Here's how it should play out:
Obama tells congress: "it's your problem, you created it, you fix it." GOP and Democratic congressional leaders meet to hammer out a compromise but fail miserably as a result of GOP intransigence over tax increases. Jan. 1 comes and goes with no agreement, so the Bush tax cuts expire and the sequester spending cuts go into effect. The business community lets Republican leaders know that it's time to stop playing games. Obama steps in at that point, using the bully pulpit of the presidency to shame both sides into an agreement. Congress passes a bill that includes some modest spending cuts in social programs and sets the top marginal rate at somewhere between the Bush rate (35%) and the reinstated Clinton rate (39.6%), which allows GOP house and senate members to say that they didn't violate the Norquist pledge because they technically didn't vote to raise taxes.
Here's how it will play out:
Obama will take the lead in trying to reach a "grand bargain" on spending cuts, taxes, and the debt ceiling. GOP congressional leaders refuse to entertain any tax increases, but will grudgingly agree to the closure of some tax "loopholes" and a "broadening of the tax base" (i.e. taxing more poor people). Obama, as usual, caves in to Republican intransigence and pushes for a deal that includes substantial cuts to social services and no cuts of any consequence to the military, while the Republicans will graciously permit the government to keep borrowing for another six months.
Then GOP hardliners will accuse Obama of being a socialist and a job-killer. Boehner will scuttle backwards like an orange crustacean and renounce the entire deal, just as he did in 2011, and the entire nation will fall off the fiscal cliff. Six months later, Obama and congress agree to a one-time rebate of $500 to each taxpayer that will please Republicans because it's like a tax cut and will appeal to Democrats because it's like a stimulus bill.
How's it going to play out?
Will we get to the brink and come up with a short kicking of the can, do something meaningful, go over?
Here's an interview with Sen Chambliss (R-GA) to get you started.
SK: But the argument against letting the sequester take effect is a Keynesian one, because it would take government spending out of the economy while it’s still weak. Isn’t that what the market’s worried about, not just long-term deficit reduction?
SC: I think the market’s concerned about both. If you allow the sequester to kick in, the market’s not going to respond well. They’re looking for leadership, not just numbers. Are we going to do it arbitrary, across-the-board, spending cuts and reduction? if we are, that’s not leadership. That’s not what we’re looking to the United States for. We need to reduce spending by this amount in the right way in an overall balanced approach.
On Wednesday, House Speaker John Boehner held fast to the Republican line that no one's tax rates should go up.
Well, here's the wall that Obama has to work with.
Quote:On Wednesday, House Speaker John Boehner held fast to the Republican line that no one's tax rates should go up.
While the deal is far from being cinched, Boehner spelled out that this would be a two-step process in which negotiators reach a deal in December that sets the fiscal framework for new tax revenues and long-term savings from entitlement reform. Then those precise tax and entitlement changes would be implemented in congressional negotiations next year, he said. More