Published for www.keithhennessey.com, November 28, 2012

Yesterday I argued that the President is bluffing on his veto threat. Today I want to respond to some great feedback from friends and readers. Warning: discussions of negotiating strategy and tactics can get a little dense.

1.  I agree that Senate Democrats would likely block any bill that the President would veto. This means the veto threat is important principally to reinforce Leader Reid’s efforts to hold his Democrats together as a unified bloc.

But if I’m right that the President thinks he cannot afford to risk a recession, then the President needs a new law. Whether a bill dies in the Senate or as a result of his veto, in either case no law –> fiscal cliff –> recession –> severe damage to the rest of the President’s agenda. My hypothesis is that the President is unwilling to take that risk, so he needs the House and Senate to pass a bill he can sign. I think my argument holds whether the veto would be actual or merely a tool to reinforce his allies stopping a bill in the Senate.

2.  I agree that, were it not for the recession risk, many Democrats, possibly including the President, would think that no new law was a good fiscal policy outcome. Yes, the President and almost all Congressional Democrats say they want to extend current tax rates for the non-rich.  But if all tax rates go up, future deficits will be $5.4 trillion lower.  If the sequester is allowed to bind, deficits would be reduced by another $1.2 trillion over the next decade. This outcome, of no new law, would give the President a lot more fiscal flexibility.  The deficit and debt problem would be far from solved, but he would have more room to propose new spending that I’m guessing he wants.

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