Obama didn’t get all he had hoped for, but he fulfilled a campaign promise. Why Obama, McConnell took the deal

One word explains Senate Minority Leader Mitch McConnell’s decision to toss out 20 years of Republican orthodoxy and sign on to major new tax hikes: leverage.

Senate Republicans didn’t get the big spending cuts they’d hoped for as part of the fiscal cliff deal. They didn’t get the elimination of the estate tax. But deeply aware that Obama could jam them on the tax cuts that expired on New Year’s, they took a deal that’s less about the round they knew they’d lose and more about the next round they believe they can control — which will begin almost as soon as this one is over.


( PHOTOS: Fiscal cliff countdown)

Republicans insist they’re happy that they’ve strengthened their hand for the next round — but make no mistake, some of that stance is making a virtue of necessity. They feared President Barack Obama could caricature them as the defenders of tax cuts for millionaires and billionaires. Plus Obama’s the one with the bird in the hand — pocketing tax cuts for the overwhelming majority of Americans, which the White House plans to tout heavily in the months ahead — while Republicans are left to lick their wounds and dream of besting him at some future date, for some unspecified future spending cuts and entitlement reform.

( Also on POLITICO: CBO score of the fiscal cliff agreement)

Obama didn’t get the deal he was hoping for either, but in his mind, now has fulfilled a signature campaign promise and gotten the momentum and template to do more big things in his second term, all while breaking the GOP “fever” that stopped them from raising taxes.

But it’s McConnell and the Senate Republicans who strayed from the usual script — all in the hopes of winning the next big battle.

By delaying the sequester cuts for two months, McConnell’s forced them to coincide with the debt ceiling fight. By then, the president won’t have expiring tax cuts or the end-of-the-year media attention to hold over Republicans, and without that — especially after striking a deal and accepting the president’s position on taxes — McConnell will be able to control the coming conversation on spending cuts and overhauling entitlements. Obama got his New Year’s victory, goes the thinking, but now McConnell will be in charge for the rest of 2013.

( Also on POLITICO: Obama's statement on fiscal cliff deal)

“This is Obama’s high point in the second term,” said Grover Norquist, the patron saint of refusing to raise taxes. “The next four years are the Republicans … chipping away at his spending, and that’s a fight where independents side with the Rs on a regular basis.”

Without a deal now, Senate Republicans feared a post-cliff Obama would be able to declare himself the nation’s leading tax cutter.

“Each of us could spend the rest of the week discussing what a perfect solution would have looked like, but the end result would have been the largest tax increase in American history,” McConnell said shortly before the vote. “The President wanted tax increases, but thanks to this imperfect agreement, 99 percent of my constituents won’t be hit by those hikes.”

On “Meet the Press” Sunday, Obama said he’s open to major entitlement reforms and, to Republicans’ thinking, has already won all the new taxes he could possibly get. Without a deadline forcing tax increases, the thinking is that Obama will be hard-pressed to win any new revenues, just as he failed to do in 2010 and during the 2011 debt ceiling talks.

“They know that the debt ceiling has to be passed,” a Senate GOP source said Tuesday morning. “What we’ll know at that point is that the president got his beloved tax hike, it’s done. Were still going to have this debt, and we need to get serious at that point. Taxes are off the table, that’s done.”

The source added: “The reason they got this one is that everybody’s taxes were going to go up and there was a deadline. That doesn’t exist anymore. What’s their threat going to be? This is gone now.”

Senate Republicans believed they got a pretty good deal, given the circumstances, senators said. They got a permanent agreements on the Alternative Minimum Tax — a significant priority — and tax rates, which removes the threat of the Bush rates expiring from the next round of negotiations.

McConnell, who for months pushed for a deal on tax rates, praised the deal on the Senate floor, saying that it stopped tax increases on the vast majority of his constituents – words echoed by many of his members and similar to what Obama had been saying for months on the campaign trail.

Before McConnell began direct talks with Vice President Joe Biden over the weekend, Senate Republicans had nearly resigned themselves to believe that the White House would not move from Obama’s campaign pledge to allow the Bush tax cuts to expire on income above $200,000 for individuals and $250,000 for couples.

“We got the best possible deal we could get without having the Senate or the White House,” a Senate GOP source said Tuesday morning. “Given that we were able to prevent this many people from having a tax hike, that’s something.”

But the White House isn’t worried. Instead, it’s crowing about how far Republicans moved on taxes and pointing to the deal as evidence Obama will be able to win new revenue increases in upcoming negotiations. During the 2011 debt limit fight, Republicans sniffed at closing corporate jet loopholes worth a few billion dollars. Eighteen months later, they agreed to a deal that increased revenue $620 billion while cutting only $12 billion in government spending.

The White House believes the fiscal cliff deal allows Obama to paint himself as above the usual Washington rabble, hard at work for the American people as Congress squabbles over the details. After two years, Obama’s White House finally has its template for how to deal with congressional Republicans: Keep the president in campaign mode and leave the dirty work of negotiating to others.

That’s how Obama declared victory mid-day Monday, even before the final deal was set: the agreement was not ideal but the best he could do given the miscreants in Congress.

He said the sequester extension – involving equal parts revenue and spending cuts – was how he expected future budget fights to go.

“I have to say that ever since I took office, throughout the campaign, and over the last couple of months, my preference would have been to solve all these problems in the context of a larger agreement, a bigger deal, a grand bargain — whatever you want to call it — that solves our deficit problems in a balanced and responsible way, that doesn’t just deal with the taxes but deals with the spending in a balanced way so that we can put all this behind us and just focusing on growing our economy,” Obama said. “But with this Congress, that was obviously a little too much to hope for at this time.”

Toward this end, there will be more events like Obama’s much-panned campaign-style Monday address in front of “middle class Americans” in the Eisenhower Executive Office Building. Republicans and Democrats on the Hill alike hated it, but given how the White House feels about results of the deal, there will be more of the president as campaigner rather than negotiator during his second term.

Still, Obama’s decision to raise the income threshold from $250,000 – the line he drew for the last four years – to $450,000 didn’t sit well with the progressive base. The Senate hadn’t even voted before AFL-CIO President Richard Trumka, former Labor Secretary Robert Reich and Iowa Sen. Tom Harkin had blasted it.

Ending the 20-year Republican opposition to increasing income tax rates – the “fever” Obama talked about breaking on the campaign trail – is a big enough victory that Obama could sacrifice the details of his own campaign pledges.

The White House still holds out hope for a deal that achieves significant deficit reduction – an element absent from Monday’s deal. And sources familiar with Obama’s thinking said he still has a lot of tools left to achieve it, including his proposal to place a 28 percent limit on deductions – a move that could raise an additional $500 billion in revenue – and more than $1.1 trillion in spending cuts from his budget plans. Obama will reintroduce these ideas during the negotiations to extend the sequester, which expires in two months, sources said.

He’s unlikely to get much cooperation then from Speaker John Boehner and the chastened House GOP, where there is some regret for not passing Boehner’s “Plan B,” which would have set the tax cut line at $1 million. Chastened by their inability to must support for an alternative, House Republican leadership was left with no option but to put forward the Senate’s bill.

But Boehner’s claim on the speaker’s gavel remains secure, and House Republicans can go on offense on the tax cuts instead of defending the Bush tax cuts.

When that fight happens, it will come in context of Obama being forced to deal with House Republicans to raise the debt ceiling again, just as the sequester will hit a second time. In those battles, Republicans will seek to eliminate spending programs Obama won in this and past deals.

“As much as one has to give away to Obama this time,” Norquist said, “our goal remains to restore all of the tax cut.”

— Carrie Budoff Brown and Manu Raju contributed reporting