Fiscal Cliffs and Lame Ducks

By Steve Kopperud, Policy Directions, Inc.

As they say, it’s all over but the shouting. I’m writing this early in the post general election lame duck session when the president of the United States (US), Speaker of the House of Representatives, and Senate Majority Leader are all saying the same conciliatory things about compromise, bipartisanship, and “reaching across the aisle.” It’s apparent both parties understand the outcome of the November 6 election was by no means a mandate to anyone. By voting the status quo, American voters effectively gave President Barack Obama and Congress a second chance.

By the time you read this, we should be hip deep in the debate over how to build the guardrail that prevents the US economy from hurtling over the fiscal cliff. My best guess at this point is there will be no “grand bargain” slashing $1.4 trillion out of the federal budget over the next decade, nor will Congress have “dotted all the i’s and crossed all the t’s” on individual and corporate tax reform. Congress will likely make a “down payment” on the deficit – around $75 billion or so for 2013 – and it will then kick the heavy lifting into the next Congress beginning January 6, 2013. On taxes, Congress will extend the Bush individual and corporate tax rates for a time certain into 2013, mindful of Obama’s warning not to whack the middle class to ensure his sign-on, and there may or may not be a rate hit to those in the top one percent of the taxpaying public, folks earning over $700,000 a year. The tax action will carry some minor, noncontroversial issues including the expired tax credits for alternative energy production, biodiesel, and renewable diesel. Wind and solar credits are not such a done deal.

These actions will consume most of the lame duck session, despite House Speaker John Boehner’s (R-OH) declaration that he does not like working major legislation in lame duck sessions because the number of departing members with nothing to lose increases the chances of mischief exponentially. However, because the “cliff” and its implications were a major campaign issue, because everyone and their brother has said they’ll fix it, and because of the guarantee that inaction plunges the country into a deeper recession if they don’t, at least a temporary fix will get done.

The farm bill has a 50/50 chance of seeing enactment by Christmas, but again, there may be a move to simply extend the 2008 law and deal with it in 2013. There are those who argue a fiscal cliff solution makes the likelihood of a full five-year farm bill greater, but I’m not so convinced. We’ll likely come up with some expanded disaster assistance legislation as the impacts of Superstorm Sandy on New York City, NY, and northern New Jersey are still too real. Appropriations have already been punted into the next Congress, as have immigration reform, energy, and a host of other minor issues.

What this all adds up to is the 113th Congress is going to be a very busy – and likely a very different – kind of place.

What nags at Washington, DC, insiders is the continuing lack of any public or private details about how many of these ugly political issues will be addressed. This is exactly what continues to frighten Wall Street and does nothing to ease the uncertainty corporate America points to when asked why it will not invest those buckets of cash it’s sitting on in expansion and employment.

The president will look to his legacy, the priority of any second term chief executive, and not a small factor in all things presidential for the next four years. The first challenge will be to rebuild his cabinet. Secretary of State Hillary Clinton will move on as will Secretary of Transportation Ray LaHood, the only Republican in the Obama inner circle. Secretary of the Treasury Tim Geithner has made it clear he wants to return to the private sector, as has Attorney General Eric Holder. It’s speculated that Secretary of Agriculture Tom Vilsack, in the wake of his wife’s unsuccessful bid for an Iowa House seat, wants another job – perhaps an ambassadorship – in the Obama Administration. Environmental Protection Agency Administrator Lisa Jackson is strongly rumored to be at the end of her rope when it comes to being cast as the living embodiment of federal overregulation and Big Brother government. Not to worry because there are more than enough sitting, defeated, and retired members of Congress and enough retired or defeated governors to fill those slots, not to mention prospects among all those folks who were number two on the 2008 list of prospective cabinet members.

The White House continues to struggle with whether to engage directly and consistently with Congress and risk losing on one or more key points, or allow Obama to sit back and await the results of congressional wrangling, and then pronounce whether what Congress achieves matches his priorities. No sitting president wants his legacy to be “he vetoed more bills than any sitting president in modern history.” However, the president continues to issue almost eerily conciliatory statements about comity and cooperation on all issues, meaning Congress is still getting campaign statements, not detailed action recommendations.

On tax rates and deficit reduction, the president said at his November 13 press conference – the first he’s held since the beginning of June – he won’t “slam the door in their [Republicans’] face” as to how comprehensive tax reform and spending cuts must be achieved. While avoiding any “red line” on what must be included in the grand bargain, he repeatedly talked about his reelection not as a mandate, but rather as a plea from the middle class to make their lives better. He said he has the opportunity to be “an even better president in my second term than I was in my first,” but his office has not provided any detail about how he’d like to see the tax system reworked, achieve spending cuts, reform immigration, or fashion a national energy policy that works.

For their part, congressional Republicans are no better, but their challenge is complicated by the realities of the general election. The GOP is struggling with how to deal with the strong voter message that there simply aren’t enough angry (rich) white men in the United States to elect a GOP president. To return to its “big tent” origins, Republican leadership must reevaluate issues that keep Latinos, African Americans, most women, and the 18 to 44 year-olds out of the GOP. This means 2013 Republican policy initiatives may not be carbon copies of what’s been proposed before, particularly when it comes to the issues of tax fairness and immigration.

There will be more than enough 2013 distractions from the base domestic issue agenda to keep both the White House and Congress spinning. It’s expected congressional hearings into the General Petraeus/Central Intelligence Agency soap opera will continue into the new Congress, but these forums will be less concerned with the salaciousness of romantic liaisons and more focused on implications for national security, as well as what did the White House know and when did it know it. The White House will wrestle not only with Congress, but also with the court of public opinion over the tragedy of the deaths at the Benghazi, Libya, consulate. US and Middle East/Israel policy will be tested as the deadline for action on Iran and its nuclear weapons ambitions – whenever that deadline might be – gets closer, and all of this will play out in the overarching context of trying to jump-start the economy.

The other potential shift in philosophy and behavior will be reflected in the focus of the mainstream media. Accused of bias and generally ignoring all things negative to the president during the election campaign, the four-year Obama honeymoon is officially over. The various administration challenges – including the economy, taxes, the Middle East, Petraeus, Benghazi, etc. – are challenges to Congress as well, and the confluence of these issues is to the Washington, DC, press corps what blood in the water is to sharks.

I’m hoping the 113th Congress, the second Obama Administration, and the information flow from the national media are as much unlike the past four years as can be achieved. It’s the only way forward.

December 2012 RENDER | back