Deal or Consquences?

To deal or not to deal. That is the question.

Beyond any policy merits of the various proposals and red lines being bandied about regarding the “fiscal cliff” , there is the cold political calculus, the zero-sum game of who wins and loses in a raw power struggle in the capital.

Right now, it is President Obama who holds the cards and the initiative.

Obama is in the driver’s seat because his central policy priority in the “fiscal cliff” talks – raising income tax rates on the top earners – is tied to expiring legislation. Absent any legislative action, the dreaded tax cuts for the top earners will simply disappear on New Year’s Day – no action required.

Of course, if there’s no deal, all the other tax cuts/extenders expire as well, not to mention the cuts that kick in, spelled out in greater detail here. There will likely be stock market pandemonium, maybe even bleeding into global markets. Europe, for instance, is already in recession. Consumers could be frightened away from the stores during the four most important weeks of the year, and there is a very real possibility of a hit to GDP as a result, with uncertain longer term consequences.

For the White House, however, all that risk and pain may be worth the political benefit.

The terms of the tax debate fundamentally change on January 1, 2013. Instead of “preserving” tax relief, as the current argument is framed, on New Year’s Day and beyond, the new argument will be about providing tax relief to newly burdened citizens.

Having crossed the Rubicon of the “cliff” and endured whatever market/consumer/economic anxiety that was generated from it, there will be enormous pressure in January to fix the problem as soon as possible.

But in this new tax paradigm it is the GOP, not Democrats, who are in the hot seat.

By simply maintaining the President’s stated tax goals, Democrats will position themselves as tax cutters for 98 percent of the American people. If the GOP refuses to move legislation because it does not include tax cuts for the top two percent, Republicans will have not only lost the tax issue to Democrats, they will have certified themselves as the “party of the rich, effectively holding middle class tax relief hostage to new benefits for higher income earners.

It is political hara-kiri.

For the President and Democrats it would be political jujitsu in the service of political payback.

In the summer of 2011, The “Frosh-87” – the newly elected Tea Party Class from 2010 – effectively held the nation’s credit rating hostage for deeper spending cuts as part of the debt ceiling debate. In 2013, the very same lawmakers may make it impossible for Speaker John Boehner to cut a deal to end the crisis, by refusing to pass any legislation that does not include restoring pre January 1st tax rates for everyone.

This puts Boehner and the GOP in an impossible position.

Either he sides with his conservatives and prevents tax relief for a majority of Americans (with real-life and immediate impacts), or the Speaker cobbles together a majority from available Republicans and enthusiastic Democrats to end the crisis by passing the President’s favored bill. But in so doing, Boehner risks his Speakership with a possible revolt among House conservatives. This in turn, creates the real possibility of a public break in GOP ranks in the House, which compounds the problem for Republicans.

Efforts such as trying to depose Boehner as Speaker does nothing to fix the Republican position. Indeed, it would likely double down on disaster.

For instance, if conservatives nominated “one of their own” as Speaker in lieu of Boehner – Eric Cantor immediately comes to mind – the House would become the center of obstruction in the federal government; holding up tax relief for millions, preventing a deficit deal, allowing painful cuts to defense and discretionary programs, perhaps engineeringn a double-dip recession  – impacting most of the day to day lives of average Americans – all in the service of the top two percent.

It would be an unmitigated disaster, depriving the GOP of approval, credibility and standing on other issues of critical importance. And that might be exactly where the President and Democrats want the House GOP to be when the nation must confront the next hurdle on the agenda – raising the debt ceiling in February.

With public fury directed solely at Republicans, it would be unlikely that the House GOP could play the high stakes poker game with the White House that it did in 2011. Indeed, being held responsible for the fiscal cliff, a middle class tax increase and a sovereign credit default in less than 60 days may be more than any political party could withstand.

So, what to do?

If you are John Boehner, you need to get the best deal now on the broadest number of issues, including tax rates, revenue increases, entitlements and the debt ceiling.

While the parties may be far apart on the details, a comprehensive deal works for the White House too. A quick fix takes the biggest issues off the table, removes market/economic uncertainty and paves the road to more robust growth in ’13. It also allows the White House to pivot to other policy priorities.

But make no mistake, as we begin to walk down this road, the President is in the driver’s seat. Indeed, the GOP’s negotiating posture disintegrates the closer we get to 2013, and after that, boils down to hostage-taking.

That is a potent, but rarely successful negotiating stance.

This is all so very disappointing because on the actual merits of the policies being advocated, the GOP – not President Obama and the Democrats – are correct. But the politics just isn’t there to support the plan.

As a result, the GOP will have to cut the best deal that they can.

 As if you needed further evidence, elections do matter, people.