Fiscal Cliff

As the cliff negotiations started, Republicans were talking up base broadening as a way to raise a little revenue without hurting the economy. Plan B is essentially the opposite approach: a little more revenue, with as little economic efficiency as possible.

The proposal is also frustrating because it takes President Obama's already-silly red line about who can be asked to pay more taxes and moves it even higher. At this rate, the ever-shrinking cohort of Americans who are rich enough to be expected to pay more taxes may be reduced within a few years to just Warren Buffett personally.

Obviously Republicans needed to meet the president in the middle somewhere. I would have rather seen them push for a deal that went to a top rate somewhere above 35 and below 39.6, and between 15 and 20 on capital gains.

But if Republicans have determined they must agree to the same top rates the president wants, they might as well cave on the $250,000 threshold too, take the extra revenue to further reduce the budget deficit and save their political capital for tax reforms that might actually grow the economy.More

The perceived danger was — believe it or not — that there would be no national debt left.

Greenspan, however, offered caveats and warnings that were largely ignored by Congress. In fact, he said that any tax cuts should have triggers that would halt them “if specified targets for the budget surplus and federal debt were not satisfied.”

In other words, the tax cuts would have been terminated or reduced, depending on the nation’s economic circumstances — precisely the tactic Republicans said was a non-starter in the 2011 debt-ceiling debate.History Lesson

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.

If the vote on the so-called “Plan B”, which would extend the tax rates on everyone but those earning more than $1 million a year, fails — and even the most optimistic Republicans acknowledge that it’s going to be close — it will be a massive blow to Boehner’s strength as Speaker. (The same goes, by the way, if Boehner can’t bring the bill to the floor for a vote, which should be interpreted as a sign that he doesn’t have enough “yes’s” to pass it.)

A failure to pass “Plan B” would not only drastically weaken Boehner’s strength within his own party but it would also significantly erode his bargaining position with President Obama. If on Wednesday you tell the President publicly that “he can call on Senate Democrats to pass that bill or he can be responsible for the largest tax increase in American history” and on Thursday you can’t pass the bill, it doesn’t take a political genius to understand that Boehner would lose any leverage he has in the cliff talks if “Plan B” goes down.

What’s far less clear — at least to us — is what the upside of the “Plan B” gamble is for Boehner. There is no chance that the Senate even takes up “Plan B” even if Boehner gets it through the House later today. So, why is he doing it?

According to Boehner allies, the point is that House Republicans are trying to govern, to find a plan that can actually make it through their chamber and, therefore, wind up as a law. (Of course, if the Senate and President Obama do nothing with it, “Plan B” will never become law.)

The other stated “win” for Boehner is to simultaneously see if passing “Plan B” wrings any more concessions from President Obama on his previously-stated willingness to exempt earners making $400,000 or less while also retaining some leverage as regards the raising of the debt ceiling, which is expected to need to be raised by late February.

“The political upside for Boehner is that he will have positioned Republicans to negotiate on all of the very serious threats to the economy — the debt limit, entitlement reform, tax reform, sequester — with the tax increase issue off the table,” explained one Boehner backer. “The White House would be forced to deal with those issue without the cover excuse they keep falling back on, which is raising taxes on upper incomes.”

Less publicly stated but not less important is that by passing “Plan B”, Boehner is showing his Members his willingness to fight for them — even if he ultimately cuts some sort of deal with the president that comes up short of the $1 million and above exemption. Boehner must have it appear as though he did absolutely everything possible to get the deal his House Republicans want before he settles (if he settles) with Obama. Conceding early is, from an optics standpoint, a disaster for him.

The simple truth — that smart Republicans know but can’t say — is that Boehner has very little leverage in all of this. President Obama has just been re-elected and has some of his highest job approval ratings in years. Republicans are in the midst of an identity crisis, roaming (mostly) leaderless through the political desert with a badly damaged brand. Polling suggests that Republicans would likely lose the blame game if the country went off the cliff. Washington Post

Here's a link to The Hill's Whip Count for tomorrow's Plan B vote. Boehner can lose 24 Rs if no Ds vote yes. So far he's at 11 no and leaning no votes.

http://thehill.com/homenews/house/273817-whip-count-house-lawmakers-positions-on-gop-plan-b-fiscal-cliff-bill