Republicans reject Obama's initial "fiscal cliff" proposal, but he was right to make it

By Michael J.W. Stickings

The Times reports:

Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal on Thursday to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits.

The proposal, loaded with Democratic priorities and short on detailed spending cuts, met strong Republican resistance. In exchange for locking in the $1.6 trillion in added revenues, President Obama embraced the goal of finding $400 billion in savings from Medicare and other social programs to be worked out next year, with no guarantees.

Tax increases (on the rich)? Stimulus spending? No more Republican-made debt ceiling crises? Now that's some change I can believe in. No wonder Republicans immediately rejected the proposal.

So does that mean it was pointless? Absolutely not.


As Scott Lemieux writes at LGM, "nothing like this has any chance of being enacted, and nor will it make House Republicans more likely to make a deal," but it's nonetheless "encouraging for two reasons":

It makes it clear that Obama is willing to maximize his leverage by letting the Bush tax cuts expire.  This isn't the proposal of someone who's particularly interested in making a deal to avoid "going over the cliff." And after the Bush tax cuts have expired Obama's hand is much stronger.

It makes it more likely that the terrible deal he offered in 2011 was based on the idea that any "grand bargain" would help his re-election, rather than an inherent commitment to the underlying principles. This deal has the right priorities — significant new revenue, needed stimulus spending, and to the extent that "entitlements" are cut this is done correctly: Social Security not touched, unspecified Medicare cuts that can be progressive because they don't necessarily entail cuts to services.

I can't get too excited, because there's no deal yet and the president could very well end up giving away far too much. But this is about the politics as much as the policy, as the latter will ultimately flow from the former, and right now, having just been re-elected and supporting the far more popular side of the debate (i.e., it is extremely popular to support tax increases on the rich and to oppose massive cuts to entitlement programs like Social Security), President Obama has the leverage and hence the power.

This is why Republicans and other fiscal conservatives are fearmongering about the "fiscal cliff" and saying that a deal has to be done now or else (Armageddon). They know that the president will have even more leverage in the new year, once the Bush tax cuts expire and he can push aggressively for tax cuts on the middle class.

For various reasons this is a different Obama than the one who pushed for that "grand bargain" last year. And right now things are looking very promising.

Petulant Republican opposition of the kind we saw yesterday only makes the point more clear.