The Genius of Obama's Opening Move: Tightening the Rope Around the GOP's Neck

The president is in a fighting mood. Starting today, he's barnstorming the country, getting the American people to pressure Congress to extend the middle class tax breaks, and to do so now. Yesterday, Treasury Secretary Tim Geithner presented the leaders of Congress with the Administration's opening offer. That offer is heavy on revenue, tax fairness, and Medicare savings without affecting benefits. Here's a short summary of what the president has proposed, from leaked details.

  • $1.6 trillion in additional revenue through:
    • Raising the rates to Clinton rates for incomes over $250,000.
    • Taxing dividends paid to this class as ordinary income (rather than special "capital gains" rates).
    • Raising the inhertiance tax to 45% with an exemption for up to $3.5 million, from the current rates of 35% with an exemption of $5 million.
  • $50 billion in immediate stimulus spending, and replacement or extension of the payroll tax cut, for a full stimulus price tag of $200 billion.
  • Mortgage refinancing help from the federal government.
  • End Congressional control over the debt limit, except with a veto-proof, two-thirds majority.
  • $400 billion in spending reductions in entitlements (Medicare, mostly) through controlling cost, not cutting benefits.
  • $1.2 trillion in reductions from discretionary spending, including defense, counting savings from ending the wars in Iraq and Afghanistan.
This is shrewd, and has Obama written all over it. Sure, it was the GOP aides that leaked the details, but how much would you like to bet that Geithner and Obama fully counted on them to do so? Look at the details of tax portion of the proposal again: there is nothing remotely radical or unrealistic about it. Not only does a overwhelming majority agree that taxes should be raised on the rich, the vast majority of Americans have never been seen $3.5 million, let alone worried about the taxes needing to be paid for inheriting a sum greater than that. By restricting the dividend taxation increase to the top 2% as well, the president taps into a sense of fairness for the American people. If and when the president negotiates down from this, he will seem eminently reasonable and the Republicans crybabies.

The president also likes the payroll tax cut - it's a real stimulus given the fact that it affects most those who earn the least, and thus have a much larger propensity to spend every additional dollar in their pocket (simply out of necessity). The president's challenge to the Republicans is obvious: do you want to tell hard working Americans that you are going to raise their taxes?

But the president isn't stopping there. He's looking to end Congressional control over the debt limit. Why? Well, substantively because this Speaker and his Congress has shown conclusively that they do not deserve to have such control. But it is also a good bargaining chip. You see, John Boehner thinks the debt limit is his leverage in the debate. But by putting its fate into doubt right now, the president takes that leverage and makes it his own. It's like taking candy from a child.

Lest anyone think otherwise, the president is serious about reducing spending - he is serious about taking on health care costs, about running federal programs more efficiently, and doing more with less wherever possible. But he has made clear that the brunt of these cuts cannot go to the middle class and the poor, as these are the classes that have borne the entire cost of the Bush economic disaster as well as that of ill managed, ill conceived wars. But really importantly, the president wants the Republicans to show their hand on spending,

Make no mistake, this is only the opening salvo. But this is an important opening salvo. It's one where the president is telling the Republicans that he has a strong hand, and that he knows how strong it is. His hand is this strong not only because he has won a landslide electoral victory, but also because his strategy to back the Republicans into a corner using their own intransigence in the past couple of years worked. The president is showing Republicans that their actions have consequences: if the Republicans were reasonable during the tax cut fight of 2010 and the debt limit debacle of 2011, we do not end up with a fiscal cliff discussion today. But they have pushed themselves here. And this is endgame.

Republicans know that they are backed into a corner on this. They know that the president isn't bluffing about making the rich pay their fair share and investing in the American people. In fact, they are backed into such a corner that they want the White House to take over what has been their issue - spending cuts! John Boehner is crying that the White House isn't offering spending cuts in good enough detail:
“The Democrats have yet to get serious about real spending cuts,” Mr. Boehner said after the meeting. “No substantive progress has been made in the talks between the White House and the House over the last two weeks.”
What? I thought Republicans were the party of spending cuts. Where is your spending cut, Mr. Boehner? I mean, you do know that it's Congress' job to legislate and present the president with a bill he can sign, and not the other way around, right? Or haven't the bruises from the public outrage against the Paul Ryan kill-Medicare Path to Poverty healed yet?

That's just it, though. That's why the Republicans want the president to offer everything, including the details of a ton of spending cuts, so that they can start from there and cherrypick what they do and don't like.

Let's face it: we already know what the Republican plan to cut spending is: end Medicare, turn Medicaid into a small bloc grant program, repeal health reform (although this actually increases the deficit), give banks the rein back to regulate themselves, decimate federal spending for education and research, and blow up defense spending (yes, I know, but remember this is Republican math - it does not have to make sense). The only question is whether they will take that plan back to the American people - a plan that they ran on and lost.

President Obama is challenging them to either bring that plan back up for discussion (and get slaughtered by public anger), or go back to the drawing board and come up with something newer and more sensible. And that's GOP's problem: if they come back with a more sensible set of cuts, they will face the wrath of their donors and their base. If they don't, they will face the wrath of the American people.

The president is tightening the rope now. And he is doing it from a position where both he and the Republicans know that he is going to win this fight one way or another.

But there is light at the end of the tunnel for the GOP. They will face the wrath of their base right after an election rather than right before. And in the long run, it might make them more palatable to the American people. Having two sensible parties, rather than one sensible one and one crazy one, can only be good for America.