For those keeping score at home, today was not an auspicious day for the potential of an easy fix to the “fiscal cliff” crisis: curb tax deductions for the wealthy. Keep rates where they are. Declare victory. Merry Christmas.
In his first press conference since being reelected last week, President Obama made it clear that he wants more revenue ($1.6 trillion vs. $800 billion, to be precise) than such a solution realistically could yield. “The math tends not to work,” he said. Obama dismissed the notion of cushioning revenue projections with “dynamic scoring,” that is, the anticipation of future growth as a result of tax reform. He would not settle, he said, for “sorta-kinda” raising revenue.
Put simply: he wants the Clinton-era tax rates and he wants to limit deductions.
It’s important to remember, though, that in any kind of high-stakes negotiation, you begin with your ideal and work your way toward some less optimal muddle. It’s possible we could still end up with a deal before hurtling over the cliff. But let’s not mince words: Obama sure sounded like he’s prepared to do that. With a swagger that no doubt startled the equity markets, he spoke of the “rude shock” that Americans would experience if “too much stubbornness in Congress” causes “everyone’s taxes go up.”
If my political antenna is working correctly, it sounds to me that, in calling for an immediate extension of current tax rates on the nonwealthy, Obama is signaling to Congress that we can partially go over the fiscal cliff — that is, we can mitigate the most extreme effects of an austerity shock and buy enough time to work out something comprehensive over the course of the next several months. Obama seemed to me to be suggesting that the likelihood of agreeing broadly on reforms to the tax code and the entitlement system between now and Jan. 1 is roughly nil.
To sum up: Obama today 1) indicated that he’s ready to take the plunge, and blame Congress for the carnage; and 2) opened the door to a partial fix so that the White House and lawmakers aren’t negotiating in a foxhole.
It was a bold play — and, we can hope, not a foolhardy one.