On the sequester, White House, Republicans play political chicken

In the game of political chicken over the sequester, both the White House and congressional Republicans think their opponents will get the most blame if the $85 billion in spending cuts are triggered.

The White House is confident President Obama’s communication skills and the bully pulpit will help it win the day. 

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Obama will hit the road again next week for campaign-style events at which he will argue Republicans are to blame for hurting the economy and national security if the cuts go through. 

The White House thinks its argument is better, because it believes it can portray Republicans as protecting low taxes for the rich at the expense of the middle class. 

Republicans, for their part, are equally confident it is Obama who will get the blame once the sequester is implemented on March 1. 

They agree the cuts will be harmful but find fault with Obama for signing the sequester into law and for having the idea in the first place. 

Obama and Democrats aren’t serious about replacing the cuts, they say, something highlighted by Democratic proposals that would replace a portion of the sequester with the “Buffett Rule,” a tax provision the GOP has repeatedly rejected, that would impose a minimum 30 percent tax rate on millionaires. 

Neither side really knows who will get the majority of the blame as offices close, workers are furloughed and programs are cut after March 1. But each side is convinced it is the other side that voters will punish the most, a confidence that means the cuts are all but certain to be triggered.

Senior administration officials maintained Tuesday that they are winning. 

The officials say the GOP is making a mistake by opposing any tax hikes as part of a sequester-replacement bill. 

The White House argues the 20 percent tax rate on dividends and capital gains works as a loophole that allows millionaires and billionaires who derive most of their income from investments to avoid higher taxes. 

The top marginal tax rate because of January’s “fiscal cliff” deal is now 39.6 percent, but many wealthy individuals pay a lower effective rate because of the lower rates on investment income. The Buffett Rule would change that.

Administration officials argue Republicans are in a weaker position fighting against the Buffett Rule than they were in fighting against higher tax rates on wealthier households, because the Buffett Rule would hit a smaller group of taxpayers. 

The bully pulpit adds to the White House’s confidence. With Congress on recess, Obama has a chance to control the public debate. 

“Republicans in Congress face a simple choice,” the president said Tuesday in remarks at the White House, where he was surrounded by a small group of first- responders he said could be furloughed because of the sequester.  

“Are they willing to compromise to protect vital investments in education and healthcare and national security and all the jobs that depend on them? Or would they rather put hundreds of thousands of jobs and our entire economy at risk just to protect a few special interest tax loopholes that benefit only the wealthiest Americans and biggest corporations?” Obama said. “That’s the choice.”

Republican congressional aides are equally confident. 

They argue the White House has acknowledged it came up with the idea of the sequester in the 2011 talks to raise the debt ceiling. The fact that the sequester was a White House idea, and that Obama during the presidential campaign said the cuts would never be allowed to happen, weakens Obama’s efforts to blame Republicans, they say. 

House Republicans cite an internal poll by the Republican Winston Group that  found 52 percent of respondents support the GOP call to replace the sequester with other responsible spending cuts, while only 40 percent say the sequester should be replaced with increased revenue. 

The GOP argues that the White House is playing a pressure game that has only ever worked twice — and in both cases the details and deadlines worked to Obama’s political advantage. 

In the December 2011 fight over extending the payroll tax cut and in the fight in December over the fiscal cliff, taxes on most U.S. households would have gone up without action by Congress. 

This time spending will be cut unless Congress acts, and Republicans are much more comfortable with that scenario than with being blamed for a tax hike. 

“Despite the president’s repeated calls for even more tax revenue, Americans do not support trading spending cuts for higher taxes,” a House GOP leadership aide said. “They understand that the tax debate is now closed.” 

The sequester cuts would not hit the economy as heavily as the fiscal cliff would have, which adds to the GOP’s confidence. 

The Congressional Budget Office estimated a 2.2 percentage point decline in GDP growth if the full slate of tax increases and spending cuts scheduled for January had been allowed to take effect.

In contrast, the $85 billion sequester would take 0.6 points from GDP growth and would reduce hiring by 750,000 jobs, according to the Congressional Budget Office.

The line taken by GOP leaders acknowledges the sequester is bad but argues more tax hikes would be worse. 

“There is bipartisan agreement that the president’s sequester is not a smart way to cut spending, and Republicans have repeatedly offered and passed solutions to achieve the same amount of deficit reduction in a more responsible way without tax hikes,” Senate GOP Whip John Cornyn (Texas) said Tuesday.

Moves by both sides suggest Democrats and Republicans see some risks once the cuts are triggered. 

Senate Republicans, for example, are preparing their own alternative plan to combat the Senate Democrats’ sequester-replacement legislation, which trims farm subsidies and defense spending while imposing a minimum tax on wealthy individuals. 

Moving forward their own bill will give Senate Republicans cover from accusations they are holding up a sequester replacement. 

One Republican source speculated that the bill would pay for part of the sequester by changing to a less-generous formula to account for inflation when adjusting entitlement benefits. That proposal, the chained consumer price index, would look reasonable because the White House has proposed it in the past. 

And the Democratic bill is itself a sign that the party wants to be seen as trying to stop the sequester.