Leveraging the fiscal cliff: Obama should hold firm

After last Tuesday’s election, we saw President Obama earn his re-election, the Democrats keep the Senate and the Republicans keep the House. The focus in Washington has now shifted towards the rapidly approaching fiscal cliff on Jan. 1. The fiscal cliff refers to the automatic expiration of the Bush tax cuts and across-the-board spending cuts that will be implemented on New Year’s Day if Congress does not pass a new budget for the next fiscal year.

Both parties want to cut the deficit but disagree on a proper method to do so. The Republicans want to simply cut government spending. But this alone will not decrease the deficit by any significant amount. The Democrats’ plan of increasing tax revenues along with cutting government expenditures provides better long tern deficit relief. A deal will need to be reached between these two contending ideologies to prevent us from going over the fiscal cliff.

John Boehner, the Republican Speaker of the House, has already declared that his party will not accept any revenue tax increases as part of any deal. Therefore, President Obama has a decision to make. He can either give in to Boehner’s demands without getting any much-needed revenue tax increases for the government, or he can stand firm during negotiations and call Boehner’s bluff. It would be a better option for President Obama, and for the country in the long run, to go off the fiscal cliff if Boehner and the House Republicans do not accept any revenue increases.

First, by not giving in to Boehner’s demands, Obama would be re-energizing his political base that was disappointed when he made significant concessions to the Republicans during the budget debate at the end of 2010. Second, he would be sending a message to his opposition in Congress that he will not continue to be forced into accepting deals that he does not approve of.

By going off the fiscal cliff, the Bush tax cuts would end for everyone and the Democrats would be able to introduce a new tax reform bill on the House floor that would decrease taxes for anyone who makes less than $250,000 a year. There would be immense pressure on the Republicans to accept this deal because many of their constituents will be upset if they feel like their party is allowing them to lose money while protecting corporations and anyone who makes over $250,000 a year.

Also, with an economy slowing down due to higher across-the-board taxes, many of the Republicans’ top backers – corporate donors – would be placing pressure on a deal to be accepted to improve the economy. If the Republicans were to reject the bill, they would be seen as the party that is opposed to tax cuts and only supports special interests.

It’s important to note that any excess taxes that are weighed on the middle class due to a month of higher taxes after the expiration of the Bush tax cuts will be returned to the tax payers by April when most people file their taxes. Anyone in the middle class will be able to apply for a tax refund under the new tax legislation and therefore the middle class will not lose any revenue due to the fiscal cliff.

Thus, President Obama cannot give in to excessive demands from the Republicans in the last week of December to get a deal done. In this case, no deal would be better than accepting a bad deal. If America wants to see viable tax reform in the near future, President Obama must be willing to play hardball with the House opposition and be ready to use the fiscal cliff to leverage his negotiating power.

Kaushik Rao is a sophomore Political Science and Economics double major from Yorba Linda, Calif. He is a staff writer for TheNews-Letter.