It’s Almost Real: Over the Cliff and Into Recession
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Josh Boak
The Fiscal Times
December 24, 2012

Fasten your seat belts, folks. House Speaker John Boehner hit the accelerator and is driving us over the fiscal cliff

When negotiations with President Obama stalled, Boehner shifted gears last week. He proposed “Plan B” to stave off the worst of the tax hikes and the budget sequester slated for next year.  The plan would increase rates on incomes above $1 million rather than the $400,000 threshold endorsed by Obama.

But several members of Boehner’s own caucus balked, based on their opposition in principle to tax hikes and the fact that President Obama offered no additional spending cuts to offset the revenue. In a humbling defeat, Boehner was forced to cancel the vote on a bill he promised would pass and give him leverage in any continued negotiations with the president

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The speaker now seems to have abdicated his responsibility for reaching a deal with President Obama and Senate Democratic leaders, sending Congress home for one of the least jolly Christmas breaks in the chamber’s history.

It’s still possible for lawmakers to slam the brakes before the country reaches the edge of the fiscal cliff, but it’s become less likely. The specter of tax hikes broke the GOP caucus, giving Boehner a much weaker hand when he eventually returns to the bargaining table with Obama

Sticking to his message that Washington has a “spending problem,” Boehner seemed to be in denial about the impact of his failed gambit during a Friday press conference with House Majority Leader Eric Cantor, R-Va. When asked if a deal was even possible, the Ohio congressman appealed to a power higher than the Oval Office. “God only knows,” Boehner said.

Obama spoke with Boehner and Senate Majority Leader Harry Reid, D-Nev., on Friday, asking them to craft an agreement in next few days that prevents a tax hike on middle class Americans, protects unemployment insurance for 2 million Americans, and lays the groundwork on economic growth and deficit reduction.

“Nobody can get 100 percent of what they want. And this is not simply a contest between parties in terms of who looks good and who doesn’t. There are real world consequences to what we do here,” Obama said at a press conference late Friday afternoon. “Call me a hopeless optimist, but I actually still think we can get it done.”

Aware of the stakes, budget experts have turned pessimistic.

“We’re sort of playing out a bastardized Greek tragedy, which has two heroes, each with a fatal flaw and the gods have put before them really an insoluble problem,” said Robert D. Reischauer, a former director of the Congressional Budget Office. “Because to get to where they want to go they have to engender the wrath of their most loyal troops.”

Former Federal Reserve vice chairman Alan Blinder fretted about the lack of breakthroughs and the possible market reaction. “I don’t have confidence that this gets settled in three days, and if it lasts three weeks we get a recession out of it,” the Princeton University economist told reporters Friday on a conference call.

The harsh reality is as follows:

  • No deal can be done without support from House Democrats. Since Obama insists on a rate hike for wealthy Americans, the rejection of “Plan B” means Republicans must join with Democrats to get any tax increase through the chamber. In theory, this limits the scope of the spending cuts that GOP congressmen want.
    "It's too bad Speaker Boehner wasted a week on this futile, political stunt," Sen. Reid said in a floor speech Friday. "Now, House Republicans have gotten the message loud and clear that any comprehensive solution to looming fiscal cliff will need to be a bipartisan solution.”
  • Less than two months after the election, some Republican House members fear primary challenges in 2014 if they support any tax increases. Anti-tax groups like the Club for Growth didn’t lobby members directly on Plan B, but they didn’t need to.
    “For many members of Congress, the one thing that motivates them is the fear of losing their jobs,” Barney Keller, the Club for Growth’s communications director, told The Fiscal Times. “We’ve demonstrated a willingness to facilitate the transition of public figures into the private sector.”
    The organization leverages an extensive membership for donations that influence 15 to 20 races a cycle. “We’ve definitely helped improve the gene pool of Congress along the way,” Keller added.
  • Tax rates are only one piece of the puzzle. Congress still has to patch the Alternative Minimum Tax for inflation, or 30 million families will face a steep increase in their tax bill for this year. There’s the $109 billion in sequestered cuts next year. And the White House and Capitol Hill need to lift the debt ceiling, or risk default.

“Remember in all this discussion, one of the hardest things that’s going to be done is the debt limit, and this wasn’t even part of the collapse,” said Steve Bell, a senior director at the Bipartisan Policy Center. “If they can’t even get this deal done … what in the name of God are they going to do about the debt limit proposal the president has made.”

G. William Hoagland, a former Republican chief of staff for the Senate Budget Committee, thinks the country is headed over the cliff, but that Congress will step-in with a patch to the AMT because it affects incomes for 2012.

“The AMT is the one that’s a real sleeper here that gets pulled out on its own if nothing else happens,” Hoagland said.

Boehner denied his speakership is in jeopardy, but his authority is to be severely undermined.

“Listen, I’ve told my colleagues this: If you do the right things every day for the right reasons, the right things will happen,” Boehner said Friday.  “While we may have not been able to get the votes last night to avert 99.81 percent of the tax increases, they weren’t taking that out on me. They were dealing with the perception that someone might accuse them of raising taxes.”

University of Virginia political scientist Larry Sabato explained to The Fiscal Times, “I don't think the GOP caucus will try to depose Boehner. Where would that leave them? More isolated than ever. Even the most conservative House members understand that Boehner isn't the problem.”