600 Billion in anticipated revenues over ten years are already slated to head right out the door in the form of new spending.  When we hit our debt ceiling this winter (we've technically already done so), the American people will be treated to yet another political spectacle, replete with the now-familiar warnings about our nation's credit rating, hysterical threats about a government shutdown, and a ticking clock.  This is what the "Doc Fix Economy" hath wrought: Rather than engaging in standard budgeting -- as Congress is required to do -- Democrats have ushered in a new era of budget-free governance, resulting in a maddening parade of recurring, man-made "emergencies."  It's throughly dysfunctional, and the cycle must be broken.  If and when Obama resurrects his class warfare/more taxes schtick in a few months, Republicans can occupy the high ground by pointing to the fiscal cliff and advancing actual solutions:

You've gotten your pet tax hikes, Mr. President.  The last batch of meaningful spending cuts have been delayed.  Our deficits remain out of hand.  Our official debt is larger than our GDP, and our real debt is far, far worse.  We must fundamentally change our tax code.  We must reduce our spending.  And we must reform the largest long-term drivers of our debt, something that even you have acknowledged.  Tinkering at the margins with populist appeals about raising taxes on Daddy Warbucks won't cut it.  Those taxes already went up, despite our vehement objections.  You "won."  But now it's time for real solutions...

As they prepare for battle, every single Republican lawmaker should review and internalize the following exchange on MSNBC yesterday morning, in which Sen. Pat Toomey -- a conservative from Pennsylvania -- lays out this case clearly and articulately:

Pitch perfect, detailed, and digestible for public comprehension.  More of this, please.

UPDATE - Ask and you shall receive.  Mitch McConnell lays down his markers in advance of the next debt punch-up:

Now that the House and Senate have acted in a bipartisan way to prevent tax increases on 99 percent of the American people, Democrats now have the opportunity—and the responsibility—to join Republicans in a serious effort to reduce Washington’s out-of-control spending. That’s a debate the American people want. It’s the debate we’ll have next. And it’s a debate Republicans are ready for. Despite the President’s call for more and more Americans to send even more of their paychecks to Washington, the federal government will still have another trillion-dollar deficit this year. But in the upcoming months, we will have the opportunity to put our country back on sound financial footing—and there’s no excuse not to seize it. The President claims to want a balanced approach to solve our problems. And now that he has the tax rates he wants, his calls for ‘balance’ mean he must join us in our efforts to achieve meaningful spending and government reform. We have an immediate opportunity to act: the debt ceiling. Washington’s credit card has reached its limit again, and the Senate majority must act on legislation early in February—rather than waiting until the last minute, abdicating responsibility and hoping someone else will step in once again to craft a last-minute solution for them. Once the Senate passes bipartisan legislation, we can conference with the House on a solution. But this time the entire Senate must have an opportunity to act.  

UPDATE II - No amount of tendentious presidential rhetoric or "fair share" fetishism can wash away this reality:

UPDATE III - Ramesh Ponnuru explains why 41-to-1 is a misleading statsitic.  That notwithstanding, the deal punts the sequester cuts by two months, and there are no new cuts.

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