Barack Obama and John Boehner traded opening bids on Nov. 9 in negotiations over the fiscal cliff. With talks scheduled for the White House this week and members of Congress back in town, Washington is abuzz with the possibility of a deal. Don’t bet on it.
Obama and Boehner drew the outlines of a compromise less in what they said than in what they didn’t say. The two men failed to reach a deal in 2011 because they couldn’t agree on raising tax rates for the rich. Now they are leaving open the possibility of avoiding the automatic tax hikes and spending cuts set to kick in on Jan. 1 by closing tax loopholes instead.
The approach got attention during the presidential campaign when Mitt Romney embraced it. Pressed to explain how he could cut tax rates and balance the budget, Romney suggested capping tax deductions, a move that would disproportionately hit the rich by limiting the amount of income they could shield from taxes. That could satisfy Obama’s demand that spending cuts be balanced by increased revenue from the wealthy. It would also allow Boehner to claim that he had fought off a raise in tax rates, which most of his members have sworn to vote against.
When asked about the possibility of a deductions deal at the daily press briefing after Obama’s East Room appearance on Nov. 9, White House press secretary Jay Carney left the door open. “The only acceptable approach to dealing with our fiscal challenges,” Carney said, “is to take a balanced approach,” and he pointed out that previous plans from the President included limiting deductions. Boehner, for his part, answered the same question about deductions by opening the door even wider. “There are all kinds of deductions, some of which make sense. Others don’t,” he said.
A deal based on deductions would reflect the atmospheric conditions in Washington postelection: prevailing winds seem to favor bipartisanship and compromise. But at the ground level, things look less temperate. First, it’s easy to talk about eliminating deductions but harder to pick a number that would generate real revenue without raising effective tax rates on the middle class too. Romney proposed capping deductions at $17,000, which would generate $1.7 trillion over 10 years, according to the Tax Policy Center. But that could hit anyone making $100,000 a year or more, whose deductions average $20,000 annually. Obama has called for tax hikes only on those making over $250,000 a year.
And once you start disagreeing on details, political reality quickly replaces high hopes. In the House, not a single vote has changed since Congress and the White House failed to reach a deal in July and August 2011. The GOP is going to be more conservative in the next session, a reality Boehner is very much aware of.
Obama is not in the mood to make the big concessions. Tax policy played a large role in the election he just won, and the fiscal cliff gives him some negotiating advantages. Even if tax rates go up on paper on Jan. 1, no one will lose money until April 15, providing a buffer. And while the sequester, or mandatory government spending cuts, will hit the Pentagon hard, on the non-Defense side, they will exempt 47 social safety-net programs, including Medicaid, child support and many other low-income benefits.
Even if Obama were willing to go along with a deductions deal, some House Democrats are bound to revolt against the GOP demand that entitlements like Medicare and Social Security be cut as part of any deal.
Maybe both sides are tired of fighting and ready to negotiate in good faith. Maybe they are interpreting the election as a call to compromise. But these days in Washington, it doesn’t take long for partisan interests to reassert themselves.