Tuesday, December 18, 2012

Deal or no deal

A fiscal cliff deal appears to be in the making. The Republicans seem willing to allow a fairly substantial rise in taxes on the affluent; in return, they want cuts in Social Security -- and the cuts look to be rather substantive. That is to say, the deal will accept something called chained CPI, an arcane term which means fewer cost-of living increases for seniors. As Brad DeLong puts it:
"Chained-CPI" is code for "let's really impoverish some women in their 90s!" It's a bad policy. It should be off the table.
Chained CPI also disproportionately hikes taxes on people in the $30-$40,000 range.

So far, this is reminding me of the Obama of the bad old days, when he was far too ready to wheel and deal on Social Security.

Paul Krugman says that the Medicare eligibility age will not be raised, but Ezra Klein seems to indicate that this option may still be on the table.
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 prefer spending on infrastructure. Creates jobs; increases the rate of growth; may ultimately pay for itself. The real problem right now is not deficit spending but uneployment. Full employment pushes wages up, which slowly but surely pushes people into higher tax brackets, which brings in scads of new revenue, which painlessly eases the deficit.

Are you curious about Defense cuts? Taylor Marsh sums up:
As for Pentagon cuts, they’re hidden under a unicorn in an addendum you’ll find after a wild goose chase.

Okay, so it’s not that opaque. Obama’s new deal calls for $100 billion in defense cuts, while his cave on Social Security is $30 billion more than that.
Obama is not negotiating from a position of strength.

The hell of it is, many GOP legislators (and rank-and-filers) will hate this deal too, since taxes on the rich are the only thing those guys really and truly care about. Boehner will have a harder time getting his team to go for a deal like this than Obama will -- even though the Dems are the ones getting screwed.

Given the situation, every Dem in the country should do whatever they can to force Obama into pursuing a more progressive course. The Republicans are going to shriek and howl anyways, so we might as well give 'em something to shriek and howl about.

A new story in The Hill indicates that the military is the place to cut the fat:
Several high-profile defense think tanks from across the political spectrum are on relatively the same page, in terms of what kind of financial hit the Pentagon should take in the coming decade, according to a recently released report.

The study, compiled by Washington-based National Security Network, found the average spending reduction to DOD coffers recommended by these think thanks came to just over $510 billion over the next ten years.

That number dwarfs the $100 to $300 billion top defense industry leaders proposed in early December as the most budget reductions the Pentagon could handle, while maintaining national security priorities worldwide.
If Democrats must make one painful sacrifice, let it be the payroll tax cut. As for Social Security: Raise the cap; problem solved.
Comments:
He didn't appoint the cat food commission for nothing. All this kabuki of negotiation has been rehearsed in advance. Days before the election he was giving interviews and "leaking" that he'd do just that. I showed hos prospective voters who just put their fingers in their ears and said la-la-la-la!
 
I don't think the negotiations have been mere theater. But I am concerned about the denoument.
 
Joseph,

In the debates, he said that his Social Security policy was "substantially the same" as Mitt Romney's. That's a direct quote. Why won't you take his words at face value?
 
Until Nixon's time (about 40 years into the life of SS), there were no annual cpi increases to the scheduled SS benefit. That was true even in the face of the new high inflation environment. Occasionally, there would be a one-off increase to catch up. But it was usually not enough to catch up fully, and never enough to get or stay ahead.

This chained-cpi proposal does not eliminate cpi adjustments, but reduces them quite slightly in any given year, amounting to significant reductions only over time. It will act to reduce out-year payments to better off retirees, as a stealth means-testing effect.

I lean toward taking this step, especially if the tradeoff now is keeping the 2% tax savings off the 6.2% FICA tax, which is far more valuable to the working poor and near-poor, many of whom are on full SS or partial SS retirement (while still working).

The effects of the chained-cpi change will be de minimus in the short term, and by the medium term, can be corrected via targeted subsidy directly to the most affected populations (while keeping the savings from the better off non-means tested retirees).

Back to Nixon's example, HE had a stronger national health care plan than Obmacare which might have passed then, based on employer mandates. We did not get it at the time, as Democrats opposed it, supposedly because we could do much better. What transpired after refusing that deal was another 40 years without any such plan.

XI

 
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