Monday, January 14, 2013

First published on November 16, 2012 via email newsletter 'Fiscal Cliff Notes'

Publicly in Washington the discussion is about how an agreement must be reached prior to December 31st to avoid the fiscal cliff. Privately there is acknowledgement that an agreement between party leaders is unlikely given the entrenched positions.

The week began with House Speaker John Boehner (R-OH) signaling a willingness to explore compromise with the White House. This signal coincided with Boehner whipping his caucus into line with a message that drama with the White House would be avoided in the 113th Congress. This was Boehner asserting control over his caucus to avoid the raucousness that defined the GOP House in the 112th so he can better maintain leadership in the face of emboldened Senate Democrats and President Obama’s 332 electoral vote victory (as often is the case with new majorities these wins will be construed by Democrats as a mandate, most likely resulting in an overreach).

Boehner’s remarks were accompanied by Senate Minority Leader Mitch McConnell’s (R-KY) insistence that tax increases are off the table in the Senate. McConnell’s positioning has as much to do with principle as it does with his 2014 re-election campaign; he faces the potential of a Tea Party primary due to his endorsement of Senator Rand Paul’s 2010 primary opponent.

President Obama is clear that he will not consider an extension of the Bush tax cuts. In meeting with labor union leaders he stressed the same, publicly saying that the previous extension was a “one time proposition.” Democrats in both chambers of Congress have parroted the President’s resolve, with Senator Patty Murray (D-WA) saying that if Republicans insist on opposing tax increases for incomes over $250,000 then “all the Bush tax cuts expire and (we) start over.”

Senate and House Republicans appear to see matters differently, believing that President Obama will again cave on the Bush tax cuts to avoid across the board tax increases and the sequester and agree to kick the problem down the road for six to eight months. If the President’s resolve is to be taken at face value then Senate and House Republicans are as misguided on their expectation on this as they were on the outcome of the 2012 general election.

If a deal is to be made it will be of the variety where it is baked by the leaders and then presented for an up or down vote without debate. This is a problem for Boehner who attempted this approach for a grand bargain with Obama only to have his caucus rebel. While Boehner is asserting himself on his caucus, it is doubtful he will be able whip House Tea Party Republicans who see their election victories as a mandate and will refuse to agree to a deal sight unseen. Boehner can still cut a bake-n-vote deal with Obama but will need to rely on House Minority Leader Nancy Pelosi (D-CA) to deliver the victory, which presents complications that speak for themselves.

Next week look for the debate between Democrats to be whether the approach should be a 1:1 of revenue to spending cuts, versus Obama’s election assertion of 1:2.5 of the same. The 1:1 proposal from Senator Jay Rockefeller (D-WV) is a left flank maneuver for negotiating purposes. For now Republicans will hold firm on no taxes increases, favoring loophole reform. The loophole solution will trigger a wider review of the bucket approach (floated by Mitt Romney during the ‘12 campaign) which caps deductions and tax benefits a person may claim.

Further complicating the fiscal cliff picture moving forward will be the Petraeus and Benghazi scandals and the prospect for Senate rules reform at the launch of the 113th Congress in January 2013 when Rule XXII (filibuster) reform will be pursued by Democratic Senators with Majority Leader Harry Reid’s (R-NV) blessing.

Take Note! Labor is emboldened from the ‘12 election results and with 55 Senators in the Democratic caucus will take another go at passing EFCA (card check). Also look for Senator Tom Harkin’s (D-IA) Financial Speculation Tax (0.03% on stock, bond and derivative trades) to be revived in the 113th Congress.

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