Tuesday’s big Democratic win gives Obama more leverage over deficit reduction, taxes. Will he use it?

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How the Election Reset the “Fiscal Cliff” Debate

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Most of the political world spent Wednesday nursing hangovers from a long night of watching election returns and a long year of following the campaign. But in Washington, House Speaker John Boehner was pushing ahead with business. In a speech congratulating President Obama on his reelection, Boehner issued the standard call for bipartisanship and cooperation. But he also dropped a hint about his position on the next big item on the political agenda.

I’m talking about the budget reckoning that is scheduled to take place on January 1. Two things happen on that day. The Bush tax cuts, all of them, expire. And a series of automatic spending cuts, the so-called sequester, will take effect. Together, these changes would likely slow the economy. And while many experts believe the negative effect of this “fiscal cliff” be gradual—in other words, more a slope than a cliff—leaders of both parties say they would prefer to find an alternative method of reducing the deficit.

The hang-up has been a series of disputes over what that alternative should look like—chief among them, whether it should include new revenues. Republicans have generally opposed that idea. During the GOP primaries, Mitt Romney and the other candidates memorably said they would reject a budget deal that included even one dollar of revenue for every ten dollars in spending cuts. But Boehner on Wednesday suggested that maybe wasn't the party line after all: “We’re willing to accept new revenue under the right conditions,” he said.

Of course, it’s not clear how much ground Boehner really conceded. His statement was ambiguous, just like the signals he sent during the 2010 negotiations over whether and how to raise the nation's debt ceiling. He could simply have been describing a tax plan that, according to discredited supply-side economic theories, would generate new revenue from additional economic growth. Says one senior Democratic aide in the Senate:

Boehner is clearly trying to sound a conciliatory note in the wake of an election that didn’t go their way. That much is welcome. But if you unpack what he was saying, it’s not really a new position on taxes. He only opened the door to revenues through “dynamic scoring” as opposed to good, old-fashioned revenues that aren’t based on a supply-side economic theory and that can be scored by [the Joint Committee on Taxation].

More detailed parsings by Steve Benen, Kevin Drum and Suzy Khimm yield a similar conclusion: Boehner doesn't appear to be offering more than he did in the summer of 2011. That might not be surprising, given the pressure Boehner faces from conservatives within his caucus. But, given the political circumstances, it’s still a remarkable statement about how Republicans plan to approach this negotiation. After all, this election didn’t simply put Obama back into office. It also altered the political environment for the deficit debate, in a way that should make Obama and the Democrats much stronger.

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Remember, when Obama and the Republicans were debating these issues in 2011, Obama was at his weakest. A few months earlier, the Democrats had recently suffered a devastating, humiliating defeat in the midterm elections. The recovery had stalled and unemployment, at 9.5 percent, was about to start rising again. Obama’s approval rating was bottoming out at about 45 percent.

Today, by contrast, the recovery seems to be well underway, with unemployment below 8 percent and, most likely, on the way down. Obama’s approval rating is up to 48 percent. He just won a presidential election, with a sizeable margin in the electoral college and a surprisingly comfortable margin in the popular vote. At last count, Obama was beating Romney by 50 percent to 48 percent, or a difference of nearly 3 million votes.

Democrats didn’t take control of the House, which is to be expected given gerrymandering. But, to almost everybody’s surprise, they picked up two seats in Senate. And, as Greg Sargent points out, "the influx of new arrivals means a more liberal and energetic Democratic caucus." That’s no small thing: Throughout the first two years of Obama’s presidency, the need to appease conservative Democrats in the Senate constrained Obama’s maneuvering room.

Most important of all, perhaps, a major issue in the presidential election was the question of whether to raise taxes on the wealthy. It was a theme of all the big convention speeches, a regular staple of Obama’s campaign appearances, and a point Obama invoked at every one of the debates.

The other big change since last time is the policy circumstances. During the 2011 debate, which was about whether to raise the debt ceiling, Republicans held the leverage. Both sides feared the consequences of doing nothing, given the economic repercussions if the government had to start defaulting on bills. But some Republicans were so opposed to spending they considered inaction the lesser of evils. And Obama, as a sitting president about to seek reelection, knew he’d bear political responsibility for the resulting economic damage.

This time, Republicans probably feel they have more to lose. The automatic cuts affect a wide variety of programs, but they hit defense spending particularly hard. Obama doesn’t have to run for reelection anymore. And he wants taxes on the wealthy to go up. Allowing the Bush tax cuts to expire would accomplish that, although Obama would likely react by trying to restore—or effectively replace—the cuts for the middle class.

As folks like Jonathan Chait have been saying for a while, Obama appears to have a much stronger bargaining position this time around. And during a press conference on Wednesday, Vice President Biden seemed to say he agreed. “There was a clear, a clear sort of mandate," Biden said, "about people coming much closer to our view about how to deal with tax policy.” But liberals will be watching closely—very closely—to make sure the White House and congressional Democrats put this leverage to good use. Neera Tanden, president of the Center for American Progress and occasional TNR contributor, puts it this way:

It would be deeply discouraging to all those who have worked so hard over the last two years to elect the president and expand the Democratic majority in the senate to simply reset the fiscal cliff negotiations back to where it was a year and a half ago, with too little revenue on the table and too many hits to beneficiaries. And that is why I expect that any final negotiation will better reflect the priorities of the American people.

Update: My original version incorrectly described the debt ceiling debate as taking place in 2010. I was quite obviously among those still recovering from Tuesday night. My thanks to the several readers who pointed out my error. I also cleaned up a grotesquely mixed metaphor early in the piece.

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How the Election Reset the “Fiscal Cliff” Debate

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