Is Barack Obama bluffing when he threatens to go over the fiscal cliff if Republicans refuse to agree to higher tax rates on high earners?
Some analysts think so. Keith Hennessey, a former top staffer for the Bush White House and Senate Republicans and a veteran of budget negotiations, argues that Obama's whole second term would be blighted if he allows the fiscal cliff tax increases and sequestration budget cuts to take place next month.
His argument is based on three assumptions. One is that going over the fiscal cliff would trigger a sharp recession and a weak economy thereafter.
Hennessey's second assumption is that Obama has other second-term policy goals — immigration reform, cap-and-trade legislation, tax reform — that would be difficult to achieve if he breaks sharply with Republicans.
Third, he assumes that Obama, like previous presidents, wants vibrant economic growth and chooses policies that he thinks will stimulate it.
I wonder whether these second two assumptions are true.
On policy, it seems clear that Obama wants to preserve Obamacare and to continue something like the high levels of domestic spending of his first term — 24 to 25 percent of gross domestic product.
But it's not clear he really wants comprehensive immigration reform. As president, he failed to press for immigration legislation when Democrats had supermajorities. It was a useful issue in the 2012 campaign, but that is over.
Cap-and-trade legislation is a nonstarter so long as Republicans retain a majority in the House and unlikely even if Democrats gain one in 2014. Too many Democrats in marginal districts would look back at the Democrats whose 2009 votes for cap and trade helped defeat them in 2010.
Nor does Obama seem much interested in a 1986-style tax reform that lowers rates and re-duces tax deductions. He'd rather raise rates on high earners, as would happen if we go over the fiscal cliff.
But doesn't this president, like his predecessors, want bounteous economic growth?
Maybe not. First-term presidents want strong economic growth because they think they need it to be re-elected. But Obama has already been re-elected without it.