StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Chance Of Going Over The Cliff Now At Least 75%

14 Dec 2012
Posted by Stan Collender

With 17 days as the crow flies before it happens, it's time for me to do something I've been resisting for a week or so: formally increase my odds that we'll go over rather than avoid the fiscal cliff.

Back in September I said it was better than 50-50 that no deal would be in place by January 1. I raised that to 60 percent immediately after the election. Today, I'm raising my predicted likelihood of no deal before January 1 to 75 percent, and I may still be overstating the possibility that an agreement will be reached and put in place before the tax cuts and spending increases go into effect.

I really hope I'm wrong, and will gladly and publicly say that if a last-minute deal materializes. But here's why I don't think I am:

1. The Politics Have Become Worse, Not Better. The House GOP is digging in its heals even further in spite of the fact that the polls all show public opinion -- including among Republicans -- being firmly against it. Meanwhile, the White House, no doubt strongly encouraged by the president's high job approval rating and the polls showing that it's position on taxes is very popular, apparently -- and understandably -- sees no reason to compromise.

2. The GOP Has Little To Lose At This Point By Letting The Cliff Happen. With their polling numbers already in the tank, it's hard to see what Republicans will gain politically by voting to increase taxes in incomes above $250,000 a year other than the lasting enmity of the most anti-tax members of their base and Grover Norquist.

3. Boehner Really Can't Cut A Deal With The White House Before January 3. My  prediction that this would happen was scoffed at by some when I made it months ago, but it's now become a mainstream story. The fiscal cliff hits January 1 and  Boehner's formal election as speaker is January 3. Any deal with the White House and especially a deal that includes the tax increases the White House wants, could cause Boehner to lose enough votes at least on the first ballot on January 3 to prevent him from being speaker. Even if he subsequently wins on a later ballot, he will be seriously weakened. Note: The fact that Boehner has been openly asked this week if he's concerned about being reelected is a sign that the possibility has become more real than anyone but me previously was willing to consider.

4. It's Still Not Clear That A Boehner-Obama Deal Would Be Agreed To Before January 1. Very simple: The political work needed to get the votes in the Democratic and Republican caucuses in the House and Senate hasn't yet occurred and that makes the vote count very dicey. A tax cut that's acceptable to Boehner may not be to his caucus, and larger-than-expected changes in Medicare and Medicaid that's acceptable to the White House may not be acceptable to Senate Democrats. In addition, it's not clear how many of the lame duck members of Congress will even show up to vote a week before their term is over

It's certainly possible that Obama and Boehner have been performing at Oscar-worthy levels in recent days to make their respective caucuses think they are both pushing the other very hard. I doubt it. Not only are neither of them that good an actor -- My Beautiful and Talented Wife (The BTW) is an outstanding professional actor so and know what that is -- it's hard to imagine how a conspiracy like that could stay a secret in Washington given how many people would have to be involved in it.

As a result, I've come to the conclusion that there's only a one in four chance that a deal to avoid the fiscal cliff will be enacted before January 1. It's far more likely we'll go over the cliff and then fix it retroactively in January than that it can be avoided completely.

Strength of Position

I agree with your analysis and suspect there is less than a 5% chance of getting a deal before January 3. To agree to a deal, would put Boehner at odds with too many of his own party, weaken Boehner, possibly squash any deal. Boehner will not damage his hold on Speaker to agree to a deal that his party is unlikely to accept. Obama has no reason to give in for anything other than a deal that would permanently take the debt ceiling issue out of play.

Obama position greatly strengthens on New Years Day. Obama can mount the bully pulpit and inform the public, "Happy New Years. Republican insistence on tax cuts for the wealthy have just raised the taxes of 90 percent of you listening against my wishes." This public will turn up the heat on the rank and file GOP. They are mad enough at the TARP bailouts and will not be happy to take a tax hit because of wealthy who pay too little taxes. Only after enough GOP cave, will Boehner be strong enough to accept a deal.

Speaker's problems

Emperor got no clothes? Speaker is not suited for the job, too much of a nice guy, dealing with Chicago thugs, his tendency to weep, feel put down, etc, is not the right posture for a man who is supposed to be the leading thinker of the Party, he is no Gingrich, he is a small fry in a big body, a truly genuine person will admit, this job is too big for me. If you are not prepared to get down and dirty with these Mob, don't take the job, let somebody else do it.

Shedding Bush Tax Cuts worth pain

I say Good Riddance to the legislation that spawned the Bush Tax cuts, a destructive and divisive law that has spelled big trouble from day one. I am tired of reading about it. I am tired of hearing pundits talk about. I am tired of all the charts, multicolored monstrosities showing the federal fiscal sanity gap filled almost entirely by our two unpaid for wars, and, you guessed it, The Bush Tax cuts.

Three words I wish I would never hear again: Iraq, Afghanistan, and Bush.

Bruce Bartlett just did a Bloomberg interview highlighting the mid-term positives of going over the cliff, substantial deficit reduction, cleansing the tax code of destructive provisions, cutting bloated defense spending, and, of course, putting the nation's finances on a sustainable path. Long term gain. Short term pain. I think its worth it.

Same here!

I fully agree that going over the cliff is the best outcome possible.

Then I only hope that at the leverage point provided by the debt ceiling in Feb or March, that further steps toward fiscal stewardship are taken.

Yes, you called it well.

Absolutely right, you called it when other people largely expected a resolution. Now, any call on when they'll come to an agreement? Will the debt ceiling be included? All of what you wrote above seems to say early next year, after Boehner is confirmed. But with the debt ceiling needing a rise soon after that, will they come to a conclusion quickly?

Here's hoping the President holds out for increased tax rates on the rich *and* no more debt ceiling nonsense during his Presidency.

Debt Ceiling

A deal without an end to the debt ceiling is the same as no deal at all.

Yes debt ceiling will be included.

I suspect it will take at least until the end of January, maybe longer to get enough GOP to cave to the pressure. The Republican position is unpopular and they will suffer extreme ridicule. The late night comedians are writing plenty of material to unload during the month of January.

Humm I don't watch late night

Humm I don't watch late night comedians. I work for a living, but many young people do watch them. Unfortunately Gen X gets it's "new" from such people as Jon Stewart and think he's a real newscaster. So over the cliff we go probably the best solution but they'll probably ruin it by raising the debt ceiling. Hold on for an harrowing ride.

Thanks for the Analysis

Stan, back in the late 1980s, I was one of the many reporters in Washington who had you on speed dial when it came to researching a budget story. I don't even slightly expect you to recall me, but I just wanted to say hello and wish you the best over the holidays and in the new year.

I'm long since out of the journalism game, and as such I am among the cynical and disconnected hordes when it comes to this "fiscal cliff" stuff. I've figured it's basically a bunch of posturing from Republicans who will eventually come to terms with having lost the 2012 White House election.

Then I stumbled across your article. I read it only because you are the author, and had remembered that "Stan Collender" was one of those platinum-standard guys back in the day. So thanks for the update, and now I'll bookmark your site.

Again, all the best. If Washington was filled with Stan Collenders, this country would be in a hell of a lot better shape.

Next Friday

"In addition, it's not clear how many of the lame duck members of Congress will even show up to vote a week before their term is over"


Unless there's a basic framework in place by next Friday (12/21), they're all going home for Christmas and New Years regardless of what Boehner says publicly about not making holiday plans.

My bet is that the "Plan B" being discussed (taxes only go up for top 2% along with another AMT patch) is what gets passed, but it doesn't happen until January 4. It will be much easier to pass what at that point will be a pure tax cut.

Everything else will get bundled into a ridiculous fight over the debt ceiling throughout the rest of January and February, and by the time that can gets kicked we'll be facing the expiration of the continuing budget resolution on March 27. All of Q1_2013 is going to be ugly.

The only type of deal that

The only type of deal that could be agreed on before Jan 1 is a "kick it down the road for a month to give us a chance to work out a deal." And there is a measurable chance of THAT happening. Look for "talks making progress" and "just need to work out the details" buzz, because they would be the precursors to selling such a temporary extension to the rank and file.

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