Fiscal Cliff: Fall Nearing Certainty
John Boehner’s “Plan B” fiscal cliff proposal was rejected by the House membership so soundly late yesterday that a scheduled vote on it on the House floor last night was canceled.
If a compromise plan that Boehner came up with that President Obama has already rejected cannot be accepted by House Republicans then it becomes impossible to negotiate further. There is no room for negotiation.
Reaction was swift. It is gonna be a rough day on the equity markets today. As of this writing DOW futures were down -179 and falling.
What you will hear on the news today will be vastly different from what is really happening.
Fact vs. Fiction
For the most part, what we will be told today (and on through the Sunday talk show circuit) is that Republicans are to blame for this fiscal cliff pickle.
Republicans will be called ideologues unwilling to negotiate in good faith. Add to that they will be called disorganized and in total disarray. Boehner will be faulted for his lack of leadership.
The facts, though, do not support the assertions.
An editorial in the Wall Street Journal late last night sets the record strait:
“Teetering on the Cliff” – Editorial, Wall Street Journal, 12/20/2012
The subtitle of the WSJ editorial says it all…
“Boehner’s tax bill failure reflects Obama’s failure to negotiate seriously”
In negotiations here is what Boehner has offered:
- Raise revenues by $800 billion by closing tax loopholes
- Additionally offered to raise tax rates on incomes of $1 million or more
Here is what President Obama offered in return:
- Raise taxes by $1.6 trillion over 10 years, twice previous offers
- Raise individual taxes at the $250,000 level, no change
- Immediate new spending measures
- A change in the inflation rate calculation for entitlement reform
- Eliminate the debt ceiling limit
President Obama didn’t offer anything Boehner could take to the bank. Instead, Obama asked for more.
Boehner gave up something sacrosanct in Republican circles for three decades. He agreed to a Democrat tax hike.
The last time that happened was in the early 1980s when President Reagan did it. The tax hikes came but promised spending cuts that were supposed to come along with it did not. Reagan called it the biggest mistake of his presidency. Because of that, Reagan encouraged Grover Norquist to form “Americans for Tax Reform” and the rest is history.
This time, President Obama isn’t even offering spending cuts. That is, unless you consider improvements in government efficiency, a change to an inflation calculation and a trillion dollar spending cut for wars that won’t be fought as meaningful spending cuts.
For the record, raising the individual income rates for the wealthy that the President proposes will only raise about $50 billion/year against a $1.1 trillion current deficit and won’t come remotely close to paying for the $1.6 trillion in new taxes that the President wants.
The WSJ correctly singles out the President as the major stumbling block over a fiscal cliff solution. The President’s lack of compromise made it impossible for Boehner to succeed.
In its editorial, the WSJ suggests the best course of action at this point is to extend all the current tax rates for 6 months and start negotiating anew in January.
But even that plan is flawed. There is a lot more to the fiscal cliff than that. Among other things, the alternative minimum tax adjustment is left open, a UI benefit extension isn’t covered and the whole sequestration business is left unresolved.
The bottom line is this. President Obama has not negotiated in good faith, even after Boehner made major concessions on tax increases. That hasn’t been done in 30 years.
That is why Boehner’s last ditch “Plan B” was rejected by House Republicans.