I understand that Obama prefers not to go over the cliff and face the political and economic uncertainty that this opens up; maybe my assumption that he can still get the middle-class tax cuts is wrong. On the other hand, cutting Social Security, even modestly, is a very big concession, especially because, as I said, it’s cruel and stupid viewed purely as policy. One thing is for sure: any further concession on Obama’s part would make this a total non-starter. And I’m waiting for clarification on capital gains and dividends. But even as it stands, it’s not a deal to be happy about.
Sargent is more positive:
With this deal Obama will have broken the GOP’s fundamentalist opposition to raising tax rates on the rich (albeit only on income over $400,000) something that would have been deemed very unlikely a year ago. He will have held the line against the GOP demand for two years of Medicare — a victory. Debt ceiling hostage taking will have been deferred for two years, meaning it won’t get tied up in the next elections. He will have obtained stimulus spending — on infrastructure, and in the form of an extension of unemployment benefits — and as Paul Krugman notes, that wouldn’t happen if we go over the cliff. (I’m told the talks have not focused on the exact sum of stimulus spending the White House wants.) The price: The expiration of the payroll tax cut and the cut in Social Security benefits. That’s bad, but the damage could be limited, if the White House insists on it.
Galupo looks at the deal from the GOP’s perspective:
This deal-in-the-making, it seems to me, accomplishes about as much as Republicans could reasonably have hoped: it would make the Bush tax cuts permanent for almost all Americans, and reports indicate that it includes a one-year fix on the creeping alternative minimum tax. It doesn’t give Obama all the revenue he wanted and forced him to the table on a cherished entitlement program. This will not be the last word on U.S. fiscal policy. Republicans will not always find themselves in such a weakened position. And in the meantime, Grover Norquist can go pound sand.
Beutler explains chained CPI, which would “make the Social Security cost of living adjustment formula less generous”:
Chained CPI differs from the way the government currently calculates inflation by taking a broader view of the behavioral changes consumers make when prices rise. It factors in a propensity to substitute cheaper, but similar products for ones that have become more expensive. And it has been criticized by advocates for being a less accurate measure of inflation for the products seniors rely on than Social Security currently uses. But Obama allies and and some liberal economists have identified it as the least-bad entitlement benefit cut and have given it their blessing provided it’s one piece of a broader, balanced debt reduction plan, and includes protections for poorer seniors.
Mike Konczal dislikes chained CPI:
The elderly face a higher rate of inflation since their spending is so dependent on health care, which is difficult to adjust or comparison shop for (the idea behind chaining the inflation rate). More importantly, of the three legs of the stool of retirement security – Social Security, private savings and employer savings plans – the two that aren’t Social Security are struggling. Employer pensions will become less secure and less available going forward. Housing wealth was wiped out in the crash. 401(k)s appear to have been a great way to shovel tax savings to the rich, but are in no shape to take over for a lack of pensions. Median wages have dropped in the recession, and are likely to show little growth in the years ahead, which makes building private savings harder. Social Security will become more important, not less, in the decades ahead. Its benefits should be expanded, not cut.
Yglesias wants more details:
[W]hen you look at chained CPI proposals it’s important to pay attention to what happens to the poor and the very old. The latest White House proposal apparently does something to shelter the “most vulnerable” from the bite of the cuts here, but what does it do and how are the most vulnerable defined? Similarly, the detailed timing structure and sequencing of the proposed tax changes is relevant. The headling idea is to stick with Bush-era rates on everyone with less than $400,000 in AGI, but return to Clinton-era rates for those richer than that. But that doesn’t get you nearly $1.2 trillion in revenue. The logic of the situation seems to be that the gap will be made up by capping itemized deductions at the 28 percent rate, but I haven’t seen that on paper. The bullet points on spending cuts outside of Social Security also leave a fair amount of room for interpretation.
Patrick Brennan notes what isn’t in the deal:
[T]he president’s counteroffer continues to assume that the payroll-tax cut will expire come January 1. Various Wall Street banks predict that the expiration of this policy alone will reduce growth by about 0.5 or 0.6 percent of GDP in 2013, via a $100-plus billion reduction in consumer spending. Meanwhile, the Tax Policy Center has found that it would (or rather, will) hit the incomes of the middle class the hardest … Neither the president nor Speaker Boehner, apparently, has appetite for a crucial piece of short-term stimulus which most benefits the middle class (in favor of which NR’s editors have editorialized).
Kevin Drum’s view:
Overall, this doesn’t sound like it’s the worst deal in the world. So far, though, I’m with Krugman: it doesn’t sound all that great either, and it’s not clear if it’s better than what Obama could get if he simply waited a bit and went over the cliff. But I guess that was never in the cards. He seemed intent from the beginning on avoiding that.
Jonathan Cohn’s bottom line:
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.
(Photo: U.S. Speaker of the House Rep. John Boehner (R-OH) listens during a media availability after a House Republican Conference meeting December 18, 2012 on Capitol Hill in Washington, DC. Speaker Boehner announced that he is moving to a plan B to solve the fiscal cliff issue and he will put a bill on the floor that increases taxes for people whose incomes are more than one million dollars. By Alex Wong/Getty Images)