WASHINGTON — As the debt ceiling loomed last year, President Obama believed Republicans had him over a barrel. They had won the midterm election. More important, calling the GOP's bluff seemed too big a bet: Defaulting on the debt risked plunging the global financial system into chaos.
The president's mindset as the “fiscal cliff” approaches is far feistier. He won re-election in a campaign that centered on higher taxes for the wealthy. Even more, in the White House view, the hazard of cliff-jumping is way less than the danger of ceiling-hitting.
So rather than extend the Bush tax cuts for higher-income taxpayers, the president is willing to risk another recession — a move he would blame, and with good reason, on Republican intransigence.
Consequently, the president has adopted a doubly tough posture as cliff negotiations commence. First, he is looking for an amount of new tax revenue far greater than House Speaker John Boehner was unable to deliver last year: $1.6 trillion over 10 years, including a $1 trillion installment to get past the cliff. That is an opening bid — an updated version of earlier proposals — but a daringly high one.
Republicans have signaled a grudging willingness to raise new revenue. What matters, Boehner said last week, is whether this comes from raising tax rates or from “a growing economy, energized by a simpler, cleaner, fairer tax code, with fewer loopholes, and lower rates for all.”
Which brings us to the second, and as it may develop, far trickier issue: tax rates. You might think this would be the easier deal, given how much we've heard about the allure of broadening the base and lowering rates. But the rate standoff could be difficult to bridge. Republicans insist on starting with the current code — the Bush tax cuts made permanent — and cutting from that already low level.
The White House position is that the Bush tax cuts for wealthier households should expire, with tax reform to proceed from there. As the administration sees it, the math of lower rates from loophole closing does not work in the real world of politics.
“I think that there are loopholes that can be closed,” the president said at Wednesday's news conference. “But when it comes to the top 2 percent, what I'm not going to do is to extend further a tax cut for folks who don't need it, which would cost close to a trillion dollars. And it's very difficult to see how you make up that trillion dollars … just by closing loopholes and deductions. You know, the math tends not to work.”