There is a growing sense among Republican policy wonks and senior lobbyists that the chances of getting any kind of meaningful deal on the deficit between now and the end of the year are drifting toward zero.
The two basic problems, they say: House Speaker John Boehner doesn’t have any arrows in his quiver, and President Obama’s negotiating skills are limited to his caving in or refusing to budge. No middle ground.
“The debt limit is the only leverage we have, and we can’t use it before Christmas,” says a former senior Republican House member. The Congressional Budget Office has estimated the United States will hit the debt ceiling in mid-February. “There is no reason for the president to bargain prior to getting to the fiscal cliff,” the former House member says. “He wants to go over the cliff and then blame Republicans for raising taxes on everyone.”
A former senior staff member of the House Ways and Means Committee says of Boehner: “He can’t cave or the conference will revolt.” The best Boehner can hope for in 2012 is to extend the Bush tax cuts for those below $250,000, cap the highest bracket at something below 39 percent (he has said the top rate will rise to 43.4 percent), and make up the difference in the way itemized deductions are handled.
The consensus around K Street is that renewing the AMT (alternative minimum tax) and what is known as the “doc fix”—Medicare payments to physicians—as well as many of the business extenders, is the best anyone can reasonably hope to accomplish.
Some feel that Treasury Secretary Timothy Geithner will order withholding rates on those below $250,000 to remain the same. Then the vast number of income taxpayers would see no change in their taxes while the Congress and the president hash out a solution after the new Congress is seated on Jan. 3, 2013. “The theory is Geithner will take the chance that the Bush tax cuts will be renewed for those earning less than $250,000 and there will be no need for retroactivity,” the former staff member says.
That, however, would rob the president of a major bargaining chip: the expected fury of working Americans at the Republicans in the House for having raised their taxes.
There is general agreement among people who have spent many of their adult years dealing with tax issues that letting the payroll-tax holiday expire is good politics as well as good economics.
Another lobbyist with close ties to the speaker says Boehner and Ways and Means Chairman Dave Camp “want a one-year deal to keep pressure on long-term tax reform.” Camp has been hard at work for three years working on such a package, and he would like to have another hard deadline moving into the midterm-election year to pressure his colleagues and the White House into seriously altering the tax code, the lobbyist says.
All of the discussion has been on the revenue side, the Republican policy wonks say. The president’s plan calls for the tax increases raising some $1.6 trillion coupled with $50 billion in new stimulus spending but unspecified entitlement reforms.
“Boehner might be able to sell a short-term deal to his conference,” says one of the sources. “He can explain revenue going up with a hard deadline, but I don’t see how he gets the House GOP to agree to an open-ended revenue increase with not a word about entitlement reform.”
Rep. Tom Cole (R-Okla.) says the House should pass the extension of the Bush tax cuts for the middle class, telling ABC’s This Week on Sunday that that would be “a victory, not a loss.” Some believe Cole was asked to deliver that message as “the canary in the coal mine,” to see how it would be received by the White House and the Republican conference.
One member of the group suggests that if the talks break down, Boehner might take a bill to the House floor that extends all of the Bush 2001 and 2003 tax cuts and makes some change in the starting age for Social Security and Medicare. Unlike Democratic Senate Majority Leader Harry Reid, Boehner can pass something at the end of the year that would allow his members to go home and say they gave the Democrats something to work with but that the Democrats and the White House were more interested in scoring political points than making progress on the debt.
The shorthand? Strap on your parachute. We’re likely to go over the cliff.