The first step in any negotiation is determining your own “walk away” point. That is why Treasury Secretary Tim Geithner’s claim yesterday that the Obama administration is “absolutely” willing to allow $500 billion in tax hikes and $100 billion in spending cuts begin on January 1st is so instructive.

In an interview on CNBC yesterday, Geithner was asked: “When it comes to raising taxes on the wealthy, those making more than $250,000 — if Republicans do not agree to that, is the administration prepared to go over the fiscal cliff?”

“Oh, absolutely,” Geithner replied. “There’s no prospect in an agreement that doesn’t involve the rates going up on the top 2 percent of the wealthiest.”

Could Republicans confidently make a similar statement? Of course not. And that is why Democrats have all the leverage in the fiscal cliff negotiations.

But now fast forward to late January or early February when Geithner reaches the $16.394 trillion legal limit for issuing new Treasury bonds. Could Geithner confidently say he is “absolutely” willing to stop paying all of the federal government’s bills on time? Of course not. He couldn’t walk away. He would have to negotiate.

And that is exactly why Republicans should not be negotiating major entitlement reform as part of the fiscal cliff deal. They have no real leverage now. Geithner and Obama are perfectly willing to walk away if they don’t get a deal that liberals will love. But if Republicans wait to address entitlement spending till the debt limit negotiations, then Obama and Geithner will not have that luxury. They will have to entertain better conservative reforms.

And Obama knows this. That is why he panicked at a New York Times report that conservatives may give him his tax hike on the wealthy now and wait for a real budget deal till the debt limit talks. “I want to send a very clear message to people here: We are not going to play that game next year,” Obama said in remarks to the Business Roundtable, a trade group.

But notice what neither Obama or the White House have said yet: that they will veto any fiscal cliff deal that does not include a debt limit hike. Until Obama does that, and probably even if he does, Republicans’ best option now is to let Obama have his tax hike now and seek real spending cuts later.

From The Washington Examiner
Examiner Editorial: Feds spend your tax dollars bracing for zombie attack
Joel Gehrke: Harry Reid blocks vote on Obama’s fiscal cliff proposal
Tim Carney: Democratic abortion absolutism wins Nita Lowey top approps spot

In Other News
USA Today, Citigroup slashes 11,000 jobs: Citigroup, the third-biggest U.S. bank, said Wednesday it plans to cut more than 11,000 jobs – about 4% of its global workforce – in an effort to reduce costs and enhance profitability.
The Wall Street Journal, Egypt Sees Largest Clash Since Revolution: Supporters of the rival camps, spurred by public defiance by influential figures on each side, waged back-and-forth battles in side streets outside outside the presidential palace in Cairo, shutting down major thoroughfares.
The New York Times, U.S.-Approved Arms for Libya Rebels Fell Into Jihadis’ Hands: The Obama administration secretly gave its blessing to arms shipments to Libyan rebels from Qatar last year, but American officials later grew alarmed as evidence grew that Qatar was turning some of the weapons over to Islamic militants, according to United States officials and foreign diplomats.
The Washington Post, An Obama win on taxes for rich could still mean middle class takes a hit: The uncertainty facing Adams and millions of others receiving unemployment insurance underscores the difficult trade-offs involved in the debate over the fiscal cliff.
McClatcy News, Exporting natural gas a boon to U.S. despite price hikes: A major new study for the U.S. Department of Energy supports controversial efforts to send natural gas to foreign nations, a conclusion that could push the president to approve exports over the objections of those who say it would hurt the country.

Righty Playbook
Betsy Woodruff on how Democrats are trying to brand Obama’s infinite debt limit hike as Minority Leader Mitch McConnell’s, R-Ky., idea.
Walter Russell Mead on Rhode Island’s blue civil war.
RedState‘s Daniel Horowitz calls on conservatives to unite after the Boehner purge.

Lefty Playbook
Glenn Greenwald on Obamacare and the corporatist revolving door.
The Washington Post‘s Greg Sargent says Obama will not negotiate on the debt ceiling this time.
ThinkProgress reports on the successful leftist attack on Olive Garden after the companies anti-Obamacare comments.