The Fiscal Cliff Negotiations: Political Theater and the Taming of the Heads

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Fiscal Cliff Negotiations: Who are the Players, Why Are They Fighting?

With the Senate in the president’s camp, the House of Representatives holds the final card with respect to a fiscal cliff deal. Image by Vcelloho

Given that the Senate is controlled by the Democrats and will vote in lockstep with the administration, President Obama and the Republican-controlled House of Representatives are the key players in the negotiations.

As for the reason why there is no deal, ideology rears one of the Hydra heads.

Simply put, the Republicans do not believe any increases in the marginal tax rates are required to staunch the sea of red ink facing the country. Philosophically, they believe spending cuts to both domestic programs as well as entitlements (Social Security, Medicare, Medicaid, and other similar programs) will solve the problem.

Obama and the Democrats, on the other hand, believe in a ‘balanced’ approach involving spending cuts as well as incremental tax increases for individuals making $200,000 and above and families making over $250,000.

Although both sides have talked tough throughout the negotiations, the Democrats have the clear advantage.

If no deal is reached, taxes will automatically reset to the higher Clinton era rates starting on January 1. At that point, they can simply pass a bill in the Senate to decrease taxes for the middle class and dare the Republicans in the House to vote against it.

Political Mandate: Both Democrats and Republicans Believe They Have Support

After winning the presidential election and picking up seats in both the House of Representatives and the Senate, Democrats have maintained the electorate has given them a mandate for a solution to the fiscal cliff that requires the wealthiest Americans (defined as the top 2%) to pay “a little more.” President Obama, in fact, campaigned on that very platform.

Republicans, on the other hand, believe that since neither the House, Senate nor presidency has changed control, the American people prefer the balance of power as it is and, according to Speaker John Boehner, gave them “a mandate for us to find a way to work together.’’

Preventing the Fiscal Cliff

Republicans have steadfastly refused to consider higher marginal tax rates, whereas President Obama has stated that no deal can be reached without an increase in upper-income taxes. In the past two weeks, both sides have traded offers designed to break the stalemate. Obama’s plan spelled out $1.6 trillion in additional revenues via tax hikes for the top 2%, $50 billion in new stimulus spending and $400 billion in spending cuts. Boehner’s proposal called for $800 billion in additional revenues generated from closing tax loopholes and other tax reform measures, and $1.4 trillion in unspecified spending cuts.

Both sides quickly rejected the other’s offer. An aide familiar with the administration’s offer said, “After two weeks of discussions, the offer the White House made today is completely unbalanced and unreasonable, and amounts to little more than reiterating the president’s budget request — which failed to get a single vote in the House or Senate.” Meanwhile, Obama said of the House proposal, “Unfortunately, the speaker’s proposal right now is still out of balance.”

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