Option No. 2 for the Republicans is to cave a bit on the tax rates and then look ahead to the debt ceiling as the time of true trench warfare. The Republicans would not necessarily have to agree to the restoration of the top Clinton-era tax rate of 39.6 percent. The Obama administration seems open to raising the rate to somewhere around 37 percent or 38 percent, provided it can boast about some type of tax hike on the wealthy and hit a revenue target somewhere between $1.2 trillion and $1.4 trillion.
“I can see them [the administration] giving a little on that, but I cannot see them giving a lot,” said one source who has worked in an advisory role during the negotiations. “They have just looked too many people in the eye privately and publicly and said, ‘We’re not giving.’ ”
The advantage to Plan B is that Republicans widely think they will hold most of the leverage in February or March, once the president needs Congress to raise the debt ceiling again. At that point, the Republicans plan to fight for a commitment to deep spending cuts that, so far, has eluded them during this negotiation. That could mean cuts to Medicare in the form of raising the eligibility age or charging wealthier Medicare recipients higher premiums—ideas that McConnell has publicly endorsed.
The debt ceiling would also give House Speaker John Boehner the chance to reset the negotiations on better turf for his caucus. Or, as he told reporters this week, “The debt limit ought to be used to bring fiscal sanity to Washington.”