I think the President is bluffing on his veto threat.
Conventional wisdom: To achieve his desired fiscal policy outcome (big tax rate increases on the rich), the President is willing to risk tax increases on all income tax filers. He is also willing to risk the political blame for middle class Americans paying higher taxes because he thinks he can shift most of the political blame onto Republicans. He is therefore willing to veto a bill he doesn’t like and bear the consequences of having no bill, if that’s what is needed to gain negotiating leverage. His veto threat is credible.
This conventional wisdom makes three key assumptions.
- The President’s top economic policy priority is his fiscal policy goal (raising taxes on the rich).
- In a veto / no bill / blame game scenario, the President can shift most of the political blame to Republicans.
- He will make his veto decision on these two bases: fiscal policy and relative political blame.
Key flaw in the conventional wisdom: The President’s veto decision is not about tax increases or political blame; it’s about causing a recession in 2013.
I make different assumptions.
- If there is no bill, the U.S. economy will probably dip into recession for much/most/all of 2013, and it’s impossible to predict whether such a recession would be short-lived.
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