Before the year ends, I decided to go on record about how I think Congress will deal with the so-called “fiscal cliff”. I do this in hopes that they might prove me wrong. I would love to be pleasantly surprised.
Congress will send us over the cliff.
I do not believe that Congress will be able to pass any legislation that could be described as a tax increase. The Republicans will not allow themselves to vote for such. Memories are long about how the elder George H. W. Bush raised taxes despite having pledged not to (in his famous “read my lips” declaration), and he never recovered among conservatives. Every Republican must court the conservatives because their party has alienated every other group; they have no one left.
On January 1, the Bush tax cuts expire, so this means that tomorrow there will be an income tax increase for everyone who pays income taxes. The negotiations will suddenly switch from increasing taxes to lowering taxes. Republicans love to be able to claim credit for lowering taxes, so their attitude about passing legislation to solve the fiscal cliff will change dramatically at that point.
Similarly, but to a lesser degree, Democrats will more comfortably vote for legislation after the New Year. Just as taxes go up tomorrow, spending cuts take effect as well. A vote today for a Democrat means cutting a program, but tomorrow it will mean restoring a program.
So for both parties, a deal today looks bad politically because in a few years their opponent will be able to use the deal to attack them among their base. This is one reason, I believe, that John Boehner and the House yielded their constitutional duty to originate laws concerning the budget over to the Senate. If an ugly deal was going to happen, they wanted to make sure that it was the Democratic Senate that could be blamed.
Despite the fact that conventional wisdom is that the Democrats have the upper hand, I fear they will give up more than the Republicans in the compromise. First of all, I believe Obama and the Democrats are less willing to hurt people in order to achieve their political aims. If I’m right, Democrats will feel the pain of regular Americans more than Republicans. They will be more desperate to find a solution, and we have already seen the Republicans take advantage of this dynamic.
Second, I think Republicans are more afraid of their Tea Party base than Democrats are of their progressive base. Republicans will be more stubborn about pleasing their base than the Democrats. Third, Obama and the Democrats are already making more noises about compromises that they would be willing to make. So I fear that we are already seeing the conversation shift in the Republican’s favor.
By the middle of January, I believe that we will see a deal that gives more to the Tea Party than to the progressives. Naturally both sides will declare victory, but I believe that people will be crying about how Obama got outsmarted again. I believe that Obama’s favorability ratings will decline: his supporters will be unhappy with his negotiations, and those in the middle will see him as weak. The deal will avoid disaster, but it will not help the economy. It may not derail the recovery, but it will slow it down.
If I’m right, then it probably means that we will have another fight very soon about raising the debt limit, and unless Obama wins this fiscal cliff negotiation, then it will likely be another repeat of the mess we’ve already seen.
As I said, I’d love to be proven wrong. My version of the future is too depressing.