Consider what's scheduled to happen automatically if Barack Obama gets re-elected:
— Substantial cuts in domestic spending that nonetheless leave core Social Security, Medicare, and Medicaid programs intact.
— Equally large cuts in military spending.
— Repeal of various tax cuts that, together with other Obama-era changes, will leave taxes meaningfully higher than they were in the Clinton years.
As short-term macroeconomic policy, that's not a great deal. But for American liberalism as an ideological project it's pretty solid. Among other things, it will let Obama break congressional gridlock by agreeing to tax cuts or increases in military spending in exchange for concessions on other areas. But of course, lots of people don't want to hand American liberalism a big victory. And that victory only occurs if Obama declines to compromise during the lame duck session of congress. So as Jon Chait observes there's a lot of mis-framing of "fiscal cliff" issue in hopes encouraging Obama to sign off on a huge giveback in case he wins re-election:
The term “fiscal cliff” has leached into the broader political lexicon, though few people understand what it means, and many of them invoke it to mean its precise opposite. Among Republicans, especially, “fiscal cliff” has come to signify their Obama-era fears of a Greece-style debt crisis. Pete Peterson, an investor and longtime fiscal hawk, has devoted more than a half-billion dollars to lobby for a bipartisan debt-reduction agreement, funding a vast network of centrist anti-deficit activists, like the Concord Coalition, the Committee for a Responsible Federal Budget, and an organization called “the Campaign to Fix the Debt,” all of which have pounded a national drumbeat warning against the perils of the fiscal cliff. “Rhetoric won’t fix the debt, action will,” warns a statement by Fix the Debt. A “solution to the nation’s fiscal crisis,” scolded the Washington Posteditorial page, which closely echoes the views of the Peterson network, “can be implemented only if Republicans and Democrats hold hands and jump together.”
This is all utterly wrong. Bipartisan agreement is not necessary to fix the debt. Nothing is necessary to fix the debt. It is as if the network of activists, wonks, business leaders, and Beltway elder statesmen who have devoted themselves to building cross-party support for a deficit deal have grown more attached to the means of bipartisanship than to the ends for which it was intended. The budget deficit is a legislatively solved problem. It is, indeed, an oversolved problem. In the absence of any agreement between the president and Congress, the deficit will shrink to less than one percent of the economy by 2018, and remain below that level through 2022. The budget deficit declines so sharply and so drastically, and in ways that neither party is entirely comfortable with, that the task for Washington is to pull back on deficit reduction.
The point here is that the people who are simultaneously fretting about the fiscal cliff and also fretting about the lack of a grand bargain aren't worried about either deficits (in which case you'd just say we should implement the automatic cuts) or macroeconomic stabilization (in which case you'd just say we should not implement them, or else turn to the Fed for help) they're concerned about the fact that the GOP made a series of high-stakes bets in 2011 that they may turn out to lose, and they want to call "backsies" if that happens.
Chait's piece is substantially dedicated to arguing that this amounts to an Obama master plan that the administration wants to implement. On the flipside, I've heard progressives darkly arguing that Obama is actually eager to sell them out during the lame duck. I've gotten some pretty mixed signals over the past few months. But this is a huge deal. In the context of a lame duck session following an Obama re-election, the terms of a grand bargain would be that the White House agrees to cuts in government spending "in exchange for" bipartisan agreement on making taxes lower than they're scheduled to be under current law.