First published on November 30, 2012 via email newsletter 'Fiscal Cliff Notes.'

Republican House Leadership this week took the temperature of newly elected GOP House Members and realized the prospect for a fiscal cliff solution being reached in the 113th Congress appears dimmer than a deal made before the Dec. 31s t deadline. The '12 Republican freshman class is no less forgiving on compromise than their '10 predecessors, mostly coming from the reddest of congressional districts.

 

This means the 113th Congress portends to be a redux of the 112th, making it difficult for Speaker Boehner (R-OH) to persuade at least 218 Members of his caucus to agree to any compromise that includes tax increases even if there are Democratic concessions on spending, Social Security and Medicare. If Dec. 31s t comes and goes without a deal the only path to a compromise will require Minority Leader Pelosi (D-CA) to deliver the winning margin as at least 60-80 Republicans will vote nay.

 

With this dynamic in mind, Republican House leadership dispatched Rep. Tom Cole (R-OK) to float the tax increase balloon (on those earning more than $250,000). The purpose of the trial was a two-fold acknowledgment: 1) the attempt by Boehner to inject Obamacare into the negotiation fell flat, and b) that a deal prior to the end of the year that includes tax increases may be necessary given the dim prospects of any resolution in the 113th Congress in context of a debt ceiling call in February, 2013. The messenger is as significant; Cole is not in leadership and so provides Boehner the deniability needed to back out if a deal proves detrimental to his caucus influence. The trial brought out the harshest critics to give Boehner an opportunity to assess the opposition and begin to socialize a compromise. That in itself does not guarantee a deal but does indicate Boehner's willingness to make the New Year deadline.

 

More seasoned House Republicans appear ready for a compromise but face the difficulty of doing so if the Tea Party-esque members of their caucus revolt en masse. In that scenario the assumption is a compromise vote that raises taxes will draw a heightened contrast and likelihood of primary election opponents in 2014; this means those House Members most ready to compromise won't in order to preserve their political futures without proper cover from GOP House leadership.

Meanwhile, the impression given by Republican Senate staff is that if a deal is to be done it will be at the leadership level and senators will be asked to vote for a bake-n-vote agreement. Senate Democrats are busy floating parameters to assist Senate Majority Leader Reid's (D-NV) negotiating posture (i.e. Sen. Durbin (D-IL) declaring Medicare and Social Security off limits). Watch for filibuster reform to cloud the fiscal cliff negotiations on the Senate side as Reid is dedicated to this cause and whipping his caucus.

Over the last weekend Senators from both parties got into the Fiscal Cliff conversation as expected. Sen. Baucus (D-MT) is insistent on preserving the Bush estate tax rates in the name of his state's farmers and ranchers - this has to do with his re-election prospects in 2014. Senators Saxby Chambliss (R-GA) and Lindsey Graham (R-SC) signaled a willingness to consider tax hikes in exchange for entitlement reform; this positioning is intended to define Democrats as the spoilers over Medicare and Social Security.

Next week look for more public contention between House Republicans and the White House while behind closed doors staffers continue to hammer out the contours of an agreement. All the pay-fors are on the table but those will be kept confidential to keep the lobbyist in abeyance.

Continued tough talk from the White House is meant to push up against the year-end deadline to maximize pressure on House Republicans to expand a perceived GOP fissure on tax increases. Republican House rank and file will come to grips that the White House is unlikely to cave on taxes as previously assumed and this will cause much public consternation about White House motives as the same fissure entrenches and widens.

The tough talk from both sides will continue to provide the cover needed to get a deal in line that creates a ledge off the fiscal cliff; potentially a one year solution to provide the time for the tax code overhaul both parties want to tackle. Despite complaints over trustiness from both sides this week, the outlook for compromise is more optimistic, akin to a castaway seeing contrails in the sky.