Cliff Deal or Not? Experts Say “Don’t Bet on It”
Business + Economy

Cliff Deal or Not? Experts Say “Don’t Bet on It”

iStockphoto/The Fiscal Times

Stan Collender, a prominent Washington budget analyst and consultant, has been telling his clients for months that there’s “a 60 percent chance” the nation is heading over the fiscal cliff.  Michael D. Tanner, a senior fellow at the libertarian Cato Institute, believes “there is a real possibility that we will go over the cliff.”

And even those including former Clinton White House chief of staff John Podesta, who are convinced  that President Obama and Republican House Speaker John Boehner will eventually cut a deal on spending and taxes to avoid a year end fiscal calamity, are expecting a modest agreement at best.
“I’m bad at making absolute predictions,” Podesta, the chairman of the liberal Center for American Progress, said on Tuesday. The veteran Washington hand forecasts that a year-end deal will include the top two tax rates rising and guidance for revamping the entire tax code in the months that follow. 

“Those negotiations are likely to resolve with some increase in revenues now, but likely with instructions to Congress” that they’re going to have to complete tax revenue reform in spring 2013. He added that the GOP offer on limiting deductions to raise revenues contains “very little detail, only general boundaries.”

With negotiations over ways to avoid a potentially destructive year-end confluence of expiring tax cuts and automatic spending cuts stalled for now, many budget policy and political experts say they are highly dubious that the Obama administration and Congress can put in place a long term plan for controlling the $16.2 trillion national debt and prevent that fiscal crisis from occurring.

House Republicans on Monday unveiled their latest deficit-reduction offer that calls for deep spending cuts and entitlement reforms and $800 billion of increased tax revenue. But the White House rejected it because the president is seeking twice that amount in new tax revenue and insists that the wealthiest two percent of Americans pay higher tax rates.

“Only a fool would be irrationally exuberant about the outcome,” said University of Virginia political scientist Larry Sabato. “What is in the national interest--a solid, comprehensive deal on taxes, spending, entitlements, and debt--contradicts, in different ways, the political preferences of both parties. Most members of Congress are only vulnerable to defeat in the party primary, where the unforgiving ideologues dominate. So if reelection is the motive, then you don't compromise much.”

A Fiscal Times survey of 12 prominent experts found that more than half were doubtful an agreement will materialize or they flat out predicted there will be no deal this year. The remaining five experts held out hope for a comprehensive agreement or a partial deal that would shift the heavy lifting on entitlement and tax reforms to next year, when a new Congress is sworn in.

“Enough Republicans will continue to think that Obama will cave so that the only way to disabuse them will be to let the tax cuts end and the spending cuts take effect,” said Henry Aaron of the Brookings Institution. “Come January, with the new baseline, the fight will be over how to ‘cut’ taxes and raise spending. Some people sneer at this cosmetic difference, but I think that the baseline will prove pivotal.”

John Pitney Jr., a political science professor at Claremont McKenna College in California, said, “If I had to bet, I’d bet against a deal. The differences are still considerable. The president is insisting on an increase in tax rates which is something most Republicans find unacceptable.  It may be a negotiating position on the president’s part, but there are probably a lot of congressional Democrats who consider it a line in the sand.

Many noted that even after Obama won reelection and Democrats enhanced their margins in both chambers of Congress in November, many conservative Republicans remain unyielding on tax and spending issues – posing serious challenges for Boehner and Senate Republican Leader Mitch McConnell.

“Despite my initial hope that both Speaker Boehner and Senator McConnell were going to stand up to the right wing of their party, I’m increasingly concerned that despite the fact I’m sure they know the Tea Party types have hurt their brand, they’re still not willing to put enough pressure on them to get them to bend,” said Jim Manley, a Washington consultant and former press secretary to Senate Majority Leader Harry Reid

“I think the whole thing really comes down to the internal politics of the Republican Conference in the House, and I think they will pay a terrible price if they don’t get their act together and somehow find a way of letting this pass,” said Scott Lilly, a former Democratic House Appropriations chief of staff. 

Underscoring the problems that Boehner and McConnell will have in controlling their troops,  a handful of conservative lawmakers, advocacy  groups and columnists have lambasted Boehner for putting $800 billion of tax increases on the table before getting an iron clad commitment from Obama and the Democrats to support fundamental reforms of Medicare and other costly entitlement programs. Alison Acosta Fraser and J.D. Foster of the conservative Heritage Foundation posted an irate blog saying that the House GOP counter offer at first blush “appears little more than categorical, pre-emptive capitulation” on taxes.

The pervasive pessimism among the Washington experts reflects a broader public view that the talks are headed nowhere, and that the biggest problem is the intransigence of conservative Republicans. If lawmakers send the country over the fiscal cliff by the end of the year, the majority of Americans say congressional Republicans will be to blame, according to a new Washington Post-Pew Research Center poll released on Tuesday.  While 53 percent of those surveyed say they would blame the GOP, only 27 percent would hold President Obama responsible.

George Hager, a USA Today editorial writer, said, “This is beginning to feel like September 2008 all over again,” when the House turned down the first emergency plan to shore up U.S. banks in the middle of the worsening fiscal crisis and the Dow dropped 777 points, its biggest one-day point drop ever. Four days later, a chastened House passed the bill.

“There seems to be a better than even chance that we’ll have to learn that lesson again, because Democrats believe Republicans will be more pliable after the cliff, and Republicans think President Obama will own the chaos that would begin in January if there’s no agreement,” Hager said.

Yet a handful of the experts contacted by The Fiscal Times were upbeat that a deal is doable, and predicted that the Republicans would “blink” and go along with at least some increase in tax rates on the 2 percent wealthiest Americans, if not as much as the president is currently seeking.

“I think there will be an agreement struck at the last minute after the Republicans complete going through the seven stages of grief and realize that they actually did lose the election,” said former Rep. Martin Frost, D-Tex., now a Washington lawyer. “There will be an agreement on revenues that will result in the upper 2 percent paying some additional taxes though I can't predict exactly what form it will take.”

John Zogby, a veteran pollster, said, “I think Boehner will take a deal” to avoid another crisis like the two previous government shutdowns or another downgrading of the U.S. credit rating. “The Republicans are in a checkmate situation,” he said.

And Steve Elmendorf, a Washington lobbyist and former senior House Democratic aide, said: “We have four weeks and nobody really wants to fail. They will get a deal with an increase of the top rate and a real process for tax reform and entitlement savings.   But it will be Dec. 27 28. Ho ho ho.”