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Obama's Fiscal Cliff Plan Sends Message to GOP: You Lost

Flush with confidence after winning re-election by a convincing margin, U.S. President Barack Obama delivered a fiscal cliff plan heavy on Democratic ideas and light on compromise.

U.S. Treasury Secretary Timothy Geithner presented the president's fiscal cliff proposal to GOP Congressional leaders yesterday (Thursday).

It would raise $1.6 trillion via taxes, primarily on those making $250,000 a year and up, while delaying talks about spending cuts until later this year. The plan also proposes about $50 billion of assorted stimulus spending, which would include another extension of unemployment benefits, infrastructure, and mortgage relief.

Republican leaders were said to have literally laughed during Geithner's presentation.

"We can't move any closer to them because they're not even on our planet," one GOP aide told Reuters. "It was not a serious proposal."

No Compromise in Obama Fiscal Cliff Plan

The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.

Republicans and Democratic leaders have both acknowledged the importance of dealing with the fiscal cliff, and even made some statements in recent weeks hinting that they were moving toward compromise.

That ended abruptly on Thursday.

The president's fiscal cliff proposal did not change even slightly since it was initially pitched to Republicans several weeks ago.

"The day after the White House meeting, we gave them our framework," a GOP aide told the Huffington Post. "It took them 10 days for them to give us theirs, and it didn't reflect any of the conversations we've had since then."

Even many economic experts were startled by the one-sidedness of the proposal.

"What's been put forward is insulting in terms of its arrogance," said Money Morning Capital Waves Strategist Shah Gilani. "More unmarked stimulus spending? No accountability as to which sinkhole it will fall into, is an abomination. Where are the other cuts? Where is the spending discipline now and into the future? Oh, we're supposed to believe it's going to get here? Santa's coming too, right?"

Gilani was also disturbed by a proposal having to do with how Congress periodically raises the federal debt ceiling.

President Obama would like to make debt ceiling hikes automatic, with Congress having only the ability to block it. Such a blocking vote, however, could be vetoed by the president.

"Stripping Congress of a critically ingrained checks and balances device? Are you kidding me?" said Gilani. "Is he going to proclaim himself King next?"

Obama's Edge in Fiscal Cliff Battle

President Obama and the Democrats realize that they will never have a stronger hand politically than they do now, in the wake of a strong election victory. So do Republicans, many of whom have made conciliatory statements on the issue of tax increases since the election.

"You can smell the winds," Sen. Chuck Schumer, D-N.Y, told Politico. "When so many Republicans say, "Hey, we're going to have to give into the Democrats,' that's how it works around here. That's the beginning."

And President Obama quickly moved to employ the bully pulpit of the presidency, giving speeches and even launching a Twitter hashtag campaign, #My2K, to alert the public to the $2,200 tax increase awaiting them on Jan. 1 should the Republicans fail to capitulate.

Still, Republicans are wary of getting steamrolled, recalling that President Ronald Reagan agreed to tax hikes in the 1980s in return for phantom spending cuts. If they agree to tax increases now, they lose all bargaining power on spending cuts later.

"We have a whole history in this country that when taxes go up – with the promise of future spending cuts that never materialize," Sen. John Barrasso, R-WY, told Politico. "We're suspicious of that."

Some Republicans wondered even aloud if President Obama sincerely believed his fiscal cliff plan would resolve the crisis.

"I'm beginning to think that the president may want to drive the country off the fiscal cliff to raise taxes on the middle class to pay for the government and the debt he's created," Sen. Lamar Alexander, R-TN, told Politico. "I'm astonished by the way he's conducted himself the last couple weeks."

Given the Republican reaction, it's clear the president's proposal did nothing to close the gap between the two sides in the quest for a plan to deal with the fiscal cliff.

In fact, the proposal only seems to have further frayed relations between the two parties and raised ominous questions about what President Obama may have in mind for his second term.

"Obama just proved himself to be the cog in the wheel," Gilani said. "His socialist tendencies are now front and center, and I am scared for the nation."

While most people fret over the fiscal cliff outcome, you can profit with this guide from Money Morning Chief Investment Strategist Keith Fitz-Gerald.

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Join the conversation. Click here to jump to comments…

  1. brian | December 1, 2012

    Going off the Fiscal Cliff would be the best thing for this country! It will be an abrupt short-term wake up but in the long run will prove to be for the best. But a compromise involving raising the eligibility age on entitlements for anyone under 45-55, means testing SS, ending the SS cap, higher taxes for the rich, gradual cuts on spending, except for defense which could be cut drastically… might be a better start.

  2. Snarfel | December 3, 2012

    What folks don't realize is that we are going to go over the "fiscal cliff". The question is When. In January, or are we going to kick the problem down the road a bit further, Like we have since 2001.
    The longer we kick the problem, the more difficult the adjustment.

  3. Russell W. Mims | December 3, 2012

    Go over the so called cliff now instead of eighteen months from now. Oboma will just spend and take Vacations at our expense. I don't think He cares what happons to this Country.

  4. ryan | December 3, 2012

    We need to take a nose dive off the cliff. This "kick in the butt" will hopefully send the correct message to Obama and Congress and show that we need to make a compromise between Republics and Democrats. At this point in time, the one sided plan is not going to work. If Obama would stop being so stubborn on his plan we could actually make progress. We need both sides ideas in on this plan to work. If it remains all one sided, either republican or democrat, then we will sure fall even farther than predicted!

  5. WILLIAM J HOGAN | December 3, 2012


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