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Monday, December 03, 2012

The Republican's Leverage In Fiscal Cliff Negotiations

By Susan Duclos

Keith Hennessey, lecturer at Stanford's schools of Business and Law and former director of the National Economic Council for President George W. Bush, has a must read piece over at Wall Street Journal, where he explains in detail just how much leverage Republicans actually have in the fiscal cliff negotiations and how Barack Obama has overplayed his hand.

 I will highlight the points here, but click over to read the details and explanations of those points for a better understanding of why Hennessey recommends that Republicans call Obama's bluff.

• The president's veto threat is a bluff. Without a new law, tax increases and spending cuts will likely increase unemployment to 9% and might trigger a new recession. Even if he could shift all the political blame for such a legislative failure onto congressional Republicans, Mr. Obama cannot afford to risk a new recession that would irreparably damage his second term. He can neither veto a budget-deal bill that Congress sends to him, nor can he allow Senate Majority Leader Harry Reid to tie a bill up in the Senate. He can, however, try to bluff Republicans into giving away the store.

• The president's proposal for more spending and taxation puts him to the left of many in his own party, and Democrats up for re-election are not lemmings looking to follow Sen. Patty Murray, who has welcomed a plunge over the fiscal cliff. Democratic Sens. Max Baucus and Mary Landrieu oppose the president's proposal to increase the estate tax. Sen. Chuck Schumer has defined "rich" at $1 million of income, much higher than the president's $250,000.

• Republicans can communicate more effectively by changing their tone. They can replace the wild-eyed threats of 2011 with steady negotiation and logical arguments. They can be insistent but not unyielding, firm but flexible. They can explain their policy views to voters and visibly demonstrate that they are trying to reach agreement with a counterparty still stuck in campaign mode. They can argue with their party leaders in private rather than weaken their leaders' hand with public statements that embolden the left and make it harder to reach agreement.

• Republicans must be willing to oppose bad policy even if it hurts their popularity. Agreeing to higher taxes is a major concession, and if the president is reasonable, Republicans need to be willing to move further to close a deal. But members of Congress have no obligation to vote for more than a trillion dollars in tax increases without significant spending cuts just because someone else won an election.

• Republicans can leave the debt limit out of this bill. It's a shame that small debt-limit increases must be used as a tool to force future fiscal negotiations. But until the Senate returns to passing annual budgets, frequent debt-limit votes are the only method available to force a recalcitrant Democratic Party to address entitlement spending problems.

• Finally, Republicans underestimate their ability to win the fiscal-policy argument in the public arena. If everyone's taxes go up, voters will instinctively blame the party of higher taxes. Mr. Obama has spent two years hammering the country about the fairness of redistribution—but Republicans have inoculated themselves against additional demagoguery by conceding and proposing that the rich pay more.


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