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December 06, 2012

It Is All About Obama Being Willing to Go Over the Cliff

Posted in: Uncategorized

Treasury Secretary Timothy Geithner

The most important development in the ongoing tax negotiations is Treasury Secretary Timothy Geithner’s recent acknowledgement¬† that President Obama is willing to go over the so-called fiscal cliff. While it has been heavily hinted that the Obama administration would use this tactic, Geithner told CNBC that it is “absolutely” something Obama is prepared to do. What this means is Obama believes he has all the negotiation leverage when it comes to taxes and the GOP has none.

Obama has little to fear politically from going over the cliff, since polling has shown that most voters would blame Republicans if it happened. Even if there is some political backlash, Obama doesn’t have to face re-election while Congressional Republicans do.

Letting all the tax cuts expire also undermines the Republicans justification for opposing taxes on the wealthy. Once taxes have already gone up, the Republicans are no longer fighting a tax increase, instead they are stopping at taxcuts because it does cut taxes enough on the wealthy.

The Republicans only had leverage in this tax fight if Obama was afraid to go over the cliff, and he is not. If Obama thought doing so would significantly hurt the economy, he might have an incentive to give in to prevent economic damage; but it is now clear the administration sees the cliff as really more of a very modest slope. Going over it for a short period is something that the Obama team thinks they can manage rather easily.

The Obama administration is effectively saying they are willing to take that small hit as long as it means Republicans will be left twisting in the wind as they publicly hold everyone’s taxes hostage to protect millionaires.

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