The Fiscal Cliff: Negotiating Lessons

Several years ago, along life’s wonderous journey, I had the responsibility for buying stuff – bottles, flour, spices, filling equipment, transportation services, and the like -for a couple of large corporations.  In the process I learned some universal truths about negotiation- some obvious; some not  – and tried to pass on some of the difficult lessons to my junior purchasing agents. In politics some is different, but most is not. Would that John Boehner had been in the class.

Lesson Number One: You have to be sure that the guy you are negotiation with has the capability and inclination to deliver on an agreement.

–  Boehner gets this. By sending a letter signed by Eric Cantor and Paul Ryan outlining his demands, he has the House on record that increased tax revenues are OK, not only with him (as per his 2011 effort), but also with the fiscal hawks.

–  Obama is less clear. By sending lame duck Treasury Secretary Tim Geithner to deliver his absurd opening position ($1.6 trillion tax increase; another round of stimulus spending; elimination of the concept of a debt ceiling) he missed the chance to empower a credible deal maker. Last time Obama walked away from an agreed deal – presumably after getting push back from other Democrats. Somewhere it would be good to get a signal that Obama will deliver the Pelosi/ Reid cohort this time.

Lesson Number Two: You have to know what is most important to your adversary.

–  For Boehner it is comprehensive agreements that will rein in budget deficits and make entitlement programs sustainable. Comprehensive revision of the tax code is important, primarily to make it more efficient. The end of the year matters less than the entire package.

–  Obama is simpler. He wants higher tax rates for the rich as a legacy. Forget that the same result could be obtained by limiting deductions.  He has been campaigning for a year on a platform of taxing the rich (and not much else), and needs to nail that pelt to the wall with symbolic rates, not just eliminated deductions. Forget the other 90% of the budget problem – that is all negotiable as long as you don’t touch the heart of Obamacare.

Lesson Number Three: You have to be clear with yourself about who you need to please.

– In the corporate world it is the boss, the users of the supply or service you are buying, and the top finance guy. Here’s where politics is a bit different.

–  Boehner has the more serious calculation. On the one hand he has a lot of members in his caucus who really believe (and have constituents who really believe) that trillion dollar deficits and insolvent entitlement programs are a big problem. Republicans also lost a presidential election because of their steadfast support for the 2% of the voters who already pay most of the bill and create most of the jobs. Boehner understands that Romney and company made the case and lost. Grover Norquist, who Democrats love to demonize, is not to be feared. Conservatives have been purged from key House committees.  Deficit hawks matter; tax hawks not so much.

–  Obama would like to please his father, his early mentors, and his friends on the Left by leveling the field. Nobody knows how to deal with the root causes of growing inequality – globalization and technology – but taxes are pretty easy to understand – and popular with the 98% who are not being asked to pay more. Yet.

Lesson Number Four: You need a flexible plan, including a timetable, priorities, and a communication strategy. Recognize that in America “fairness” generally results in meeting about half way.

–  Both sides recognize that this is a multi-step process. A comprehensive agreement on taxes, entitlements, budget cuts, and the debt limit will require the buy-in of many constituencies and will not happen in 2012, but a year-end patch is necessary to head off pre-ordained calamity. One hopes that the staffs are working behind the scenes on the patch.

–  By agreeing to a revenue increase on the day after the election and offering a comprehensive plan starting about where the last negotiations broke off in 2011, Boehner ceded much ground for nothing in return. That may sound fair to the media and the public, but it adds pressure on House Republicans to not give much more.

– By being so focused on a tax rate increase, Obama leaves much to give on entitlements and budget cuts- once he realizes that Boehner’s first offer is serious and near his limit. (It is, isn’t it? We’ll know if Boehner cedes tax rates or a large debt ceiling increase as part of the year end patch.)

Lesson Number Five: You have to be willing to walk away. Alternatively stated, it is “the principle of least interest” – the party who cares less about reaching an agreement has the most leverage.

– For Boehner there is the ghost of Newt Gingrich who shut down the government in 1995, thus helping to drive Bill Clinton’s budget surpluses and a public residue of ill-will toward Republicans. Boehner has to be ready to take the lion’s share of the blame from Democrats, the pliant media, and even some Republicans if everybody’s tax rates go up and everybody’s favorite government program gets cut – even if temporarily.

–  Obama? In four years the “leading from behind” president has rarely done the hard work of governing. By nature or calculation he has rarely taken a courageous position on contentious issues (immigration reform and gay marriage as well as the Arab Spring and budget deficits) and is unlikely to risk a recession which he cannot blame on Bush if he gets his tax rate for the rich. And it is just possible that he does not want to be remembered for a second four year term with the lowest growth and highest unemployment since the 30s – and realizes that Boehner can help him avoid this distinction.

By agreeing to revenue increases and the framework of the Simpson-Bowles proposals Boehner has made a strong case for putting the blame for failure at the feet of Obama. The irony will be if – after a year-end patch and comprehensive 2013 negotiations – Boehner stands strong (but throws in a small rate increase as a deal clincher), our financial deficits start to heal, and the credit goes to the incumbent. That wouldn’t be all bad.


This week’s video reminds us that there are more important things than getting a political win.