President Obama has just won reelection but with smaller Electoral College and popular vote margins then he did in 2008. At the same time, Republicans look like they will maintain control of the House. Both parties can claim some mandate from yesterday’s election, although Obama clearly won the bigger victory.
Normally the White House would have some time to lay out a second term agenda. But this is not a normal election. The U.S. economy is staring down the barrel of a “fiscal cliff” in the form of almost $500 billion in scheduled tax hikes and another $100 billion in spending cuts in just 2013 alone. The Congressional Budget Office has projected that letting these tax hikes and spending cuts take effect would trigger a double-dip recession and send unemployment above 9 percent. No one wants this to happen.
So what should Republicans, who still control the House, do now? Some simple math suggests that a quick deal is possible.
Since his first campaign more than four years ago, Obama has campaigned on a promise to let the Bush tax rates expire for the rich. The CBO estimates that letting the top marginal tax rate go up on those making more than $250,000 a year would raise about $850 billion over the next ten years. Over that same time frame, the spending cuts agreed to as part of the August 2011 debt deal are scheduled to save $984 billion, with half that number ($492 billion) coming from defense, and the other half coming from domestic spending, including $117 billion from Medicare.
So the outline for a deal to avoid the fiscal cliff is already there. Obama gets his tax hike on the rich, Republicans get to prevent all of the defense cuts, and there is still enough revenues left over to prevent the cuts to Medicare and another $241 billion in other cuts to domestic programs. The new spending and new revenues would cancel out adding nothing to the deficit. Republicans could even through in a two-year extension on the debt limit to boot.
Entitlements would not be touched. Obamacare would not be touched. All of the major policy issues would be left unsettled for future fights. But economic disaster would be avoided and both parties would preserve their top priorities. Unless they are willing to go over the fiscal cliff, it is hard to see the Republicans getting a better deal than this.