Back in May, I pre­dicted a series of likely bud­get con­fronta­tions fac­ing Con­gress late this year or early next: the expi­ra­tion of the pay­roll tax hol­i­day, the need to again raise the debt ceil­ing, expi­ra­tion of the Bush tax cuts, the seques­tra­tion of funds man­dated by the last debt ceil­ing deal, the annual Octo­ber 1 end of the fis­cal year, and pos­si­ble moves on spend­ing, Social Secu­rity, and Medicare. Last week, I gave an update deal­ing with seques­tra­tion, and another update this week on votes con­cern­ing the Bush tax cuts.

These impor­tant issues might go in unex­pected ways. Yes­ter­day, in a rel­a­tively quiet no-​​drama bipar­ti­san deal, lead­ers of both Houses and both major Par­ties reached agree­ment to keep the fed­eral gov­ern­ment run­ning until after the Novem­ber elec­tion. It’s but a six-​​month con­tin­u­ing res­o­lu­tion, which means they’ll have to come back to the sub­ject next year, but they got it done two months early instead of wait­ing until well after the last minute.

This may point in some new direc­tions, though I doubt we’re about to see a bed of roses. Well, maybe the thorns part.

A large fac­tor lead­ing to the agree­ment might have been the desire to get out of Wash­ing­ton so as to become deeply involved in the real busi­ness of Con­gress: fund rais­ing. There may also have been some aware­ness that wast­ing tax­payer money by refus­ing to do their jobs doesn’t play well any­more, and would look unseemly in the mid­dle of a campaign.

But don’t pop the corks yet. The actual vote on this deal won’t hap­pen until Con­gress returns in Sep­tem­ber from its seem­ingly thrice-​​monthly five-​​week recess. If you remem­ber last year, the Tea Party served as a major block to enact­ing fed­eral spend­ing bills, as well as to rais­ing the debt ceil­ing. There’s still plenty of time for Tea Party mem­bers to change their minds after hear­ing from their con­stituents who don’t like things get­ting done. This wouldn’t be the first time a deal fell apart after a recess.

The point, for Repub­li­cans, is to hold the busi­ness of gov­ern­ment hostage while demands are made to lower taxes and/​or cut domes­tic spend­ing. They’ve proven them­selves adept at stop­ping gov­ern­ment. It’s really very easy to do, if you know how; this chart shows the stun­ningly small num­ber of bills that have passed this Con­gress, as com­pared to his­tor­i­cal num­bers. Of course, this inac­tiv­ity might be seen in a pos­i­tive light by Tea Party advo­cates who think that a gov­ern­ment that does least does best.

Inac­tiv­ity and obstruc­tion­ism may play against Repub­li­cans for the remain­der of this Con­gres­sional term, how­ever, and per­haps this is another rea­son Repub­li­can lead­er­ship is sud­denly dis­play­ing a will­ing­ness to get things done. A grow­ing move­ment within the Demo­c­ra­tic Party is whis­per­ing about going off the cliff, and a num­ber of Repub­li­cans are already pan­ick­ing.

The hostage tech­nique Repub­li­cans used through­out 2011 was to threaten to do noth­ing, thus bring­ing about a gov­ern­ment shut­down or a mas­sive world-​​economy-​​shattering default when a loom­ing dead­line strikes. This appar­ent will­ing­ness to shoot them­selves in the head (they just might be crazy enough to do it!) thus extracted var­i­ous con­ces­sions from peo­ple too sane to let it happen.

The prover­bial shoe, how­ever, has changed feet. On Decem­ber 31 of this year, because of deals Repub­li­cans demanded, Amer­ica will slam into two impor­tant dead­lines. First, the Bush-​​era tax cuts will again expire. Sec­ond, about a hun­dred bil­lion dol­lars will be “sequestered” as down pay­ment on more than a tril­lion dol­lars of spend­ing cuts forced by the fail­ure of the debt-​​ceiling super­com­mit­tee. Doing noth­ing will make both of these things hap­pen. Repub­li­cans are des­per­ate to stop them both.

Think for a moment what the impact would be if we allowed this cat­a­stro­phe. Repub­li­cans have been say­ing that we must cut spend­ing, and we must bal­ance the bud­get. The Cen­ter on Bud­get and Pol­icy Pri­or­i­ties has cal­cu­lated that between these par­tic­u­lar spend­ing cuts and rev­enue increases, the fed­eral deficit will be reduced by 7.1 tril­lion dol­lars over the next ten years. The non­par­ti­san Con­gres­sional Bud­get Office says these do-​​nothing actions will result in fed­eral deficits being reduced by more than eighty per­cent. We can’t let that hap­pen, can we?

On the other hand, taxes would go up, and mil­i­tary con­tracts would be reduced. Repub­li­cans don’t want that. They are stuck between inflex­i­ble demands of their own rhetoric. To reduce the deficit, cut fed­eral spend­ing, and set the nation on the path to fis­cal respon­si­bil­ity — or allow taxes to increase and reduce mil­i­tary spend­ing by per­haps ten per­cent. Which to choose, which to choose? Worse — to pre­vent the unde­sir­able por­tions means actu­ally accom­plish­ing some­thing, get­ting actual bills enacted — and work­ing with the Democ­rats to do it. What is a Repub­li­can to do?

It is true that allow­ing the tax increases and reduc­tions in spend­ing might slow the econ­omy, and could pro­long the frag­ile recov­ery. On the other hand, Repub­li­cans have been preach­ing the glo­ries of aus­ter­ity, and Aus­trian econ­o­mists have been say­ing for quite some time that, if we fol­lowed their sug­ges­tions, the econ­omy might take decades to return to where it was ten years ago. Fur­ther, Repub­li­cans are com­plain­ing that the slow­down in the recov­ery would be caused by a loss of jobs result­ing from fed­eral spend­ing reduc­tions — yet they’ve been insist­ing, for decades, that gov­ern­ment spend­ing can’t cre­ate jobs.

Notice the lever­age Democ­rats have here. They can make a fis­cally respon­si­ble case for doing noth­ing (see the num­bers I quoted above), which is far more than the Repub­li­cans could do in their hostage demands through­out 2011. Any down­side — any tax increases or any slow­down in the recov­ery — won’t hap­pen until well after the upcom­ing elections.

What do the Democ­rats stand to gain by going over this cliff? First, Harry Reid and Pres­i­dent Obama have both said that no bill to extend the Bush tax cuts on income over $250,000 will be accept­able. They laid down a gaunt­let. They are say­ing we can extend the tax cuts for all Amer­i­cans, but not for the por­tion of the super-wealthy’s income above $250,000. If Repub­li­cans want any of the lower tax rates to con­tinue, that is the price. If Repub­li­cans refuse, then Democ­rats will do noth­ing, and Repub­li­cans are forced to swal­low the tax increases they are sworn to oppose.

Come Jan­u­ary 1, after everyone’s taxes go up, the Democ­rats’ nego­ti­at­ing posi­tion improves still more. Any bill at all then is a tax cut, and after blam­ing Repub­li­cans for hav­ing allowed taxes to go up, Democ­rats can decide which cuts they will allow — pro­vided Barack Obama is reëlected. Even if Repub­li­cans gain con­trol of both houses of Con­gress, a pres­i­den­tial veto threat would force any actions to be crafted to the President’s preference.

A sim­i­lar sit­u­a­tion per­tains to the seques­tra­tion funds. Repub­li­cans are in the posi­tion of demand­ing that spend­ing not be cut. How’s that for stand­ing rhetoric on its head? After the first of the year, undo­ing the seques­tra­tion means hav­ing to beg for spend­ing increases, which Repub­li­cans seem to hate even more than taxes. Worse, they have to plead for this added spend­ing because the reduc­tion in spend­ing is slow­ing the recov­ery and is cost­ing jobs, thus serv­ing as an admis­sion that their pre­vi­ous oppo­si­tion to stim­u­lus spend­ing was cyn­i­cally dishonest.

Pres­i­dent Obama has said he would not sign any bill that merely restores the seques­tra­tion funds, and most par­tic­u­larly not any bill that restores only the mil­i­tary spend­ing, which is what the Repub­li­cans want. He’s in a good posi­tion to demand rev­enue adjust­ments to pay for this extra spend­ing — per­haps by allow­ing the Bush tax cuts to expire on income over $250,000.

I wouldn’t expect any deal before Novem­ber. For Repub­li­cans to agree to these very rea­son­able con­di­tions would mean admit­ting too much of their dis­hon­est 2011 strate­gies just prior to an elec­tion. A deal in a lame-​​duck ses­sion, how­ever, is a very real pos­si­bil­ity — after the elec­tions, but before the Democ­rats’ posi­tion strength­ens more on Jan­u­ary 1.

And if no deal is struck, Repub­li­cans get the aus­ter­ity they’ve claimed to want, and the CBO says we’re on the road to a bal­anced bud­get. The Bush tax cuts which Democ­rats so hate will be gone. The recov­ery might go slower, but Repub­li­cans have been doing every­thing in their power to make that hap­pen any­way, and the Aus­tri­ans say this is not only inevitable, but desir­able. The domes­tic cuts, which are the sis­ter of the Republican-​​hated mil­i­tary cuts, will be firmly sad­dled on the Repub­li­cans — who should accept them proudly, since they’ve been insist­ing all along this is exactly what they want.

Unlike the 2011 hostage-​​taking, this is a cliff we should be will­ing to face, and will­ing to dis­cuss the pros and cons of avoid­ing or accept­ing. It isn’t insane the way default­ing on the fed­eral debt would have been. And that gives the Democ­rats real leverage.

No won­der Repub­li­cans may be try­ing to look a lit­tle more will­ing to deal.

Related arti­cles