Common knowledge holds that the President and Democrats have all the leverage in the fiscal cliff talks.  Afterall, Democrats clearly won the 2012 election as a whole and claim it was because voters support high earners paying a little more in taxes.  Recent events inside the GOP caucus do little to dispel this notion.  Rep. Tom Cole (OK) suggested the GOP agree to tax hikes on the rich and extending middle class tax cuts to begin debate 0n larger issues (think entitlement reform).  Speaker John Boehner quickly put revenue increases on the table.

But as I pointed out in a prior post Democrats hardly seem united on the issue.  The logic of the leverage the GOP holds in the talks is straight-forward and simple.  Obama and the Democrats are widely considered to control the government.  In other words, if something bad happens they get blamed (think 2010 midterms).  People may not love the other party but by default they vote for the alternative.  This helps explain the fractures Democrats are trying to keep quite in their Senate and House caucuses on the talks and why the President’s threat of a veto may be a bluff.

The political damage going over the fiscal cliff could do to the President and his party is virtually incalculable.  Assuming we did go over the cliff at best the President would be considered a lame-duck, having blown all his political capital before he is even sworn in for a second term.  At worse, the President does not get a single policy he wants through until at least 2015, Democrats in droves retire in tough races and the GOP has another midterm like they did in 2010.

For now the President is playing the talks tough.  The President met with business leaders asking them for help selling his tax increase to the public and seems to have convinced liberal interest groups that he will not compromise in the talks.  In recent days the President has tried to shift the conversation away from spending cuts or entitlement reform and simply on raising taxes on the wealthy and protecting the middle class.

Republicans appear to have dug in their heels as well and have basically demanded the President show them what he brings to the table.  Apparently it is not much.  And ironically this may be the best GOP strategy.  Make the President be a leader and simply say no spending cuts are necessary until next year and see how it sells.  Probably not well.  It is an indication how popular this view is when the President has to go campaign on it again at a toy factory in Pennsylvania.

The President may not just be hemmed in by concerns about his political future and entire legacy but also by his Caucus.  The Democratic House and Senate Caucuses are predominately liberal but there are enough conservative and moderate Democrats on fiscal issues to cause the President heartburn.  The President can argue a position but when it falls flat with members in his own Caucus, especially the Senate, he is in trouble.

So Republicans actually do hold leverage in the fiscal cliff talks and they should remind the President of this.  If the President wants to lead he will and will compromise (afterall his base will stay with him regardless).  If not then the President can lead us down a path to higher taxes on EVERYBODY, another recession and the debt and unemployment skyrocketing.  His party will likely be damaged for several years at least and you can likely kiss a Democrat in the White House in 2017 good-bye.  As Republicans continuously say it is the President’s job to lead.  The question is whether he will or will not?

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