Analysis: Obama could risk going over 'cliff'

It may be just a bluff or a bargaining ploy, but the White House is signaling that President Barack Obama is willing to let the country go over the "fiscal cliff," a hard-line negotiating strategy aimed at winning concessions from Republicans on taxes.
Associated Press
Dec 5, 2012

If Washington really does fail to avert the looming series of tax hikes and spending cuts, the White House will portray Republicans as the culprits for insisting on protecting tax cuts for the wealthy, an effort the administration is laying the groundwork for now.

"This is a choice of the Republican Party," said Dan Pfeiffer, White House communications director. "If they are willing to do higher rates on the wealthy, there's a lot we can talk about. And if they are not, then they'll push us over the cliff."

But going over the cliff also would be full of risk for a president fresh off re-election and facing at least two more years of divided government.

Ending the year without a deal could roil financial markets and dent consumer confidence just as the economy is strengthening. It could make it harder for Obama to get Republican help on his second-term priorities like overhauling the immigration system and the nation's tax code, or in getting potential Cabinet replacements confirmed.

And it would signal to the country that the president's campaign prediction that the GOP "fever" would break following his re-election was a pipe dream.

House Speaker John Boehner says Obama is playing a risky game. "If the president really wants to avoid sending the economy over the fiscal cliff, he has done nothing to demonstrate it," the speaker said.

White House advisers say the president wants to avoid going into next year without a tax and spending deal, a scenario they say would hurt the economy. Obama, addressing business leaders Wednesday, said the White House and Republicans could reach an agreement "in about a week" if the GOP drops its opposition to raising taxes on families making more than $250,000 a year.

"If we can get the leadership on the Republican side to take that framework, to acknowledge that reality, than the numbers actually aren't that far apart," Obama said.

But with few public signs that Republicans are close to taking that step, administration officials are hardening their warning that Obama willing to risk going over the cliff.

Of course, the White House warning could be a bluff, offered in the belief that Republicans are unlikely to back down on taxes unless they believe Obama is willing to go over the cliff.

The White House says Obama's firm stand on tax rate increases for the wealthiest 2 percent of Americans is driven by economics. The debt-saddled country can't afford to continue with the George W. Bush-era tax cuts, the president and his advisers argue.

Obama has made that case to Republicans before only to back down in the final stages of negotiations. But this time around, the president and his team believe they hold the political leverage.

There is some evidence to bolster that notion. Taxes were a centerpiece of the presidential campaign, with Obama running on a pledge to end the Bush tax cuts for the wealthiest Americans and return their rates to where they were in the 1990s, when the economy was thriving.

Exit polls showed that 60 percent of voters supported that position, an even higher percentage than backed Obama's re-election.

A new poll also suggests a majority of Americans would blame Republicans if the government goes over the fiscal cliff. Just 27 percent of those surveyed said they would blame Obama, compared with 53 percent who said they would point the finger at the GOP, according to the Washington Post-Pew Research Center Poll.

Seeking to cement those impressions, the White House is casting Republicans as willing to forgo tax cuts for the middle class in order to protect lower rates for wealthier Americans. Rates for all income earners will go up at the end of the year if both sides can't reach a deal.

In turn, Republicans say Obama is acting like a stubborn partisan who will put the economy in peril in order to get his way.

"My sense is the White House wants to go over the cliff," said Tony Fratto, a former Treasury and White House official under President George W. Bush. "That may be the only way they get rates they want."

Going over the cliff could mark a new low in the relationship between the president and congressional Republicans. While the contentious debates earlier in Obama's first term over funding the government and raising the nation's borrowing limit went right up to the edge, both sides were always able to reach a deal.

As Obama ran for re-election, he sought to assure voters weary of Washington's bickering that things would be better if he won a second term.

Speaking to supporters in June, he said, "I believe that if we're successful in this election — when we're successful in this election — that the fever may break."

"My hope, my expectation, is that after the election, now that it turns out that the goal of beating Obama doesn't make much sense because I'm not running again, that we can start getting some cooperation again," he added optimistically.

(This is an AP News analysis.)

Comments

The Big Dog's back

Isn't it wonderful! 4 more years. Yes!

the office cat

The President doesn't have to DO anything - except veto anything that doesn't meet the demands of the voting public. And YES, be it 4% or 3% or 500,000 votes - the margin was a victory. The Constitution puts the responsibility for revenue and expenditure on the House. So suck it up, load up your gold and head to the Caymans.

Randy_Marsh

The president has not did anything for the last 4 years so you really cant expect him to do anything besides circumvent congress to destroy whats left of our rights and dodge responsibility for anything.

the office cat

Are you losers still debating the election and the aftermath? The President has no responsibility to negotiate or send plans or do anything... except veto the bill if Congress doesn't get its shot together. What yall don't understand is that this is Congress' destiny. And the new Congress has three weeks before Inauguration to 'fix' whatever the lame ducks screw up. Gotta love it... Happy days are gettin' even better.

Randy_Marsh

Happy days are getting better? 14.6% unemployment and endless wars. If thats happy for you you might want to consider therapy.

the office cat

While C and M and RM etc. are busy ranting on here, the rest of us are out making a difference in the world. You automatically assume you are the only ones with wealth and investments and knowledge. It's so much fun playing all of you so you expose your inner souls and outer facades. Primarily you are insecure haters who need to ee cummings' 'The Machine Stops' to see yourselves as you will be.

shucks

@the office cat
I agree with your observations.

mikel

you know what happens when you assume right? probably fits the bill for you.

the knowledge that i have is that this country can not be sustained financially at this pace. when the mantra today is "the gov't HAS to provide me with everything", it's a bad thing!

my wealth? ha. my wife wishes we had the wealth so she wouldn't have to work. my contributions are many from financial donations to volunteering my time to many, many worthy causes. the fisher house foundation is what i am most proud of.

it is simple cat. there is not one business in the world that would be going today if it used the u.s. gov't as a business model!

OSUBuckeye59

@mikel,

You are correct in writing there's "not one business in the world that would be going today if it used the u.s. gov't as a business model". Then again, what business can print their own currency like the U.S. government?

Despite years of warnings about the dangers of deficits and debt, our government can borrow at incredibly low interest rates — interest rates on inflation-protected U.S. bonds are actually negative, so investors are paying our government to make use of their money. And like I wrote above, our government can’t run out of cash since it prints the stuff, so the worst that could happen would be a fall in the dollar, which wouldn’t be a terrible thing and might actually help the economy.

Contango

@ OSUBuckeye59:

"Currency" and "money" are not necessarily synonymous.

"Fall of the dollar"? Better check the CPI; as an example, the value of a USD in 1952 is now worth 11 cents.

Democracies tend to inflate their way out of debt, to the detriment of savers and investors.

http://146.142.4.24/cgi-bin/cpic...

OSUBuckeye59

@Contango,

Agree that "currency" and "money" are not necessarily synonymous, but I'm hoping you still understand the message I was trying to state/write.

I did select the link you provided and used the calculator, which calculated $1.00 in 1952 had the same buying power as $8.73 today. My apologies, but I'm not understanding the point you are making with the $0.11 reference. Maybe it's because it's still morning here on the West Coast and I haven't yet had enough coffee on a Monday morning. :-)

I do see the problem with inflating our way out of debt, and agree we shouldn't be doing this. Right now I still advocate our government needing to set or continue with monetary policy that will act to stimulate our economy. Those that believe right now spending cuts and tax hikes would destroy jobs, well, I don't believe they can make that claim while denying that temporary spending increases and tax cuts would create jobs. I argue our still-depressed economy needs more fiscal stimulus. Given we have ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, I argue that spending more to create jobs now would actually improve our long-run fiscal position.

I think a lot of the debate is really about ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs — but the assertion that government spending creates jobs, but only if it goes to the military, doesn’t make sense.

Influential people in Washington aren’t worried about losing their jobs; by and large they don’t even know anyone who’s unemployed. The plight of the unemployed simply doesn’t loom large in their minds — and, of course, the unemployed don’t hire lobbyists or make big campaign contributions.

shucks

@ OSUBuckeye59

I think it's all about greed.

Contango

@ OSUBuckeye59:

"11 cents"? Divide $1.00 by $8.73. The value of our currency is being decimated by Fed printing.

A 873% loss in value over 60 yrs? How about 1992; only twenty yrs.? A loss of 165%?

With it's ZIRP, the central bank doesn't want you to save, they want you to spend!

Not "ideology" - economics.

During the Great Depression, households and govt. didn't hold as much debt as today.

Even JM Keynes said to save during the good times. He didn't say: Spend, spend, spend.

No country in the history of the world has ever spent its way to prosperity - the U.S. will not be the first.

A recent article for your perusal:

http://seekingalpha.com/article/...

Got gold?

OSUBuckeye59

@Contango,

I still believe the mess is more about ideology than economics. The top marginal tax rate has declined dramatically in the last 65 years (http://www.ritholtz.com/blog/wp-...), yet when times were good, tax rates were increased little, if any, which was in direct contrast to Keynes' principals.

During the Great Depression, households and govt., agree households and govt. didn't hold as much debt as today, but then, the vast majority of citizens didn't own more than one automobile, if they even owned one, and not even half the citizens of the U.S. owned their own home: http://www.census.gov/hhes/www/h....

We are also looking at a serious problem in terms of retiring baby boomers moving from growth fuelers to retirement enjoyers. Baby boomers drove tremendous growth in the 70's and 80's, but are now looking to enjoy their retirement years with more focus on living off their retirement assets, selling off multiple properties, and purchasing fewer big-ticket items. And as boomers retire, the workforce paying into social security will also decline, thereby continuing to add woe and not funds into the social security system.

The value of the dollar may be or is decreasing, and I see that as a good thing considering how China continues to artificially keep their currency value low.

the office cat

Mikel and all.... you making the same mistake and missing the same obvious point of all of your ilk. Quite simply, the Government - at any level - is NOT A BUSINESS.
EVERY business (and investment is NOT a business) utilizes the same basic principal: It consumes raw materials to make a final product - car, washing machine, widget, etc. - and turns out replicas of its product for sale to buyers, a key difference. While it will have variances in material availability and cost, the business can 'level' the market. Even people who work for the business earn set income for their efforts.
Government, obversely, 'manufactures' and entirely new product every day - every hour. And it really can't control its 'raw material'. Example: Schools. Each child who walks in the door brings a variety of exclusive qualities - ethnicity, parentage, intelligence, physical ability, etc. - and thus cannot be squeezed into and assembly where nut A always goes on bolt B.
Government does not earn income by punching a time clock and drawing a salary.
Government can't keep a balance sheet - except on paper. "Sandy", "Katrina", "BP", Stock Market fluctuations, health epidemics, wars and rumors of - and those all-imortant 'raw materials' in the form of 350 million unique individuals.
I hope no business would use the US government as a business model. Anyone who would is dumber than the ass he rode in on (refering to the beast, no a person).

Contango

@ toc:

Govt. may not be a business, but govts. have and do go bankrupt.

For their financial crisis, Iceland jailed their bankers and made creditors take haircuts. The U.S. answer to the credit crisis - bail 'em out with taxpayer, borrowed and printed money.

http://www.zerohedge.com/news/20...

mikel

so, what you are saying is that the gov't should have unlimited spending power no matter it's income? i realize that it is not a "business" so to speak. but, it HAS to have check and balance! there is no reason that the gov't can't use a "business" model.

in the real world all raw materials have a monetary value. many of the "raw" materials today have absolutely no monetary values and don't really plan on ever contributing monetarily to this country. when the worker to non-worker ratio was over 3 to 1 there was no problem paying for the entitlement programs. however, when the number of workers vs non workers is less than 2 to 1 there is a huge problem!

Contango

The Millenials and Xers are ignorant to the fact that this is and has been a generational redistribution of current and future wealth.

It's the "yoots vs. the coots."

"Poverty among people age 65 or older fell to 9% in 2011 from nearly 30% in 1966." (WSJ, Dec. 8-9, pg. B8)

See the video:

http://www.thecankicksback.org/

goofus

GOOGLE REVENUES SHELTERED IN NO-TAX BERMUDA SOAR TO $10B

Contango, thought you might enjoy this headline from the am's news. Gee, I wonder if the left uses google LOL

Contango

@ goofus:

So how much did Google contribute to help the 2012 Obama campaign?

2008: https://www.opensecrets.org/pres...

Do ya smell that stench of liberal hypocrisy?

goofus

http://www.nypost.com/p/news/loc...

Things are tought all over, even Sibellius was found out about for awarding an obozocare contract to a friend and Obozo is telemarketing to get his way in raising taxes, and oscar winner Jamie Foxx in his next movie brags about killing all white people. And we are racist!!!!!

Contango

What liberal Progressive tax, borrow and spend ideology has done for Detroit, it can certainly do for the entire U.S.

http://detroiturbex.com/

FORWARD SOVIET!

OSUBuckeye59

@Contango,

What happened in Detroit could easily be written as a Harvard Business Case novella, if it hasn't already been written. It's so incredibly sad how Detroit kept their wagon hitched to the Big Three. I may not be the brightest fellow in the world but what I learned in the school of Hard Knocks coupled with the additional knowledge gained getting my MBA makes me always shake my head in bewilderment at the numerous mis-management mistakes made by the top brass of the Big Three. And Detroit's government leaders also seemed to be in the mesmerizing trance of the Big Three. Got to give credit to Obama as well in getting the automotive union personnel and folks connected to the auto industry in the States of Ohio & Michigan to vote for him, thereby securing those two States. Both Obama and Romney had their good and bad points, but when it comes to the automakers, Romney had the right idea in '09 when he wrote how GM needed to be restructured through bankruptcy rather than be bailed out by our government. The pain would've been severe for auto union personnel as restructuring would've meant union pensions most likely be significantly reduced, but that pain would've been localized instead of all of the U.S. population suffering.

The lessons of Detroit need to be reviewed and remembered by not only other large U.S. cities but also our elected officials.

Contango

@ OSUBuckeye59:

Agree.

Ya gotta love it that the UAW fought to reinstate the Chrysler workers who were fired for drinking and druggin' on their breaks.

http://www.huffingtonpost.com/20...

Look for the union label...

http://www.youtube.com/watch?v=l...

FORWARD SOVIET!

http://www.youtube.com/watch?v=O...

shucks

Voter suppression by Republicans--FORWARD SOVIET !

goofus

Moderators have removed this comment because it contained Personal attacks (including: name calling, presumption of guilt or guilt by association, insensitivity, or picking fights).

Kimo

Lessons in Detroit???

What "lessons" can be "reviewed" about the sale of A. Schulman in Bellevue?

How many people went over the "fiscal cliff" in that deal?

Maybe the SR can back burner the Perkins Cop story and front burner the Schulman story.......

Contango

@ Kimo:

Isn't it better that A. Schulman was sold, than bankrupt and outa business? (Glass half-full.)

Ya gotta love it that A123 is being bought by Wanxiang Group of China.

http://www.nytimes.com/2012/12/1...

Simple: Japan and China have been givin' up on our Treasuries and are buying hard assets.

Unlike the current occupant in the WH, they have some understanding of capitalism.

The Fed will just have to continue adding to their balance sheet, producing more increasingly worthless paper in order to help the profligate spender in the WH.

Where are you gettin’ yield on your investments? The govt. wants you to spend, spend, spend. Are you doin' your part?

Best to remember and heed the words of JM Keynes:

"The market can stay irrational longer than you can stay solvent."

mikel

agreed kimo!

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