"I get that for free"

The Wall Street Journal article that provided a behind the scenes look at the "fiscal cliff" negotiations got an awful lot of attention. The money quote that seemed to be mentioned most frequently was this one:

At one point, according to notes taken by a participant, Mr. Boehner told the president, "I put $800 billion [in tax revenue] on the table. What do I get for that?"

"You get nothing," the president said. "I get that for free."

I suspect that most people focused on that because it completely negates their view of President Obama's negotiating style. But beyond that - it gives us a bit of a glimpse into how he's viewing this whole process.

Its important to remember the factors that define what people are calling the "fiscal cliff." One is that in December 2010 President Obama and the Democrats agreed to extend the Bush tax cuts for 2 years (2011 -2012). They are now set to end on Jan. 1, 2013. If they are extended only for income less than $250,000, that brings in roughly $800 billion in revenue.

In the conversation quoted above, Speaker Boehner is trying to use agreement to that $800 billion as bargaining leverage. President Obama says "no deal." He sees that part as a given and its the other part of the "fiscal cliff" that the negotiations are all about - the $1.2 trillion in spending cuts (half to discretionary spending and half to defense) that were part of the sequestration that arose out of the debt ceiling deal.

President Obama's negotiating position is basically to suggest that - if Republicans want to do something other than cut defense by $600 billion - he's open to alternatives. In his latest offer, the President put an alternative plan to cut $1.2 trillion on the table. But in return, he wants an additional $400 billion in new revenue (added to the $800 billion he gets "for free") - making the deal $1 of taxes for every $1 of spending cuts.

One other note about that final proposal from President Obama. Of course the item that got the most attention in the offer was that it incorporated the use of chained CPI (an alternative way of measuring inflation that would be applied to government programs - ie, Social Security - and tax brackets). The CBO has estimated that implementing chained CPI would save $220 billion over 10 years. But in the President's proposal it is set to save only $122 billion. What that means is that the President was assuming about $98 billion (almost half) would be knocked off the savings in order to protect the most vulnerable (ie, wounded veterans, SSI recipients, and long-term SS recipients).

That's the deal that Speaker Boehner walked away from.

And so now, it looks like they'll get back to business tomorrow on a smaller deal that will primarily lock in that $800 billion in taxes - what President Obama gets "for free."