Fiscal Cliff - part 2

The year end deadline only produced 3 of my optimistic outcomes.

1. Increase marginal tax rates for the wealthy
2. End payroll tax holiday
3. Fund extended unemployment

The good news is that the tax revenues were increased without any reduction in spending.  The bad news is that the debt ceiling was not increased.

There now are two more deadlines and it is not clear where the bargaining leverage is.

One the spending side especially with respect to the sequester across the board cuts that were part of the 2011 budget deal I think Pres. Obama has the leverage.  He does not need to accept any spending cuts that will specifically hurt the economy or the working and middle classes.  He can negotiate for a balanced set of spending cuts and/or additional revenue through closing tax loopholes for the wealthy and for large corporations.   I don't see that he needs to put Medicare, Medicaid or SSN on the table for this next round.  I believe the target debt reduction for the sequestering cuts is 600 billion over 10 years.  That should be achievable without touching the "entitlement" programs.

The debt ceiling is another matter.  Not sure who has the leverage here.  Pres. Obama is correct that in that Congress should pass a "clean" debt ceiling extension.  If he allows Congress to negotiate terms for this it will not only hurt the economy it will hurt the office of the Presidency.  I think Presidents in their second term begin to think more and more about their personal legacy and about protecting the integrity of the office.

Will big business pressure the GOP to pass a clean bill?

Will the Democrats negotiate with the GOP to pass a debt ceiling bill along with some concessions?

Will the GOP not pass a clean bill and force a government shut down?

Anything but a clean bill is very bad for the economy.  Some of the other outcomes could be disastrous for the world economy.