Obama’s fiscal cliff game plan: Let’s make a deal

Obama will return to the White House for his second term with a strengthened hand to tackle the fiscal cliff with a divided Congress.

By The Fiscal Times Nov 12, 2012 12:35PM
By Merrill GooznerThe Fiscal Times logo

Avictorious President Obama will return to the White House for his second term with a strengthened hand to pursue his centrist agenda with a divided Congress.

While the Republican House majority may continue to oppose Obama’s initiatives, the legislative calendar now works in the president’s favor. The first test will come over the next several weeks as Congress wrestles with the fiscal cliff, the already legislated set of tax increases and spending cuts that could yank a half trillion dollars out of next year’s economy and throw the nation back into recession.

If the House, where Republicans lost 7 seats from their solidly conservative majority, refuses to compromise on raising taxes on upper-income households, the president can simply allow the tax cuts enacted in 2001 and 2003 to expire. The nation will then return to the tax rates in effect when Bill Clinton was president, a time when the nation enjoyed its greatest job creation spree of the past three decades while generating budget surpluses.

The still fragile economy is in a very different place today, of course. Most economists believe tax hikes of that magnitude will trigger renewed recession, as it largely eliminates the ten-year deficit that the president listed as his number one priority during his early morning victory speech to the huge throng in Chicago’s McCormick Place.


But the president has the power to delay implementation of the new tax withholding tables for months as Congress and the White House work on a tax reform package that cuts everyone’s tax rates. In essence, allowing the Bush-era tax cuts to expire creates room for the tax reform program modeled on the proposal of the defeated Republican candidate Mitt Romney, only from a higher tax base.

The same dynamic will play out on the spending side. Only the progressive left and libertarian right back the magnitude of the Pentagon budget cuts contained in sequestration – the across-the-board spending reductions enacted as part of the August 2011 debt ceiling deal. The president can seize the high ground by offering to restore most of the new military cuts in exchange for more modest spending cuts in domestic programs. Adjustments could be made in the size of the tax cuts or the pace of deficit reduction to accommodate that strategy.

Washington’s permanent government – the small army of lobbyists that populate K Street – will take care of the rest. Physicians and the American Medical Association will take up arms against the Medicare pay cuts and every business lobbying group in Washington will clamor for restoring their special tax breaks – the so-called extenders like credits for research and development. Or, the extenders will become bargaining chips in a tax reform deal that lowers overall corporate rates – a major objective for corporate lobbyists.

With nearly $4 trillion in new revenue over the next ten years to play with, Congress shouldn’t have trouble coming up with the money needed to reform the corporate code and make the “doc fix.” The same holds true for preventing the alternative minimum tax from hitting tens of millions of middle-class Americans. There appears to be a broad consensus for eliminating the payroll tax cut that kept the recovery on track over the past two years, which further reduces the amount of deficit reduction needed from other measures.

Beyond dealing with the fiscal cliff, Obama will not need much from Congress in the first half of his second term. If Republicans want to fight him on immigration reform, his third-ranked priority in his victory night speech, they risk further alienating the fastest growing minority in American politics, which gave Obama surprising victories in swing states like Colorado, Virginia and Florida.

Needless to say, the Republicans failed miserably at their primary agenda. Besides failing to unseat the president, they did not win the Senate, which means they will not be able to roll back the Obama’s signature achievements from his first two years in office.

Health care reform remains on track for implementation. The president could, as part of budget and tax reform, offer to scale back the insurance subsidies and the scope of Medicaid expansion. While that will anger the left, who saw the reform bill’s failure to solve the entire problem of the uninsured as its greatest failing, it would be in keeping with the spirit of compromise contained in the original law, which was, after all, modeled on legislation crafted in Massachusetts by Gov. Mitt Romney.

The financial sector reforms contained in Dodd-Frank are also now safe from repeal. With newly elected Massachusetts Senator Elizabeth Warren up the seat once held by Sen. Ted Kennedy, not only will her prized Consumer Financial Protection Bureau continue to operate, but most of the new regulations designed to avoid a repeat of the 2008-09 financial sector meltdown will be able to move forward with minor adjustments to accommodate the legitimate concerns of the financial sector.

For all their complaints, it was never true that Rep. Barney Frank and Sen. Chris Dodd, now both gone from Congress, or Treasury Secretary Timothy Geithner for that matter, were populist crusaders against the banks. The wiser heads on Wall Street and in the banking community recognize that, and Obama will have the chance with his next pick for Treasury Secretary to give them further assurances.

The president mentioned climate change in his victory speech. Conservative Republicans and the fossil fuel industries, which provided a substantial share of the outside money that poured into the anti-Obama SuperPACs, will no doubt dig in their heels against any bold approaches – a carbon tax, for instance.

But with infrastructure needs mounting in the wake of Hurricane Sandy, the national mood could shift. As New Jersey Gov. Chris Christie, a likely contender for the 2016 Republican nomination, showed in the waning days of the campaign, major climate-related events have a tendency to upset political apple carts.

The Republicans in the House still have one major card to play, though. Sometimes early next year, the debt ceiling will need to be increased. Boehner, flanked on his right by Rep. Eric Cantor, R-Va., and Rep. Paul Ryan, R-Wis., who returns to the House with increased power gained from his national exposure, could opt for a repeat of the summer 2011 crisis.

Or, alternatively, he and the remaining centrist elements of the Republican Party can look at the range of moderate alternatives the president will put on the table. They could decide to do what’s right for nation, which coincidentally would enhance their prospects of rebuilding the Republican Party so that is more in tune with the U.S. electorate.

As Tuesday night’s results showed, that multicultural electorate, at least in presidential election years in all sections of the country except the Deep South and sparsely populated plains, is becoming more center-left, not center-right.

Merrill Goozner is a contributor at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

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Nov 16, 2012 4:05PM
Centrist agenda?  If this administration is "centrist", I really hate to see what the "liberals" would do if in power. 
Nov 16, 2012 11:26AM
People with no jobs shouldn't be allowed to vote!!!!
Nov 15, 2012 7:49PM
If Obama and Democrats try to steam roll the Republicans on the Fiscal Cliff, the Republicans can retaliate by threatening to delay increasing the debt limit.

The threat of Mutual Assured Destruction should force moderation of positions by both parties.

Nov 15, 2012 6:40AM

You are an IDIOT if you think Obummer cares about the middle class. Prepare to buy gallons of butt lube cause you will get effed by the "liar in Chief"!!


The Pied Piper is the Devil Himself!!!

Nov 14, 2012 4:23PM
Anyone who watched OBama's press conference today couldn't miss the fact that he wants to soak the rich to "save the middle class." Naturally he wants Republicans to cave to his campaign promise  before he addresses anything else. So it's just more of the same and why the market is tanking. Once he gets Republicans to give in and and disappoint their base, he'll ask them for ideas on how to cut entitlements. Once they do, he'll do nothing about it and use it against them in the mid term elections. He is so transparent it makes me want to puke.
Nov 14, 2012 2:59PM
Can someone please tell me why news events are contridictory depending on whether you are using msn or google/some other news??
Nov 14, 2012 2:03PM
This article like the democrats is like s**t through a Goozner. Voting in obama doesn't give him any more direction than it did 4 years ago by the same communist party that just voted him back in. Tax the rich. WTF OCCUPY the democrats.
Nov 14, 2012 1:54PM
it's now the time for big and small bussines to vote.
Nov 14, 2012 1:48PM

employers cut back on employees to get under the obamacare regs. now they will cut even further to get out from the coming tax increases. how's that for hope and change?

Nov 14, 2012 1:45PM
hopeless and changless. the story of our economy over the next 4 years. the dumbing down of america has worked its magic.
Nov 14, 2012 11:31AM
There should have been no doubt in anyone's mind that taxing the rich was the name of the game for BO. What civic and business leaders have to say was meaningless. BO was looking for support for HIS plan and he'll simply say that this is what everyone wanted. It's a damn shame that he's not smart enough to see that revision of the tax code will get him what he wants and then some. The opportunity is there now to really get something done, but this guy is struck on taxing the rich. He eats it, sleeps it, and dreams it. For that, he'll risk it all. Don't blame the Repubs. They'll give him revenue----just not the way he wants it.? 
Nov 14, 2012 11:07AM

how disspointing - i just accidentally found a website for Second Harvest Food Bank Seeks 6,000 Turkeys For Thanksgiving in San Mateo. San Mateo is exactly 12.5 miles from the company Facebook. I wish they would be more concern with helping others rather than themselves. I was so disheartened that a billionaire needs a 1% mortgage. Go figure!


sorry, here's the info


With the fiscal cliff the cash inflow to reduce the effects of falling commercial assets I guess has to come from those who can afford it - US!!!

Nov 14, 2012 10:59AM
how disspointing - i just accidentally found a website for Second Harvest Food Bank Seeks 6,000 Turkeys For Thanksgiving in San Mateo.  San Mateo is exactly 12.5 miles from the company Facebook.  I wish they would be more concern with helping others rather than themselves.  I was so disheartened that a billionaire needs a 1% mortgage. Go figure!

The President's plan to tax the rich would gather enough money each year to send Michelle and her entourage on vacations the next 4 years.  It wouldn't stifle much of the debt or deficit.   Someone once said it would pay about an hour's worth of bills.   This taxing the rich is all smoke and mirrors with the magician in chief.


Also have you noticed since the election, there are fewer places to make any comments about stories being posted on MSNBC?   Hardly any on the MONEY section and fewer yet on the MSN home page.   Seems the President is well protected from scrutiny.

Nov 13, 2012 8:38PM
.         Saying that the Republicans are the problem is plain "bovine scatology". An example is Obamacare. Was there any give and take and bipartisanship in putting it together? No! A 2700 page outline was presented and no time given to read, discuss, and vote on it by the administration. Then to gain the needed votes by several Democrats, payola and/or exemptions were given to gain the needed votes. Then we were told we needed to pass it to find out what was in it. To date people are still trying to figure out what is and is not in it. We are told to read carefully all contracts before signing. This is a contract with the American people for their healthcare, and we're told to trust that this will be just fine. Anyone actually believe that deserves the healthcare they will NOT be getting when there is no budget for them. If you confiscated the wealth of the top 1% and left them homeless (remember you can only do that once), someone has to buy up all that stuff to get the dollars. Now you are down to the rest of us. The tax rates will now go up across the board for all of us to pay for our FREE HEALTHCARE. The top 1% are now homeless. The rest of us don't have the money to buy their stuff and pay for our free healthcare too. The Chinese will pull the plug on funding our stupidity in doing what we are doing. You think the 30's were a bad time in American history? You are in for the surprise of your life. Why do you think there is no Soviet Union any more? Socialism/communism doesn't work no matter who does it. Wake up America. You will join the failures of history because you think there is a Santa Clause
Nov 13, 2012 12:33PM
If the Republicans only vote present nothing moves as they have a majority in the house.  Even the the debt celing  which would close down the government including the armed forces.
Nov 12, 2012 7:40PM
I think republicans should talk to people from the waist up  . But then the GOP loves to tell woman what to do from the waist down ! I guess that 47% does matter ! The GOP has been hijacked by the so far right even republicans are voting for dems.. LOL LOL
Nov 12, 2012 4:23PM
We should stop listening to political advice from idiots whose 'expertise' is limited to having a keyboard and lost of free time due to being unemployable. (See below)
Nov 12, 2012 4:08PM





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