Monday, December 31, 2012

Fiscal Cliff - Part One

President Obama pursued a larger budget deal because he wanted
- revenue increase by tax rate increase on affluent (which seems to realize in the latest Biden-McConnell fiscal cliff 2012 deal ) and
- revenue increase by closing of tax loop holes (earlier Speaker Boehner offered $800 Billion of revenue increase on that account). 

However, as Congress embarks upon dealing in stages (tax rate increase first and the sequestering and debt ceiling issues in conjunction with tax reforms later) what is clear is Republicans will for sure drop the ball of 'revenue increase by closing tax loop holes'. That is what Grover Norquist is waiting for another opportunity - no more revenue increase of any type after this deal. Any reminder of this second part simply infuriates Republicans. (Clearly President Obama needs to avoid bragging 'four more years' and all that as well as he needs to stop pushing zingers to Republicans in public. He needs to be presidential rather than a simple Democratic Leader in public. He should negotiate very, very hard with Republicans; but public posture needs to be always of an elderly president cobbling together all these recalcitrant Congress members. In other words, he needs to adjust his communication strategy to the 'second term' where the president is not on hustings.) 

Given this tendency of Republicans not to follow through on any other revenue increase, it is understandable why many Progressives are going to be upset and worried that President Obama will fold to GOP at 'debt ceiling increase time' and will simply accept entitlement reductions without any revenue increase. But these Progressives should not undermine the value of reaching some kind of a deal which retains at least $600 Billion revenue increase by tax rate change. Granted, around $1 Trillion would have been available to Democrats if fiscal cliff is crossed. But there is still merit in paying some price of getting GOP along with us by sacrificing some revenue.

But the fear remains that GOP will still play ugly at the time of debt ceiling (which is what Market is more worried about than the fiscal cliff). To that, President Obama should mark the line at 'dollar-to-dollar principle' - for every 1 dollar cut in spending, another 1 dollar must be found in revenue increase (not necessarily by tax rate increase on individuals). He said so in his prep rally today, but this is something which he has to keep harping. Next, President Obama needs to lay out multiple choices in attaining spending cuts (both for sequester and debt ceiling increase). He is not facing any election, but Congress members are and that is why he needs to take the lead in laying the ground work. It is like he takes the hit in putting forward different poisoned chalices, Congress gets to choose one. Along with that he can also put forward many proposal of revenue increases on table for Congress to pick. By doing that, what it achieves is it would take President Obama out of the picture and then it will be all Congressional play to balance spending. After all, as Republicans are rightly saying; once the tax rate increase part is out of way in the fiscal cliff resolution; President Obama and Democrats are not going to get any chance of 'shaming Republicans' as 'protectors of rich'. Republicans have paid enormous price of that Democratic attack (loss of 2012 election, eating crows by breaking the pledge of 'no more taxes' and cracking the invincibility shield of Grover Norquist...). But American Politics need to move forward. Fight over sequestering and debt ceiling will be next parts of Fiscal Cliff saga.

Update - With House approval by 257-167; 'crazies' (darling name of House Republicans by Liberals) have delivered here and we move to part 2 and 3 of Fiscal Cliff i.e. the political fight for sequester cuts and increasing debt ceiling.

Update 2 - Finally, the elections of 2012 are over. 

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