PLANK DECEMBER 17, 2012
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An agreement on the "fiscal cliff" may be near. On Friday, House Speaker John Boehner endorsed the idea of higher tax rates on upper incomes--a real concession that allowed serious negotiations to go forward. Over the weekend, he and President Obama spoke by telephone. On Monday, they met at the White House. They could reach an agreement within the next few days—not a detailed blueprint for legislation, mind you, but an agreement on the basic principles. Of course, all the usual caveat apply. Talks could break down all over again, congressional delegations could throw a fit, and so on.
The terms are still murky and, presumably, under discussion. The details will make a huge difference. But the broad outlines, first reported by Ezra Klein in the Washington Post on Monday afternoon, are coming into view. [Update: For details on the latest White House counter-offer, leaked to reporters on Monday evening, see the end of this item.]
There would be new revenue, slightly in excess of $1 trillion over ten years. The money would come from households with high incomes; exactly how high is not yet clear. Republicans would have a chance to propose tax reforms that would raise some of the revenue by closing loopholes, rather than raising rates, but if they failed to construct—and enact—such a package then the money would come from tax proposals similar to the ones Obama has proposed, which focus mostly on higher rates.
There'd be cuts to spending, somewhat larger than what Obama put on the table. The deal would call for adjusting cost-of-living increases in Social Security, known as the "chained CPI," but it would not raise the Medicare eligibility age. The rest of the cuts would be unspecified, left for Congress to work out on its own. Some kind of automatic cuts would kick in if Congress failed to find the money.
Boehner also proposed an incremental increase in nation's debt ceiling, effectively giving Treasury enough borrowing power to cover the government's bills for the next year. The proposal is apparently getting a serious hearing at the White House, although that doesn't mean they'll agree to it. Boehner's proposal obeys a principle that Republicans established during the debt ceiling fight—that the ceiling should go up by only as much as spending comes down. It also avoids a fight over the debt ceiling in January or February.
The deal would likely include some steps to help sustain the recovery—it would extend unemployment insurance, once again, and it would dedicate some money to infrastructure. It would also renew refundable tax credits that benefit lower- and middle-income Americans, a key feature of the fiscal discussions that have gotten very little attention. The deal would probably not renew the payroll tax holiday nor, from the sounds of things, would it include a substitute that provides a similar boost to the economy.
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I've learned the hard way not to judge these agreements hastily, particularly when negotiations are still underway. But here are four questions I'll be asking myself, and you should be asking yourself, if and when Obama and Boehner step in front of the cameras to announce a deal:
1. How much revenue would the deal generate? And from what sources? In an ideal world, all of the Bush tax cuts would expire, restoring rates to what they were during the Clinton era, with Congress passing only temporary breaks, benefitting the middle class, until the economy improves a little more. Since that seems unlikely to happen, the next best thing would be something like the Center on American Progress recently proposed. Its plan called for about $1.8 trillion in new revenue, all from upper incomes. Note that it wasn't a crazy liberal idea. Centrists like Robert Rubin and William Daley were among those backing it.
The Obama-Boehner agreement, as currently taking shape, would fall well short of that goal. On the other hand, this deal would generate more revenue than the Senate bill Obama has been urging House Republicans to pass—a bill that Obama promised to sign. And it would force Republicans to drop their opposition to allowing higher taxes on the wealthy. That's significant.
2. How big would the spending cuts be—and where would they fall? The starting point for any conversation on spending cuts should be the cuts Obama already signed into law—cuts o Medicare, via the Affordable Care Act, and cuts to all sorts of other programs, through the Budget Control Act. Discretionary spending, which includes the funding for everything from food inspections to border control, is set to fall below levels not seen in half a century. Funding for programs like Head Start won't keep up with population growth. On paper, the cuts for more cuts is very weak.
Still, some cuts hurt less than others. Changing the formula for Social Security cost-of-living adjustments will reduce benefits, as my colleague Timothy Noah has noted. It makes a lot more sense in the context of a broader Social Security reform package, one that includes new revenue dedicated to the Trust Fund. But if it’s a choice between that change and raising the Medicare age, or further slashing discretionary spending, the Social Security benefits alteration is probably preferable—particularly if the deal includes modifications, outlined by the Center on Budget and Policy Priorities, that would protect the poor and older retirees.
Perhaps the best way to judge the spending cuts is by their size, relative to the new revenue, and the way they treat different portions of the budget—in particular, defense versus non-defense. The distributional effect matters too. Those things are impossible to know right now.
3. What would it mean for the economy in the short term? The economy still needs help. The Obama Administration has shown an uncanny ability to attach modest stimulus to budget agreements, despite Republican opposition. Can they do it again? The extension of unemployment insurance would certainly be good news. The failure to replace the payroll tax holiday, on the other hand, would be worrisome. Again, the final numbers matter.
4. Would we be done with the debt ceiling or not? Obama had suggested he was determined to remove the debt ceiling as an instrument of legislative extortion; Boehner's offer, which is getting a serious hearing, would merely postpone the day of reckoning, setting up another fight a year from now. But, to my surprise, plenty of Democratic insiders see a one-year extension, or something like it, as worthwhile. They figure Republicans will be no more likely to crater the economy next year than they would be this year.
In the end, evaluating the debt ceiling proposal—and the deal as a whole, should one emerge—depends a lot on your perception of the political environment, including public opinion and the mindset of House Republicans. There's no clear consensus on that, at least among the sources I usually consult.
I've assumed (and written) that the Democrats have enormous leverage—that they can basically get their way on taxes, the automatic spending cuts, and maybe even the debt ceiling—no matter what House Republicans want. Among those who share that view is Jeff Hauser, an AFL-CIO spokesman:
Boehner's indefensible goal here ("chained CPI") is to undermine Social Security benefits and a host of other critical programs, including for veterans. The AFL-CIO's bottom line remains clear and enjoys support from an overwhelming majority of Americans: a complete end of the Bush tax cuts for the rich and NO cuts to Social Security, Medicaid or Medicare benefits. Boehner's shown himself unwilling to work within that popular framework, and a delay in the next time the GOP ignores the Constitution and plays chicken with the debt ceiling is not worth violating our commitment to the United States' already too-stingy safety net.
But not everybody agrees. And so I'll leave you, for now, with this assessment from a senior Democratic aide, as the terms of the deal were emerging earlier on Monday:
A trillion dollars in revenue mostly from upper income rates and a one-year debt ceiling increase is 75 percent of what we want. At some point you have to declare victory. Plus, I'm as tired as anyone of Boehner's excuses but the poor guy does actually have to get votes from those crazy people [in the Republican caucus] and this is a sh*t burger for them.
UPDATE: Paul Krugman is hearing the same things and...reacting the same way as I am. At Politico, Carrie Budoff Brown published details on the latest White House counter-offer, which a source close to the negotiations subsequently provided to TNR. Those details include $1.2 trillion in revenue, with rates on incomes above $400,000 a year returning to Clinton-era levels, and a virtually identical amount of spending reductions. The spending reductions would include $400 billion in cuts to health care, $200 billion in non-health care mandatory spending, and $200 billion in discretionary spending to be split equally between defense and non-defense funding. Otherwise, the proposal would look like the one described in my item originally, except that the Administration wants a debt limit increase that would hold for two years, rather than one. One last note: I added the Jeff Hauser quote after publication, just to illuminate both points of view.
19 comments
Anything that reduces Social Security benefits is a lousy, bad, awful, shameful deal PERIOD. Do the jerks in Washington realize how hard it is to survive out here? They're trading precious dollars to seniors, who are often ill, near or below the poverty line, for pennies from the rich? Shame.
- Sophia
December 17, 2012 at 10:50pm
Sophia. The Dems best hope with BHO as Prez is that Repubs are too insane to accept deals that give them cover that would have been too extremely right for Nixon to accept. Please practice giving the tnr spin for the last four years that BHO is the greatest since FDR and his deals are the best that could ever have been made.
- drofnats1
December 18, 2012 at 12:07am
Heh. This trade is too good for Democrats (even though, yeah, I dislike the payroll tax cut sunset and chained CPI). Boehner's caucus deposes him. Not even sure if they let this out of the House conference. Does it really make sense to discharge this for Pelosi? Depends on how badly the Dems want it.
- chaitless
December 18, 2012 at 12:16am
This isn't just a negotiation, but class warfare. The deficit was created by the Bush tax cuts, two unfunded wars, the unfunded Medicare Part D, and unregulated financial gambling, by people who've always hated Medicare, Medicaid, and Social Security. If the wealthy in our country continue to win the class war, our consumer-driven economy is in for even harder times for all of us. We need a strong working and middle class not just for this majority, but for our whole economy to thrive. Hang tough, BHO.
- bsemple
December 18, 2012 at 12:56am
The problem is, I'm not sure President Obama is on our side. He SAYS he is but he seems awful friendly with right wing rich guys. Wall Street types - even in the cabinet? This has been making me nervous for years. He promised not to involve Social Security in this mess and now look. I hope these are pernicious rumors but since the formation of the Cat Food Commission I have been worried. The Republicans have been salivating to get rid of or "privatize" SS since the 1930's. They are economic terrorists. Combine all the facets and you get a good picture of, yes, class warfare. Chris Matthews had a pro-gun guy on tonight. He was, imho, bats*** nuts. He says "we" must have guns, as called for in the 2nd Amendment, to fight the government. That of course is crazy and is the opposite of what the 2nd Amendment calls for. As an example he gave the Brits in the 1770's and, amazingly, the War of 1812! Yes that's right. We were fighting our government, The British Empire, in 1812! That conversation revealed a great deal to me. First, that people are ignorant of history, of what the Constitution says, but also if you put this stuff together with the power of the NRA + ALEC + Rove, Koch Brothers, FOX, assorted media mouths, motoring on, + Grover Norquist, The King, you get a big picture reflection of this: the gun nuts think they need their weapons to overthrow the US government. They are meshugah. But, that task is being accomplished legally, non-violently for the most part, via terrible legislation on the state level, economic hostage-taking on the Federal level, some ghastly decisions by SCOTUS including Bush V Gore and Citizens United; and a manifest lack of morality in general within our culture. It's ok, in our culture, to shoot kids with a semi-automatic rifle. It is not ok to control those weapons. It is not ok to have universal health care or sensible levels of social insurance. It is ok to let rich people pay a lower tax rate than poor workers and the real "middle class". It's ok to break unions. It's ok to ignore the old, the sick and disabled and threaten unemployed people and the working poor, generally express disdain for those who aren't rich, basically accuse them (us) of being worthless and unworthy, so who needs the guns? I wonder what people overseas are thinking of us right about now.
- Sophia
December 18, 2012 at 2:05am
I thought it made sense for both Obama and Boehner to let January - and the new Congress - arrive and re-elect Boehner Speaker, as well as bring in more Democrats to bolster Obama. Doing so would be fine with me.
- peterpalys
December 18, 2012 at 5:00am
Most of the "people overseas" that I've talked with over the last couple of decades think Americans have no idea how lucky they are, Sophia. We seem able to afford all sorts of silliness and tom-foolery in our politics and still manage to be better off overall than almost anyone else.
- Robert Powell
December 18, 2012 at 5:04am
"Still, some cuts hurt less than others. Changing the formula for Social Security cost-of-living adjustments will reduce benefits, as my colleague Timothy Noah has noted. It makes a lot more sense in the context of a broader Social Security reform package, one that includes new revenue dedicated to the Trust Fund." Yes, "new revenue dedicated to the Trust Fund" to repay the approximately $2.7 trillion borrowed from the trust fund that helped make those Bush income tax cuts possible. A $1.2 trillion income tax increase won't even cut the debt in half! And where will the balance needed to repay the trust fund come from? That's right, another increase in the regressive payroll tax, for the Republicans aren't going to support any additional increases in the income tax, leaving the payroll tax, a Republican favorite (it's the flat tax they really want), as the only other realistic source. Somebody needs to teach Mr. Obama how to read a balance sheet, so he will realize that his deal for revenue increases falls far short of even repaying the trust fund. [This may seem like a stubbornly negative view of the rumored deal, but this deal is it - Obama has no more leverage to supplement it later.]
- rayward
December 18, 2012 at 7:04am
"Republicans would have a chance to propose tax reforms that would raise some of the revenue by closing loopholes," We have been looking for these loopholes and deductions for almost two years now. I don't see anything wrong with giving Republicans an opportunity to prove their stupidity will win the day (providing it is not just opportunity to stall to the next debt ceiling fight when they have more leverage,) but as long as Republicans insist that the only way top incomes can contribute to the economy is through lower tax rates, we need someone to prove the world is not flat.
- Nusholtz
December 18, 2012 at 7:41am
$400k in Medicare cuts is pretty close to what's proposed in Obama's 2013 budget, no?
- adsprung
December 18, 2012 at 10:08am
Maybe it's the fiscal cliff, maybe it's Newtown, as even usually reliable Chait is going all austerity on us - last week he came out in favor of increasing the Medicare eligibility age (it's revealing that he calls it the Medicare "retirement age"), and now favors a much larger tax increase/spending decrease to eliminate the (full-employment) deficit. If otherwise sensible people can't formulate a reasonable compromise, how can we expect Obama and Boehner under such intense political pressure. I suspect that Chait has the same reservation as I do: that Obama's leverage will be exhausted with whatever deal is reached and, hence, we would be naive to expect any further deals that would (i) make our tax system more progressive, (ii) repay the sums borrowed from the trust fund using income tax receipts rather than from additional payroll tax increases, and (iii) reduce or eliminate the (full employment) deficit so the deficit cannot be used by Republicans as an excuse to cut entitlements. If those three items should be the goal, then the rumored deal falls woefully short.
- rayward
December 18, 2012 at 10:34am
There's a world of difference between Boehner's proposal and Obama's counter-proposal. Obama's counter, which removes the debt ceiling bomb for the remainder of his term, adds in stimulus, includes defense cuts, and puts the onus of tax reform on the GOP, is a good deal in terms of essentially making the House GOP irrelevant on tax and fiscal matters for the next few years. If I had to make a choice between inflation adjustments to Social Security and raising the Medicare eligibility age, I'd choose the former. But Boehner's offer (tax increases on those making $1 million and more, one-year debt limit relief) is a stinker. The question is where things wind up--presumably somewhere in the middle. But is that middle ground closer to a good deal or a stinker? We don't know yet.
- polcereal
December 18, 2012 at 11:34am
Mr. Powell: "we Americans" in the middle class are doing well but you are ignoring the millions upon millions who are not, and, the fragility of those who are ok for the time being. The campaign focused on "the middle class," with nary a mention of the poor (except to insult them!) But poor people, including seniors and disabled people and working people, constitute a very large number of Americans, Americans who shouldn't bear the burden of supporting the rich and the overpaid and those who've made horrible mistakes either through stupidity or ideology. I don't really want to hear how much better off we are than the people of Somalia, or workers in China. That shouldn't be our benchmark.
- Sophia
December 18, 2012 at 12:12pm
Boehner? "That poor guy"? Complete BS. That's drinking the Fox-News Koolaid, that Boehner, the Speaker of the House, doesn't actually control the lock-step marching Republicans in the House, that some Tea-Party inspired Republican yahoos could scuttle anything. Boehner's used this card way too many times. There are no Tea-Party Republican yahoos -- it's all just Boehner's talking points to get more concessions. The person I feel sorry for is Obama, who's having to "negotiate" with this hypocrit, knowing that whatever agreement they supposedly come to can be tossed in a moment just by Boehner's saying "Oh, sorry, couldn't sell that to my base.".
- AllanL5
December 18, 2012 at 12:56pm
If it weren't for what I call the "real cliff" - people receiving extended unemployment benefits getting cut off - I'd be very tempted to take the "go over the fiscal cliff" position, as it's a pretty progressive cliff and likely nobody would notice the defense cuts. And I'm scared of the unknown - ANOTHER recession? Does it feel like we're out of the Great Recession? Would it be quick, or endless, like Japan's? Thus, I'm agnostic on this one.
- Lymon1
December 18, 2012 at 2:11pm
For Progressives, nothing I've heard beats going over the so-called cliff. Going over the cliff gives the gov't much more tax income than any other proposal I've seen to date. And guess what, neither party will avoid spending much of it to reduce sequestration of military or entitlement/domestic allocations [Thereby providing Keynesian stimuli and producing the best chance to avoid Lymon's appropriately-feared worsening of the Great Recession]. BHO appears much more terrified of going over the cliff than Repubs, for once making his political insanity greater than that of the TEA Party.
- drofnats1
December 18, 2012 at 4:03pm
I think I agree with drof. The latest, he wants to extend the Bush tax cuts permanently for people with $400,000K/annum. Whilst cutting SS benefits. This is in direct contradiction to what we elected him to do. I am disgusted.
- Sophia
December 18, 2012 at 9:52pm
Note: this is really stupid politics. The DEMOCRATS will go down in history as the party that gave tax cuts to the rich and cut SS benefits. My g*d.
- Sophia
December 18, 2012 at 9:55pm
Sophia. Agreed.. And I note Paul Krugman sees it too... albeit he's much nicer about it than me. "Obama’s fiscal deal offer was already distressing — cuts to Social Security, and a big concession, it turns out, on taxation of dividends, retaining most of the Bush cut (with the benefits flowing overwhelmingly to the top 1 percent). It wasn’t clear that the deal would have gotten nearly enough in return. But sure enough, it looks as if Republicans have taken the offer as a sign of weakness, as a starting point from which they can bargain Obama down. Oh, and they’re not giving up at all on the idea of using the debt ceiling for further blackmail. In other words, all of a sudden it’s feeling a lot like 2011 again, with the president negotiating with himself while the other side enjoys the process."
- drofnats1
December 19, 2012 at 3:29pm