Power Play

Obama to GOP: Don’t You Dare Give Me What I Asked For


"That is a bad strategy for America, it's bad strategy for businesses. It's not a game I will play."

-- President Obama talking to the CEO members of The Business Roundtable about the possibility that Congress might not grant him an unconditional increase to the debt limit.

President Obama will be campaigning in Northern Virginia today, explaining to voters, er, constituents that it is essential that Republicans vote to extend current tax rates for middle-class families.

But what if they did?

House GOP members are warming up to the idea of what in military terms might be called “strategic withdrawal” – a retreat to more favorable terrain.

The president has Republicans pretty well pinned down on the issue of federal income tax rates. The GOP can’t get an across-the-board extension of current tax rates through the Democratic Senate, and even if they could, Obama has vowed to veto any plan that doesn’t include a rate hike on top earners.

And if Republicans block a proposal that would prevent the tax rate hike for the vast majority of taxpayers in the name of protecting rates for top earners, rates will go up for all of the 53.6 percent of American households that pay federal income taxes.

On the other side of that rate hike, Republicans will have to fight for every cent of tax reduction and Obama would be in the enviable position of being the grantor of lower rates rather than the extender of existing rates.

This is perhaps why Treasury Secretary Timothy Geithner, Obama’s chief negotiator on taxes, sounded positively plumy about the prospect of going over the tax cliff when talking to the folks at CNBC. “Absolutely,” Geithner said when asked about taking a tumble.

The cliff, as mainly understood, is a double whammy of automatic tax hikes and gradual spending cuts. Team Obama believes that it can hold off, for a time, the hikes and cuts while negotiations continue with Republicans. Those negotiations, though, would be taking place in a world of higher tax rates, limiting Republican leverage.

The government has nearly run through the $2.2 trillion in additional borrowing power granted to Obama under the terms of the August deal that created the mechanism that is now set to begin making automatic cuts, the spending side of the cliff.

Republicans hate, hate raising the debt limit. Democrats, including Obama, didn’t much like it when George W. Bush was president either, but for the GOP, which has become consumed by the idea of spending cuts and debt reduction, raising the limit is anathema.

This sets up a moment early next year in which Republicans can make demands of the president in exchange for a lift in the borrowing limit.

Obama would like Congress to pass a law that says lawmakers would no longer need to approve credit limit increases, but rather could vote to block them if they so choose – shifting the power on borrowing from the legislative branch to the executive branch.

This will, of course, not happen. But it represents the alternative vision that Obama will be offering in February when he is calling GOPers hostage takers who are forcing a government default.

Republicans say that it wouldn’t be default, but just a budget crisis. The government borrows about 40 percent of what it spends. Once the cap was reached, spending would have to go down 40 percent until a deal could be made to lift the limit again.

That would mean huge disruptions and giant economic catastrophe and a panic among those lending money to the government. A very bad scene, indeed. And Obama’s best pressure point in a debt-limit standoff is to make the moment as dramatic and awful as possible – shutting down the government, etc. -- in order to increase public pressure on Republicans. Then the president would find himself needing to make the economy worse to get more borrowing authority.

But if Republicans can rationalize their way to extending current tax rates for the 98 percent of the 54 percent of households that pay income taxes before the end of the year, they would be at least fighting on their turf: debt, deficits and spending.

The rationalization could either be that they’re technically not voting for any taxes to go up, or however else they use legalistic definitions to comply with promises made on refusing to increase taxes.

However they get there, if Republicans can find a way to avoid spending January fighting over tax rates, they can spend February fighting over Obama’s request for more borrowing. That’s a better place for Republicans to be.

In that scenario, Obama could attempt to borrow money without congressional approval – an unattractive prospect to any lender but the Federal Reserve. That could trigger huge interest rate hikes, triggering a fresh recession.

And meantime, the cuts that were part of the last debt ceiling deal would be whacking away at the domestic programs Democrats love and believe are the key to reviving the economy. Deep defense cuts would be underway, causing cutbacks at big contractors who employ hundreds of thousands of Americans.

Team Obama says they can delay implementation of the cuts, but whatever they can finagle, it promises to be a very lousy first quarter of 2013 if there is no deal on the cuts and a battle over the debt ceiling looms.

How long could Obama hold the line on his demand for an unconditional increase if the economy was crashing down around his ears? Republicans would be under huge pressure to relent, but it’s hard to imagine a sitting president refusing to do a deal with the economy grinding to a halt.

Republicans want a larger deal to address the cuts and taxes and borrowing limits and entitlements. Obama wants to go piecemeal – first the tax hikes, then the spending, then the entitlements, and so on. He’d also like Republicans to unilaterally disarm on borrowing.

If Republicans retain control over the debt and then take Obama up on his offer to go one step at a time, they may actually find that they are on the high ground next month.

It’s an ugly, awful way to do it, but unless the president decides he’s ready to do a deal, Republicans may have no other choice.

And Now, A Word From Charles

STEPHEN F. HAYES: And I think you are looking once again at a media that is eager to blame Republicans for this.  

CHARLES KRAUTHAMMER: That's why I'm correcting them.  

HAYES: You are correcting them?  

BRET BAIER: We have an online show to talk more about this.  

KRAUTHAMMER: I'll correct them even more.  

-- An exchange on “Special Report with Bret Baier


