Obama and GOP Ready to Deal with "Fiscal Cliff"

by John M. Curtis
(310) 204-8700

Copyright Nov. 8, 2012
All Rights Reserved.                                         

              Treated with Wall Street’s nosedive the day after President Barack Obama’s reelection Nov. 6, 62-year-old House Speaker  John Boehner (R-Ohio) signaled that House Republicans would be willing to accept more “revenue” but only “under the right conditions.”  Reeling from a crushing defeat on Election Day, Boehner still talks tough about getting the best possible deal for his GOP caucus.  Knowing that the so-called “fiscal cliff”—a lethal combination of expiring tax cuts and mandatory cuts in government spending—looms, Boehner showed more willingness to play ball.  Boehner’s well-acquainted with Obama’s demands to bump up taxes on income earners over $250,000 yet must consider Republican concerns about hurting small businesses.  While Barack certainly received some mandate on Election Day, he knows the nation remains bitterly divided.

            GOP nominee 65-year-old former Massachusetts Gov. Mitt Romney made a federal case of Obama’s mismanagement of the U.S. economy.  At the end of the day, over two million voters disagreed with Romney’s assessment, cutting the president some slack inheriting former President George W. Bush’s economic mess in less than four years.  “Hopefully people will read those results and read them as a vote for cooperation and will come to the table,” said White House chief strategist David Axelrod.  Sounding a conciliatory tone, Axelrod hopes all sides can come to the table with an open mind.  “And obviously everyone’s going to have to with open mind to those discussions.  But if the attitude is that nothing happened on Tuesday, that would be unfortunate,” referring to what he sees as Obama’s mandate.  Whatever Tuesday’s results, both sides should negotiate in good faith.

            Since Romney staked his entire campaign on protecting small businesses, it seems reasonable that the White House should reconsider tax proposals that involve that group.  Obama’s economic gurus need to heed the GOP’s legitimate concerns about taxing small businesses.  With all the overhead of running businesses, it only makes sense for the White House to consider greater tax exemptions for small business.  Instead of hiking small business tax rates at $250,000, Obama should consider a separate benchmark for small business owners.  W-2, salaried wage-earners are a different story.  Boehner and House Republicans would feel a moral victory if they could preserve tax cuts for small business owners.  Instead of using the $250,000 benchmark for all tax hikes, the White House should reconsider extending tax breaks for small businesses with one-or-more employees making up to $500,000.

              Obama’s initial plan to hike taxes on all taxpayers earning over $250,00 didn’t take into account entrepreneurial businesses.  If there’s any saving grace to Romney’s candidacy, he pitched the case for small businesses.  If the White House considers the number of employees in small businesses, it’s also possible for a businesses to apply for exemptions dependent on the number of employees.  For all others, including IRS 1099 earners, like real estate agents or most independent contractors that don’t hire and pay taxes on employees, the $250,000 limit would still apply.  Instead of looking at the negotiations with Boehner as contentious, Obama should consider alternatives to his original tax hikes.  It’s one thing to define middle class by income, it’s still another to acknowledge special circumstances for businesses that create jobs and reduce the unemployment rate.

            Congressional Republicans resent what they call “class warfare,” when one income bracket pays a different tax rate than others.  U.S. tax codes have always been progressive, where upper income earners pay higher tax rates.  Romney’s tax disclosure that he paid only 14% in federal taxes, less than his secretary or chauffer, didn’t sit well with ordinary taxpayers.  “We know what needs to be done.  And so I think we should just roll up our sleeves and get it done,” said Senate Majority Leader Harry Reid (D-Nev.), recognizing the urgency of the looming fiscal cliff.  When Reid says he knows what to get done, he doesn’t really have a plan to accommodate GOP concerns about tax hikes on small businesses.  Reid needs to caucus with Boehner and the White House to figure out special considerations for small businesses that employ one or more employees.    

             Obama’s stunning victory Nov. 6 should open the door to new flexibility for Boehner in the House.  While there’s plenty of time for arm-twisting, preliminary discussions should consider all proposals to help alleviate a potential crushing burden on the U.S. economy.  With the U.S. auto and housing industries crawling out of the hole, Obama, Boehner and Reid should figure out the best path away from a double-dip recession.  If Wall Street gets word that a compromise is in the works, markets will rebound quickly.  If they see more gridlock, 2013 looks more gloomy.  “We aren’t seeking to impose our will on the president.  We’re asking him to make good on his “balanced” approach,” said Boehner, signaling more willingness to compromise because of Barack’s reelection.  With the election, over, there’s no more reason for the GOP to obstruct Obama’s economic plans.

 John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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