Looks Like Obama Blew the Budget Negotiations

President Barack Obama and Speaker of the House John Boehner take part in a ceremony to unveil a statue honoring the late civil rights activist Rosa Parks in Statutory Hall of the U.S. Capitol on Feb. 27, 2013 in Washington, D.C. Photograph by Win McNamee/Getty Images

One effect of the Tea Party absolutism that has overtaken the Republican Party—not a penny of new taxes, ever!—is that, while it may be useful for keeping members in line, it muddies the outcome of big policy fights in a way that warps public perception. In today’s budget battles, Republicans typically insist that the opposition surrender completely to their every demand, and count as a loss anything that falls short of that benchmark.

A great example is the deal to avoid the fiscal cliff. Tax rates were scheduled to revert to their Clinton-era levels on Jan. 1. This was law. Had President Obama lapsed into a coma and been unable to sign legislation to avert the cliff, rates still would have gone up, raising $4 trillion in new revenue over a decade. Republicans were powerless to stop this. Yet, most still refused to consider any deal that raised rates.

Obama wound up settling for a package that raised rates only on the top 1 percent of earners—families bringing in $450,000 a year or more. It produced $600 billion in revenue, considerably less than the $830 billion that would have come from his preferred threshold of $250,000. But because it included any new tax revenue at all, Republicans were anguished and generally behaved as though they had suffered a huge loss, while Obama acted like the victor. This perception quickly took hold in the media.

But the perception was wrong, as I argued at the time (“On the Fiscal Cliff, Republicans Are Blowing a Great Deal”; “A Fiscal Cliff Deal Republicans Should Learn to Love”) and kept arguing after the fact (“Why Obama Should Have Gone Over the Fiscal Cliff”). My basis for claiming that Republicans had gotten the better end of the deal was as follows:

“By any objective historical measure, the deal is a good one for Republicans: It locks in virtually all the Bush-era income tax cuts, establishes a generous-to-the-wealthy inheritance tax, and maintains low capital gains and dividend taxes. It also raises a lot less revenue—$600 billion—than Democrats would have gotten by going over the cliff for good ($4 trillion) or resetting the income tax threshold at $250,000 ($830 billion), as Obama had vowed to do.”

In addition, Republicans held on to their two greatest points of leverage—the sequester (which was delayed 60 days, but paid for) and the debt ceiling. The White House reply to this line of reasoning was to assure everyone they weren’t done raising revenue. They assumed they would get another bite at the apple and expected to raise $600 billion more from closing tax loopholes in a sequestration-replacement package, and possibly a rewrite of the tax code. It seems they never considered that Republicans would refuse further tax increases and stick with the sequester.

That is indeed what has happened. Democrats who once thought they’d gotten the better of Republicans on the fiscal cliff are now questioning the White House and wondering if they didn’t cut a lousy deal. “Thinking they’d have a second bite of the apple was a real mistake,” Robert Reischauer, a former director of the Congressional Budget Office, told the New York Times on Sunday.

In the weeks leading up to sequestration, the White House tried to pressure Republicans back to the bargaining table by making apocalyptic warnings about the fallout that would ensue from letting it take effect. But it didn’t work. (I’ll have more to say about why in a future post.) It’s still possible that Obama’s new strategy of courting Republicans at private lunches and dinners will surprise everyone and yield a “grand bargain” that includes the additional $600 billion in revenue he’s seeking. It’s also possible that the budgets introduced this week in the House and Senate will produce that revenue. But I doubt it. At this point, it sure looks like Obama blew the budget negotiations.

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