Obama, GOP trade offers on the fiscal cliff

What happened

President Obama and House Republicans each issued proposals to avert the fiscal cliff this week that the other side instantly dismissed, leaving both parties locked in stalemate over the combination of tax increases and spending cuts due to kick in Jan. 1. Obama’s proposal calls for $1.6 trillion in new tax revenue over the next decade, principally by letting the Bush tax cuts expire for the 2 percent of Americans earning over $250,000, with $400 billion in entitlement reform. House Speaker John Boehner called the proposal “unserious,” and laid out a $2.2 trillion counterproposal to cut entitlement spending by $900 billion, cut discretionary spending by $300 billion, and raise $800 billion in new revenue with unspecified new limits on tax deductions. Obama said the GOP’s offer was “still out of balance,” because it did not raise enough new revenue. “We’re not going to be able to get a deal without it,” he said.

Boehner’s proposal was also rejected by the Tea Party faction in his own party, with Sen. Jim DeMint (R-S.C.) saying that any tax hike “will destroy jobs.” If the talks collapse, House Republicans were reportedly considering a “doomsday plan” of letting the Democrats extend the Bush tax cuts for the middle class before Jan. 1. Republicans would then launch a bigger fight to cut federal spending and reform the tax code in the new year, with a key piece of leverage: the $16.4 trillion debt ceiling, which must be raised in February to avert a government shutdown.

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What the editorials said

“Mr. President, you’ve taken your victory lap,” said the Chicago Tribune. Now it’s time to get serious. Republicans won’t support “essentially the same tax-centric budget” they rejected last year, with no serious attempt to cut spending or reform entitlements.

It’s the Republicans who’ve made an absurd offer, said The New York Times. If they had done “any actual math,” they’d know it’s impossible to raise $800 billion through eliminating mortgage interest and charitable deductions without seriously damaging the nonprofit sector or raising taxes on the middle class. Face it: It’s not possible to make a serious dent in the federal deficit without “an end to the Bush tax cuts on the rich.”

What the columnists said

How John Boehner must want to “go back in time,” said Ezra Klein in WashingtonPost.com. In 2011, the president offered House Republicans a deal with a 3-to-1 ratio of spending cuts to new revenue. They walked away, betting Obama would be defeated. “The bet failed.” Now, a “split-the-difference compromise” is all they can hope for—$1.2 trillion in new revenues and $750 billion in spending cuts “wouldn’t be such a surprise.” The only question is, “how to get those revenues”?

Given that Obama successfully campaigned on higher taxes for the wealthy, they may be “unavoidable,” said Fred Barnes in WeeklyStandard.com. But the GOP can limit the damage by negotiating to ensure that taxes remain lower than the top Clinton-era rate of 39.6 percent, and insisting that increases apply only to those earning $1 million, not $250,000. In return, Republicans should demand “substantive entitlement reforms,” said Scott Galupo in TheAmericanConservative.com. If the GOP is going to violate its “blood contract” on tax increases, Obama must accept the need for serious spending cuts. A package of $1 trillion in cuts over 10 years “is a realistic target to shoot for.”

That assumes Boehner is able to bargain, said Jonathan Chait in NYMag.com. But his hands are tied by his conservative caucus, which is as “crazed and intransigent as ever.” That’s why Obama’s most strategic move here is to hold fast to his demands, and let Jan. 1 pass. At that point, the top tax rate automatically reverts to 39.6 percent. Obama can then offer Republicans a “small rate cut” to, say, 38 percent, making up the lost revenue by closing loopholes and capping deductions. Toss in some more spending cuts to sweeten the deal, restore some Pentagon funding, and voilà! “That’s a deal Republicans will be able to sell to their base.” But it’s only possible after Jan. 1.