Democrats may have the upper hand in debates over what to do about the pending "fiscal cliff" because they have less to lose than Republicans if the nation goes over the cliff.
The fiscal cliff is a set of spending cuts and tax increases set to go into effect at the beginning of next year if Congress and President Barack Obama make no changes. The Congressional Budget Office estimates that the fiscal cliff will cause a recession. But getting rid of the fiscal cliff without implementing long term deficit reduction will cause even bigger problems in the future because the rising national debt, now over $16 trillion, is unsustainable.
If Congress and Obama do not agree to a solution, going over the fiscal cliff will move the country in a more liberal direction. Conservative columnist George Will has been among those making this point.
"For 40 years the Democratic Party's activist base has had two goals -- substantial tax increases and substantial defense cuts. Going off the cliff implements the Democratic Party's agenda," Will said Sunday on ABC's "This Week."
The solution to the fiscal cliff is a "grand bargain" deficit reduction package that both raises revenue through tax reform and reduces spending through entitlement reform (especially Medicare, Medicaid and Social Security). As Will pointed out, letting the fiscal cliff happen without agreeing to a grand bargain would mean that liberal Democrats still get much of what they want -- tax increases and a smaller military; plus, there would be no reduction to the long-term growth of entitlements.
Besides their successes in this month's election, this may explain why Democrats appear to be making stronger demands and Republicans appear more conciliatory.
Republicans have agreed to increasing revenue by eliminating tax deductions and credits but they do not want tax rates to go up. Democrats want increased revenue from both tax reform and a tax rate increase on the highest tax bracket -- families making more than about $250,000.
Two liberal columnists, Paul Krugman and E.J. Dionne, have already argued that Obama and the Democrats should insist on tax rate increases for the highest tax bracket and be willing to go over the fiscal cliff if they do not get what they want. Krugman and Dionne also believe that going over the cliff would not be as bad as many suggest. House Minority Leader Nancy Pelosi (D-Calif.) also said she was unwilling to compromise on tax rate increases on the wealthy.
Republicans, meanwhile, appear more willing to give Democrats what they want to avoid the fiscal cliff. Conservative pundit Bill Kristol, editor of The Weekly Standard, said Sunday that in private conversations with Republican members of Congress they agreed that they may have to agree to tax rate increases on the wealthy.