The deadline to reach a deal on the looming fiscal cliff is approaching fast, with just over a month before the country takes the plunge over the edge. Economists, for the most part, agree that going over the fiscal cliff would probably lead to another recession. While the urgency and importance of striking a deal before that happens seems apparent, there could be several benefits of going over the cliff for President Obama.
Multiple prominent Republicans, including House Speaker John Boehner, have signaled they are willing to raise revenues as part of a fiscal cliff deal. However, Boehner has also indicated that he would like The Affordable Care Act to be part of the fiscal cliff deal. This bold demand from Boehner alludes to the fact that, despite revenues being on the table, negotiations may not proceed easily.
Should the intransigence and political posturing continue on Capitol Hill, President Obama could still use the one weapon in his arsenal: Go over the cliff.
Why? Here are 5 reasons for President Obama to go over the fiscal cliff:
1. The impact of going over the fiscal cliff in the very short term may be tough, but, in the long term, could be beneficial. The effects of going over the fiscal cliff for a short time would cease almost immediately once deal is reached, in this case, likely two weeks or less. The urgency of going over the cliff would likely lead to a compromise being made quickly, or a short-term deal being reached with a framework for a larger agreement once the new Congress is assembled. The overall economic impact would be minimal, and short-lived, so no real long-term consequence exists to going over the cliff, unless a deal could not be reached for several months, which would be unlikely with all of the special interests inevitably affected one way or another by the pending deal urging action.
2. The President could set the tone for his second term with a strong, bold move. Observers of the political arena were disappointed by an almost unwillingness of President Obama to get tough in his first term. While it can be argued that Obama wasted political capital early on with initiatives like the ACA, it has also been clear since then that he has not been the leader many desired. By making a bold move here at the very end of his first term, Obama may be able to assert himself as a more forceful leader, and pick up some momentum. President Obama may be able to ride that momentum into the beginning of his second term, which could help carry his agenda in the coming months of the 113th Congress.
3. There have already been numerous Republicans who have denounced the anti-tax pledge from notorious D.C. insider Grover Norquist, including several incoming freshmen legislators. Their reluctance to tie themselves down to the pledge signals that some on the right may be willing to vote for revenue increases, but there are only a handful of these legislators out there on the right side of the aisle. Fortunately, for those who remain in the Norquist camp, going over the fiscal cliff would remove the need for anyone to vote for a tax increase. The Bush-era tax cuts expire on Jan 1, so any deal in the New Year that would keep the reinstated Clinton-era rates would not be a tax hike, thus avoiding any need for any legislator to vote for a tax increase, and making a deal much more likely.
4. Going over the fiscal cliff could lead to a more comprehensive, all-inclusive deal. In the short-term, a stopgap measure would likely be reached to fund the government until a final deal could be reached. One immediate benefit is that the debt ceiling is then likely to become part of the fiscal cliff deal. Should a deal be reached before the fiscal cliff deadline, it is unlikely that the debt ceiling will be included, as Speaker Boehner has signaled his desire to leave that as an immediate order of business for the House when it convenes in January.
Along with the debt ceiling, a larger framework to reform government spending and tackle entitlement reform could be established, and the kicking of the can could finally end without legislators backs being pushed up against the wall. Pushing the larger deal to the new Congress could also help to bring a greater sense of compromise between the White House and the House of Representatives, and get the two branches off on the right track.
5. One of the most anticipated aspects of the fiscal cliff will be the status of income taxes for individuals and businesses. Going over the cliff may very well lead to more effective tax reform. With each side down to the wire in January, they may be willing to compromise on a deal that lowers rates, but eliminates loopholes. It is also possible that a stopgap is passed, but regardless, tax reform will become front and center in the larger negotiations following that. The benefit is that businesses will likely be put on an even playing field and given certainty, while individual income taxes will become simpler and fairer.