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.