The juiciest passage in the Wall Street Journal’s behind-the-scenes report on the “fiscal cliff” negotiations comes when House Speaker John Boehner, R-Ohio, asks President Barack Obama whether he can have the deal he rejected in 2011.
“You missed your opportunity on that,” the president replied.
But the most important insight into the White House’s strategic thinking comes when Boehner says to the president, “I put $800 billion [in tax revenue] on the table. What do I get for that?” Obama’s response is cold and telling. “You get nothing,” the president said. “I get that for free.”
That right there is the central fact of negotiations for the Democrats and the central problem for the Republicans. At the end of this year, more than $5 trillion in scheduled tax increases begin. But the White House doesn’t believe that’s real revenue. Democrats in Congress won’t permit that kind of a tax increase on ordinary Americans. The White House won’t permit that kind of a tax increase on ordinary Americans.
But they’re certain they can hold on to almost $800 billion of it. The Senate already passed a bill letting the Bush tax cuts lapse for income over $250,000. That bill is very, very popular. The White House expects that if we go over the cliff, the House will have to pass that bill, too, and the president would have little choice but to sign it. That bill raises taxes by a bit more than $700 billion, which is less than the $1.6 trillion the White House wants. But that $700 billion, to the White House, is the baseline: If they get nothing else, they will certainly get that.
And that’s why Boehner’s offer of $800 billion doesn’t impress. The White House already has $700 billion in the bank, as it sees things. The reason to negotiate with Boehner is that an agreement with him could, in theory, push that number well above $1 trillion while stabilizing the debt and avoiding the economic pain of falling off the fiscal cliff. But there’s no reason to cut a deal with Boehner in which the White House gives up spending cuts in order to get a tax increase it can have anyway.
The talk in Washington now is about a “small deal.” That likely would include the Senate tax bill, some policy to turn off at least the defense side of the sequester, and a handful of other policies to blunt or delay parts of the fiscal cliff.
Here’s how it would go. Some time in the next month or so, the small deal would pass and the White House would pocket that $700 billion-plus in tax revenue. It really would get that free, just as the president told Boehner.
The White House would insist that the next deal includes a 1-to-1 ratio of tax increases — all of which could come through Republican-friendly tax reform — to spending cuts. So a subsequent deal that included $600 billion or $700 billion in spending cuts also would include $600 billion or $700 billion in tax increases, leading to total new revenue in the range of $1.2 trillion to $1.4 trillion.
There is precedent for this. After the 2010 midterm elections, Republicans forced the passage of the Budget Control Act, which included more than $1 trillion in spending cuts and no offsetting tax increases. They’ve subsequently refused to count those cuts toward any future deals. If the president, after winning the 2012 election, pocketed $700 billion in tax increases and insisted that revenue was unrelated to the next negotiation, he simply would be following Boehner’s lead.
All of which is to say that if Boehner had taken the White House’s deal in 2011, he could’ve stopped the tax increase at $800 billion. If he took its most recent deal, he could stop it at $1.2 trillion. But if he insists on adding another round to the negotiations — one likely to come after the White House pockets $700 billion in tax increases — then any deal in which he gets the entitlement cuts he wants is going to mean a deal in which he accepts even more tax increases than the White House is currently demanding.
Today, Boehner wishes he had taken the deal the president offered him in 2011. A year from now, he might wish he had taken the deal the president offered him in 2012.
Ezra Klein is a columnist at The Washington Post. His work focuses on domestic and economic policymaking, as well as the political system.