Edging Closer to a Deal on the Cliff?

December 17th, 2012 at 11:25 pm

Yet another counter-offer just out, this time from the President.  As I noted earlier, they could close a deal this week, or it could still fall apart.  A month ago, I was at 75/25 we’re going over.  I’m now 60/40 we’re not.  At this point, the biggest outstanding question is less can they agree on numbers—that’s still big, but they’re moving closer with each offer.  It’s: can Rep Boehner deliver the votes in the House?

See here for details of the President’s latest (from the NYT):

The White House plan would permanently extend Bush-era tax cuts on household incomes below $400,000, meaning that only the top tax bracket, 35 percent, would increase to 39.6 percent…[However, base broadeners, like the President’s proposal to cap deductions at 28% for incomes above $250,000 would still be in the deal.  Also, cap gains and dividends go to 20% above $250,000…JB]

…the president’s plan would cut spending by $1.22 trillion over 10 years, compared with $1.2 trillion in cuts from the Republicans’ initial offer. Of that, $800 billion is cuts to programs, and $122 billion comes from adopting a new measure of inflation that slows the growth of government benefits, especially Social Security.

…The White House is also counting on $290 billion in savings from lower interest costs on a reduced national debt.

…Of the $800 billion in straight cuts, the president said half would come from federal health care programs; $200 billion from other so-called mandatory programs, like farm price supports, not subject to Congress’s annual spending bills; $100 billion from military spending; and $100 billion from domestic programs under Congress’s annual discretion.

The White House would insist that the benefit cut to low-income seniors caused by the switch to the chained-CPI would be offset with some bump-up in benefits.  They also wants to keep the debt ceiling off the table for two years (Boehner offered one year in his last iteration).   Sequestration would be turned off and they’re still pushing for some temporary measures to help the near-term job market, including another UI extension and infrastructure investment.

And so on…I wouldn’t get too wedded to any particular plan.  The main point is that there’s convergence towards an agreement.  On the plus side, from my perspective, are new revenues, higher rates, and broader base, all locked in as part of this deal.  If it stands, it’s a huge accomplishment and a direct outcome of the election.

Also, good for the White House for sticking with some jobs measures next year.

On the negative side, I really don’t like the $100 billion more of cuts from the non-defense discretionary part of the budget.  These are programs that mean a lot to folks trying to get ahead, and we’re already cutting them to the bone.

There’s no deal yet and a lot of disagreement so don’t get too excited.  (I heard something today about the Senate maybe setting things up to vote on a package Dec 26.  That’s my birthday—how cool would it be to resolve the fiscal cliff on my birthday—best present ever!)

But also, not to be dyspeptic, but any joy you might feel from solving the cliff before (or very shortly after) we go over should be akin to the joy you feel from when you stop banging a hammer on your head.  T’was dysfunctional government that brought us to this precipice and while I’ll be glad to see it resolved, it never should have happened in the first place.

And frankly, there’s a lot more we need to be doing than setting and solving traps for ourselves.

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15 comments in reply to "Edging Closer to a Deal on the Cliff?"

  1. jonathan says:

    I don’t see this happening. The individual GOP reps all face challenges starting about 1 year from now and those will all be from the right. Given the way GOP reps are geographically located, few have substantial exposure from the left sides of their own party. So why vote for a tax increase? The right wing will only attack you for raising taxes. They not only won’t care about “cuts” but will concentrate on things like how you’ve voted to weaken the nation – by cutting defense – while letting the dependency class get off. And of course they’ll attack you for cutting Medicare / Social Security because actually cutting Medicare / Social Security is bad but talking about cutting is good. And of course, you’ve just voted to raise the debt ceiling not just once but twice.

    (That raises a fundamental governance issue: you can’t cut Medicare / Social Security without voting to cut it and that means the GOP must vote to do it because they control the House and can filibuster in the Senate so therefore they can’t actually vote to cut Medicare / Social Security. They want the Democrats to do it so they can run against that but it can’t happen because the Democrats aren’t in charge.)

    So from the GOP congressperson’s perspective, you’re giving up a) a tax increase, b) defense cuts, c) increasing the debt ceiling and d) Medicare / Social Security cuts that seniors will hate.

    In favor is what? That you are getting a better deal than you can get in January. That means you as a politician are running on the idea that you made the best deal you could maybe if maybe the deal would have been worse later. That is weak stuff to run on. And great fodder for the guy who says, “This is a tax increasing, defense cutting, blah blah blah who cut your Social Security benefits.”

  2. Russ Abbott says:

    I can’t imagine why Obama would agree to a deal that doesn’t include both doing away with the debt ceiling and extending the payroll tax reduction. The worst thing that would happen is that we would get no deal, all taxes will go up (to be reduced for most in January anyway), and the economy will suffer. The Republicans will be blamed, and in four years when there is a recovery the Democrats can take credit.

  3. rjs says:

    what is the justification of including social security cuts in this deal?

    it’s an independent program paying stipends from its own trust fund which is replenished from its own revenue stream, and its issues are two decades away…

    • Bearpaw says:

      The justification is that it proves that wealthy politicians are “serious” about sharing the sacrifice. If they and their even-wealthier backers have to sacrifice some of their pocket change, it’s only fair that some poor old farts have to die.

    • PJR says:

      Agree, and I also wonder how much money is being saved in the 10-year window by using the C-CPI and offsetting the change for “low income” beneficiaries by increasing their benefits. We need some details, but clearly this is a purely political, anti-Social Security proposal. (Not so long ago, the GOP was screaming that we are understating inflation rates–a claim equally based on political calculations.)

      I’m also waiting to see if the C-CPI will be applied to tax brackets, Veterans Disability Pay, and other calculations. I’m unconvinced that it’s a better measure in it’s current form. but that doesn’t mean we won’t adopt it.

      • Jared Bernstein says:

        Yes to brackets and probably other benefits though not sure if there are details on that.

      • Sharon says:

        Maybe I’m wrong, but I get the sense that applying C-CPI to the tax brackets is one of the main points of this deal.

        It’s a stealth tax increase, and a regressive one at that.

        Chained CPI is a lousy deal for seniors and a lousy deal for the middle and working classes. I’m calling my Representative and my Senators and ask them to vote “no” on any deal that has a C-CPI as part of the package.

        Lift the cap on wages subject to FICA!

  4. EdH says:

    methinks the lede was buried on this post

  5. Fred Donaldson says:

    Watching you with others on CNBC this morning, I heard some wrong numbers on average Social Security Benefits. Retired workers are at $1,239 average a month in 2012 and spouses (if living or present) are at $614. Disabled are lower. Some folks are throwing out $20,000 plus SS numbers. See gov. site for accurate numbers: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

  6. bill says:

    This is an awful deal:

    a) Social Security isn’t involved in the deficit
    b) From what I can tell, this isn’t even a cut that will only affect future SS recipients, but will start now and will affect current retirees
    c) The average SS benefit is $14k a year – so we’re going to take money from an already meager social insurance program, yet completely protect those making between $250k and $400k? What kind of priorities are those?
    d) We need to stop cutting discretionary spending – taking another $100 billion over ten years is insane.
    e) This amounts to negotiating over the debt ceiling – saying we’ll give you this if you stop for two years is nothing if not negotiating about it.

    The most charitable explanation I can come up with is that Obama knows Republicans will reject this, and then he can come back to voters and say, “We even agreed to changes to one of the Democrats’ most important programs, and the right wing STILL turned us down.”

  7. jonathan says:

    And the humor, of course, is that we can read people – like Jared, like Paul Krugman – worrying that this is the best deal which can be made, that the deal in January would be worse.

    Which is it? If the deal would be worse in January for the Democrats, why would the GOP take the deal now? They truly have no incentive to hurt themselves in their primary races.

    If the deal sucks for both and neither knows what would happen in January, which seems more and more likely given the description, why would the GOP House members go along with this?

    Now of course some might and those some might be enough and then some GOP senator might and that might be enough. No one knows the future. But if the Democrats are worrying the deal would be worse in January, why as a GOP House member would you vote for a deal now?

  8. Bud Meyers says:

    Obama doesn’t have to “compromise” at all…the people have already spoken.

    Capital gains and dividends should be taxed at the regular marginal tax rates. Why do those on the Forbes Fortune 400 List get such a better tax deal then everyone else?

    And when we cash out our 401ks and union pensions, even though our funds are invested in stocks, WE have to pay the marginal tax according to our annual income.

    And why not eliminate the CAP on Social Security taxes entirely? The wealthy live longer, collect more, and collect much longer than everyone else does.

    And why not tax “investment income” for Social Security and Medicare taxes, just like everyone else who has to pay this tax on 100% of our “regular” wages?

    The tax system is rigged for the wealthy, and always has been.

  9. jmm says:

    Anybody heard anything about the hedge fund manager’s special rate (carried interest rule)? Can we get rid of that, please?

  10. Jan Rooth says:

    “Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security,” Biden said.

    Oh well … guess we shouldn’t be surprised that politicians turn out to be lying SOB’s.

  11. PeonInChief says:

    Oh, gee, Obama agrees to cut Social Security. What a surprise!