The White House and its allies pushed hard in January to portray the fiscal cliff deal as a breakthrough victory. And in a way it was, with dozens of House and Senate Republicans voting for a package that raised income tax rates on the wealthy and extended unemployment insurance benefits while leaving Medicare, Social Security and Medicare alone. It marked the first time since 1990 that any congressional Republicans had supported a tax hike – a sign, some thought, that Obama just might be realizing his goal of breaking the “fever” of GOP obstructionism.
A few months later, it’s worth revisiting that supposedly triumphant moment for Obama, because it’s starting to look a lot different. The problem: The $1.2 trillion sequester, which Obama once assured Americans would never take effect, is now being implemented, threatening to drain life from an economy that’s finally showing signs of a real recovery.
In response, the White House is now aggressively courting Republicans on Capitol Hill in an effort to win support for a grand bargain – a mix of revenue increases and cuts to Social Security and/or Medicare – to replace the sequester. But that campaign will take months and the prospects of success are iffy, raising the question of whether Obama erred by not pushing for a better deal back in December and January.
A strong case can be made that he did. To start, consider that the fiscal cliff essentially represented the accumulation of two first-term bets by Obama that he would win reelection. He made the first bet at the end of 2010, when the Bush tax cuts were first due to expire. Obama had pledged to get rid of them for the wealthy, but his party had just suffered a massive midterm rout, so he agreed to a deal with Republicans that extended all of the Bush tax cuts until the end of 2012.
The second bet came when Republicans threatened to allow a catastrophic debt default in the summer of 2011 and Obama sought to head them off by striking a grand bargain with House Speaker John Boehner. But Boehner was forced by his own party to walk away from the talks, leaving Obama to propose that Congress enact automatic spending cuts totaling $1.2 trillion over 10 years – the sequester – if it failed to reach an alternate deficit reduction agreement before the end of 2012.
Obama’s bet, in both of these instances, was that he’d win reelection in November 2012 and that, having spent a year running on a platform of “balanced” deficit reduction, he’d then be in position to set the terms of a long-term settlement to the fiscal battles that defined much of his first term.
Viewed in this context, the fiscal cliff deal that was ultimately reached on New Year’s Eve was not all that it could have been. Yes, the package did include a tax hike, an extension of unemployment benefits and no safety net cuts and overall it was more favorable to Democratic concerns than Republican priorities. But it also left two major issues unresolved: the sequester, the implementation of which was pushed back to March 1, and the debt ceiling, which Obama had originally vowed to tackle in any deal.
This is how we ended up where we now are. When the fiscal cliff deal was struck, conservative activists and opinion-shapers voiced loud objections, ratcheting up pressure on Republican lawmakers not to be seen as giving in to Obama any further on taxes and spending. Thus have Republicans in the first months of 2013 embraced anti-tax absolutism with the same fervor they showed for the previous four years, spoiling Obama’s hopes of rolling the fiscal cliff deal into a second big compromise.
So far, Obama had avoided another debt ceiling showdown, with Republicans agreeing in January to extend the government’s ability to borrow money into May. But as the March 1 sequester date approached, his pleas for a “balanced” replacement plan fell on deaf ears among Republicans, who chastised him for seeking a second tax increase and for not being serious about spending and entitlements. Never mind that Obama’s “balanced” plan called for new revenue only from closing loopholes and deductions and specifically included a Social Security benefits reduction; with the grief they’d taken from the right for the fiscal cliff deal, there was no way Republicans were going to sign off on any kind of revenue increase. And so the sequester deadline came and went with no deal – prompting Obama to recalibrate and begin his new outreach mission.
Now, imagine if he’d tested his leverage more around New Year’s – if he’d refused any deal that didn’t include a long-term debt ceiling resolution and a replacement for the sequester. This would have required going days, and more likely weeks, into 2013 without a deal. But recall that the cliff wasn’t really a cliff; it was a slope, with the effects phased in slowly and mostly reversible. Having just won reelection, Obama would have been well-positioned to tell Americans that he was simply seeking a package consistent with the platform that he’d run on and to pin the blame for the fiasco on the GOP. With everyone’s taxes rising (remember, the Bush tax cuts would have all gone away on Jan. 1 absent a deal), there might then have been real urgency for Republicans to fold and give Obama most of what he was seeking.
Instead, he took the best pre-New Year’s deal he could get, reaching an accord with Republican leaders just before midnight. The White House believed it would still have leverage when it came to the sequester – that hawkish Republicans would panic at the prospect of deep Pentagon cuts and force their party to the table. As Greg Sargent noted on Monday, that may not have been an unreasonable calculation, given where the GOP has traditionally landed on defense issues. But as it turned out, it was the wrong calculation. The great revelation of the sequester standoff was that the consensus within the GOP favored sequester over any deal with new revenue – even if it meant cutting the Pentagon.
And so here we are in mid-March, with the sequester taking hold and another debt ceiling deadline looming in a few months. Maybe Republicans will end up allowing a drama-free debt ceiling increase and maybe Obama will ultimately get his grand bargain. But even if he does, he’s now on course to spend much of the first year of his second term waging the same fiscal battle his reelection was supposed to end once and for all. And, of course, there’s a decent chance he won’t get his grand bargain, and that the sequester is here to stay. If that’s the end result, then the fiscal cliff deal will come to look like little more than a Pyrrhic victory for Obama.