'What fiscal cliff?' -- Gazette.Net


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Watching last weekend's fiscal cliff drama on Capitol Hill must have been a déjà vu moment for Maryland State House veterans: “Hey, I've seen this movie before!”

Indeed, a very similar dynamic played out in Annapolis last April when state lawmakers went sailing off their own fiscal cliff. No, it wasn't a standoff between Democrats and Republicans because Maryland is a one-party state.

It was an impasse between Senate President Mike Miller, pushing gambling expansion, and House Speaker Mike Busch, pushing a “soak the rich” income tax hike. Miller held the state budget hostage until the House passed his gambling bill. And when that didn't happen, Miller trashed the budget's revenue bills.

So, the legislature adjourned in crisis — the missing revenue bills triggered a so-called “Doomsday budget” which, although increasing state spending $700 million, cut funding for some favored special interests, including Baltimore city. So, those folks acted like the Doomsday budget was the end of civilization as we know it — Maryland's fiscal cliff.

Gov. Martin O'Malley and legislative leaders resolved the matter much the same way the White House and Congress just resolved their impasse — they separated the two issues and dealt with each in separate legislative special sessions.

In May, the first special session averted the “Doomsday scenario” by passing the revenue bills (income taxes on “thousand-aires” making over $100,000 and shifting to local governments the state's teacher pension funding obligation). Then, in August, a second special session passed Miller's gambling expansion bill and sent it to the voters for referendum approval.

For Capitol Hill lawmakers, the two impasse issues were new revenues vs. spending cuts. Instead of resolving both in a “grand bargain,” they, too, chose to address each issue separately. This week they raised revenues $620 billion over the next decade by taxing incomes of more than $400,000. Then, two months from now they'll take up spending cuts.

At first, the Democrats in Washington and their media sidekicks proclaimed a glorious victory, but, upon further review, it looks like the Republicans got away with murder.

You see, the Republicans had painted themselves into an untenable position — protecting the rich from tax hikes was about as politically practical as persuading the French revolutionaries not to guillotine Louis XIV.

Poor Mitt Romney was stuck with this GOP orthodoxy that helped him lose the presidential election. But before Obama and the Democrats could close in for the kill on the fiscal cliff negotiations, they got outmaneuvered by the Republicans who, in a sudden wake-up moment, realized they were headed for political suicide.

Obama was holding all the aces — he'd campaigned and won on taxing the rich, Democrats controlled the Senate and, most importantly, the national media were primed to blame any cliff disaster exclusively on Republicans.

Instead of blinking, however, House Republicans executed a brilliant maneuver, the “Plan B” feint. House Speaker John Boehner broke off negotiations with the Democrats and put a tax on incomes of more than $1 million up for a House vote.

Boehner's Plan B was doomed to failure because House Democrats thought it didn't tax enough and tea party Republicans thought it taxed too much. The media had a field day labeling Boehner weak and incompetent, but Plan B was Boehner's exit strategy. Now he could turn to Obama and the Democrats saying, “See, I can't even deliver a millionaire's tax hike so I quit, you take over.”

Boehner's retreat not only placed the onus on the Democrats, it preserved his Speakership by sparing him from strong-arming a compromise through his conservative tea-party wing.

Now it was up to the White House and the Senate to fashion a deal. Amazingly, Obama let Vice President Joe Biden take over (what's Obama, a potted plant?) the negotiations with GOP Senate Leader Mitch McConnell.

Their final product, approved by Congress, both saved the Republicans from suicide and gave them boatloads of benefits, with little apparent gain for Obama and the Democrats.

In exchange for throwing taxpayers over $400,000 under the bus, the GOP preserved low dividends and capital gains rates, got a great estate tax deal, extended business tax credits and positioned themselves on the political high ground for the coming spending cuts battle.

True, the Democrats rescued 99 percent of Americans from higher taxes, extended unemployment benefits, solved the AMT fix and the “doc fix” and extended low-income and middle-class tax credits. But they won't get any gratitude or political mileage from taxpayers because all these “victories” simply preserved the status quo.

The Democrats merely extended tax cuts that already were in place, so Joe Taxpayer won't experience any new benefits other than the warm feeling of soaking the rich. In fact, the only change in Joe Taxpayer's paycheck will be less pay and higher withholding due to eliminating the payroll tax break — a $1,000 to $2,000 hit on Middle America.

This month, millions of taxpayers will be getting smaller paychecks. When they complain to their Democratic elected officials, the politicians will respond, “But you don't know how bad it could have been, we saved you from going over the fiscal cliff.” To which a puzzled Joe Taxpayer will respond, “What fiscal cliff?”

Blair Lee is CEO of the Lee Development Group in Silver Spring and a regular commentator for WBAL radio. His column appears Fridays in The Gazette. His email address is blair@leedg.com.