… this isn’t too, too awful.
All at once, a “fiscal cliff” deal seems to be coming together. Speaker John Boehner’s latest offer doesn’t go quite far enough for the White House to agree, but it goes far enough that many think they can see the agreement taking shape.
Boehner offered to let tax rates rise for income over $1 million. The White House wanted to let tax rates rise for income over $250,000. The compromise will likely be somewhere in between. More revenue will come from limiting deductions, likely using some variant of the White House’s oft-proposed, oft-rejected idea for limiting itemized deductions to 28 percent. The total revenue raised by the two policies will likely be a bit north of $1 trillion. Congress will get instructions to use this new baseline to embark on tax reform next year. Importantly, if tax reform never happens, the revenue will already be locked in.
On the spending side, the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits. Beyond that, the negotiators will agree to targets for spending cuts. Expect the final number here, too, to be in the neighborhood of $1 trillion, but also expect it to lack many specifics. Whether the cuts come from Medicare or Medicaid, whether they include raising the Medicare age, and many of the other contentious issues in the talks will be left up to Congress.
On stimulus, unemployment insurance will be extended, as will the refundable tax credits. Some amount of infrastructure spending is likely. Perversely, the payroll tax cut, one of the most stimulative policies in the fiscal cliff, will likely be allowed to lapse, which will deal a big blow to the economy.
I know folks will tell me the chained-CPI adjustment is a deal killer in their minds… but I have to admit, I don’t see the argument. The chained-CPI adjustment says that instead of just looking at a basket of good, you look at possible substitution effects when prices for one item rises. As a practical matter, this is actually how people make buying decisions, so it strikes me that a chained-CPI adjustment is not wildly problematic. Indeed, I’d go so far as to say that while I am not part of the “make grandma eat cat food” crowd, I will note that redistributional politics have tended to benefit the elderly at the expense of working poor for a generation now. So while this change would clearly hurt the elderly somewhat, I am not sure that in the grand scheme of things this is a particularly awful change in itself. And if it helps stave off changes in the Medicare retirement age, it would be a net plus even for the elderly.
The payroll tax issue, I think, is actually a good change. From my perspective the payroll tax holiday is a political liability, since it reduces revenue for Social Security and plays into right-wing fearmongering about Social Security being “insolvent.” (And yes, I know that by law the Social Security trust fund is reimbursed from general revenue.)
Still a couple of issues that worry me. I’m not seeing anything about the Estate Tax. This is a huge issue in terms of concentration of wealth, and hopefully Obama will press hard to ensure both limited exemptions and higher rates on this front.
But what really worries me is this:
The deal will lift the spending sequester, but it will be backed up by, yes, another sequester-like policy. I’m told that the details on this next sequester haven’t been worked out yet, but the governing theory is that it should be more reasonable than the current sequester. That is to say, if the two parties can’t agree on something better, then this should be a policy they’re willing to live with.
As for the debt ceiling, that will likely be lifted for a year, at least. In contrast to a week or so ago, when the White House was very intent on finishing the debt ceiling fight now, they’re sounding considerably less committed to securing a long-term increase in these negotiations. The argument winning converts, I’m told, is that since the White House won’t negotiate on the debt ceiling now and won’t negotiate on it later, there’s little reason to make it the sine qua non of a deal.
I am not sure I see the political logic here. Will the president’s hand be stronger in six month? In a year?
I understand why Obama might agree to something like this. He’s, you know, a decent guy, and he doesn’t want to see average Americans hurt as a result of political gridlock. In other words, he’s saying he’s willing to compromise because he’s concerned about the fate of the hostages… but in the long run, doesn’t this just continue to empower the hostage takers?
Maybe generational change will continue to come at a rapid rate, and maybe the GOP will shrink into complete irrelevance quickly enough that buying time makes sense strategically. But I dunno. It strikes me that this process is likely to take longer than we’d like, and that as a result we’re going to need to confront the hostage takers directly at some point rather than just kicking the can. What do you think?