How to Deal with the Fiscal Cliff

A present from the August 2011 deal is the upcoming sequestration of spending, and along with it the ‘cliff’ of Bush tax increases. How should the Republicans in Congress, still running the House and still a minority in the Senate, deal with this?

The Republicans can and must hold the line on taxes in the lame duck session, and in fact Democrats will go along. Simple reason: The Democrats know that Obamacare tax hikes are on track in Jan 2013, that will be bad enough for the economy that is still weak. Also, the Democrats will have a larger contingent in both House and Senate next year,  and will want more members and more time to both get what they want and get a more careful compromise done.

So here should be the lame duck deal: 1 for 1 spending cuts to avoid sequestration (cut military and domestic spending), AND a 1-year extension of Bush tax cuts, AND FY 2013-14 spending limits, ie, 2 yr spending cap agreement that cuts at least $200 billion from spending trajectory over next 2 years, AND a 1-yr debt ceiling increase.

Republicans should NOT balk at letting the military sequestration happen, so long as they have a balanced spending cut alternative. Pass their version, and if Obama wants it different, its on him. Squealing about DoD spending undercuts the rest of the position and is precisely why Democrats chose it. Dont fall in the trap.

The Republicans are in a weak position in terms of forcing their preferred approach. They could for example put Simpson-Bowles style “lower rates for loophole closures” – the plan Romney touted; they SHOULD go back and dust off “Cut, Cap and Balance” and push that. WE need to have $100 billion cut in FY2013.  But getting any of that signed is problematic.

Their main leverage is saying NO. The Republicans need to be prepared to simply say”NO” to any  higher taxes at this time, and “NO” to any “Grand Bargain” tax hikes that go beyond loop closures.  So, what the Republican House needs to be doing is putting their approach in the hopper and pushing as far as they can to cut spending.

The Grand Bargain has to include a large-scale scaling-back of Obamacare. It should be dismantled in parts. Repeal tax increases. Reduce all aspects of its spending. Defer and delay all implementations, mandates and other rules. Get them all in the budget so they all become negotiating points. Stuff the tree so to speak, so you give up 3 items to get 1 through.

Much of the above may be wishful thinking, based on perceived vs actual leverage. My own motivation is for a deal that cuts the debt, deficits and spending, but the main motivation for members of Congress is self-preservation. They scatter when it gets politically painful. For that reason, The Republicans need to get a clear agenda and principles of where they stand, articulate and defend it well, and stand our ground.