At this moment the only reason for optimism on a fiscal
cliff solution before the end of the year is the conciliatory feel to the
opening round of negotiations. Regardless, it still doesn’t look like one can
get there from here; there remains significant distance between all parties
involved. This suggests that a deal by December 31st
remains unlikely, but there is room for an agreement that allows negotiations
to extend into 2013.
However, President Obama loses leverage over Republicans
the further negotiations go into 2013. Democrats want Obama to use this
leverage to savage Republicans on tax revenue. Senator Chuck Schumer (D-NY) is
the leading Democrat voicing a splitting the baby solution that raises taxes on
millionaires (the Buffett Rule) and cuts spending. The Buffett Rule alone would
not raise enough revenue to get to where debt would not grow faster than the
economy, but invoking it makes for good politics.
Pressing for the Buffett Rule raises a worthy
opportunity for the White House as talks could develop into an extension of the
Bush tax cuts but with a new millionaire tax, closing some corporate and
taxpayer loopholes (this includes the bucket approach on deductions by
$250,000+ income earners), spending cuts and entitlement reform (i.e. raise the
Medicare retirement age and either raise or abolish the Social Security cap on
taxable earnings). This is the deal that makes most everybody unhappy – so maybe
it’s the best deal to cut. Obama would be reneging on a campaign pledge over
taxes above the $250,000 mark, but in return gets the millionaire tax, loophole
revenue and a Social Security revenue increase on incomes greater than $250,000
– being term limited has its advantages. For now the upper hand rests with the
White House as it continues to press for the higher revenues that make GOPers
wince.
The Republican right flank is showing signs of crumbling
evident from House GOP grumblings over the restrictive Americans for Tax
Reform’s no tax pledge; the necessity for a deal is sinking in. If this debate
is framed around a millionaires’ tax then Republicans will need to agree for
the sake of political expediency as polling shows the public will blame going
over the fiscal cliff on the GOP.
Meanwhile the left flank of the Democratic Party is not
going to play nicely with the White House. Much of this gets down to baseline;
revenue derived from a millionaires tax with, or without the Bush tax cuts.
House Minority Leader Nancy Pelosi (D-CA) has signaled stridency on allowing
the Bush tax cuts on income over $250,000 to expire and can count on
progressive support, particularly labor unions that are already airing ads to
press Democratic Senators up in ‘14 to hold the line on education, healthcare
and Social Security. All this will play out against a lingering doubt as to
President Obama’s rigidity on taxes, Medicare and Social Security. Republicans
still think he will cave and Democrats fear he will agree to politically
unpalatable entitlement reform.
Democrats have more moving parts in this negotiation as
Republicans get another crack at winning Senate control in 2014 where there are
more vulnerable Democratic Senators who will be reluctant to vote for any
fiscal cliff deal that imperils their re-election (such as Senator Mary
Landrieu (D-LA) who has voiced her opposition to raising the estate tax or
targeting of the energy industry for more revenue).
Next week look for ranking Democratic Senators to chime
in, fearful that the fiscal cliff negotiations will pass them by (e.g. Sen. Max
Baucus, Chairman of the Senate Finance Committee). Also, keep watch for what
President Obama has to say leading to his barnstorming the country in support
of raising taxes on those making more than $250,000 – this would trigger GOP
defensiveness and retreat to their anti-tax doctrine, hampering potential for a
deal before December 31st.
Take Note! Due to the amendment earlier in ’12 of the
Railway Labor Act requiring a showing of interest by least 50% of employees for
a union seeking representative status (an increase from 35%), Democrats will
seek to pass ECRA (card check) arguing that elections are won with 50% plus one
and the revised showing of interest threshold meets that requirement (the 50%
was a Republican demand). Related to this is American Airlines’ filing of an
application seeking a stay from the SCOTUS in the Passenger Service Agent union
certification election to begin Dec. 4th, a successful
certification will pose bankruptcy problems for AA moving forward who claims
irreparable damage in their SCOTUS application for a writ of certiorari.
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