The So-Called, So-Called Fiscal Cliff, Again, but this Time with Feeling and with an Emphasis on Negotiation Tactics

Tuesday, November 13, 2012 at 10am
By John Friedman

A friend asks, “John — What do you have to say about the fiscal cliff?”

I’ve had quite a bit to say about the so-called so-called fiscal cliff (yes: that’s an intentional double-up on the so-called phrase, because these days, more often than not, when you see the FC phrase it’s either in quotes or modified by a preceding “so-called”).

I first wrote about the s-c s-c FC in terms of tax rates and investment portfolios here, and then I touched on its impact on end-of-year tax planning and long-term policy here and here.

So pretty much everything I’ve written since the election has been about the s-c- s-c FC, including one piece which is directly on point and provides some actionable advice (remember: that’s generic, non-applied advice and not likely to fit your situation to a T).

*  *  *

Today I again write a piece on the fiscal cliff, occasioned this time by reading, earlier today, a piece in which fellow Berkeleyan, Robert Reich, gives Obama some negotiating tips, primary among them the tried-and-true advice to aim high.

Similar to what I wrote yesterday, in today’s piece Reich yearns for the days of yore when tax rates varied quite widely, and depended quite directly on the scale of a person’s income. Interestingly enough, though, Professor/Secretary Reich yearns for the taxcode of the 1950s, while yesterday I yearned for the taxcode of the 1960s, all of which leads to three questions. First, does this make both of us, in a way, conservative? And, second, do our different ages account for our different time-aim, as we both yearn for the taxcode of our teenage years? And, third, if so, does that make both of us total-loser tax-wonks?

*  *  *

I wholeheartedly agree with Reich’s aim high approach.

Obama, as best I can tell, does not.

If I were Obama, I’d do what Bush did in post-election 2004, which is to say something along the lines of, I won this thing. Last year’s deals, in which I proposed three dollars of spending cuts for every dollar of revenue raised — when you waltzed me across the floor and then told me to take a hike — are gone, and they’re not comin’ back. This year’s deals are different. Go tell your people, John. There’s a new sheriff in town.

As best I can tell, Obama does not have that bone in his body. He is sticking with his small tax increase (4.6%) on any annual income over $250k.

But when you think about how things went for Bush in 2004 and 2005 (that political capital he built didn’t buy very much, did it?), you must also wonder whether Obama’s approach is the right way. Surely it’s more presidential.

*  *  *

It would be nice if, when negotiating, we could all state what we think is a fair deal, end up somewhere in the middle of what everyone said they found to be a fair deal, and then be done with it.

My experience, in pretty much every facet of life, be it commercial, social, political, etc. — but especially commercial and political and other hard-charging parts of life — is that human beings are not built this way. So those who open where they want to close are usually facing people who aim high, which means that those who open where they want to close are, quite often, hurt badly. The a-economic, gentle-hippie human being, as it happens, when faced with your standard-issue human being of the twenty-tens, does not fare well in negotiation. The Mongol horde, if time-warped into the future to face guns, would not fare well either.

So the mechanics are simple: if you open with where you want to close, then you will rarely (never, ever?) close where you want to close.

You gotta aim high.

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When I work with people on the revenue side of their lives — helping then improve their overall financial health by helping them have a happier time bringing money into their lives — this aim high approach often plays a big role in the work I do. A lot of people are not naturals at this approach; they’ve been waltzed across many a floor. They can learn how to be better negotiators and, gosh oh gosh, what a big financial-health-improvement it can be!

(Wonky the-business-of-financial-planning aside: most financial folks ply their craft within business models that define success in terms of assets gathered, while I do so inside a business model that defines success in terms of good actionable advice received and overall financial health improved, so working on the revenue side of a financial life is a great fit for me, but not so great a fit for the asset-gatherers.)

*  *  *

Given what we’ve heard so far, then, I expect that we will in fact see tax rates go up on incomes over $250k per year. Obama has been very line-in-the-sand on that point, and, if need be, he can simply let 1/1/13 come about without Congress having done anything to the s-c s-c FC, at which point all tax rates will revert to their decade-ago higher rates, and, from that point on, all remedying tax legislation would necessarily fall within the rubric of “lowering tax rates” (i.e., bringing them back to where they are today, except for the rates for annual incomes over $250k) which, technically, will indeed be what is going on.

Ahhh, but, given that Obama has opened with where he wants to close, it’s likely that he will have to throw something(s) substantial into the mix to get his open to be his close.

And that is where the fear on The Left is: what will Obama give away to get the increase on tax rates on annual income over $250k?

Time will tell.

I never wanted a president with whom I’d enjoy sharing a beer. I always instead wanted a president who was way Way WAY smarter than me. And wiser. And more prescient. And better able to get things accomplished.

Let’s hope that Obama negotiates well.

1,017 words (about twelve minutes of reading, sans linked-to content)

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