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Hullabaloo


Monday, December 31, 2012

 
Fiscal cliff notes 12/31: hovering on the edge of a mini-deal

by digby

The latest trial balloon looks like this:

An emerging tentative agreement would extend current tax rates for households making $450,000 or less; extend the estate tax at its current level of 35 percent for estates larger than $5 million; and prevent the Alternative Minimum Tax from hammering millions of middle-class workers, sources said.

The deal would also extend unemployment benefits set to expire Tuesday and avert a steep cut to Medicare payments for doctors.

If this is true, all I can say is that it could be a worse. As one who doesn't think the deficit is something we should care too much about at the moment, I can't say that I'm sorry to see such a "small" deal. On the other hand, as one who cares a great deal about income inequality, I'm very sorry to see the Democrats give up their best chance to raise taxes on the affluent. It was never worth it to exchange those (inevitably temporary) tax increases for cuts to vital programs for average people --- kind of defeats the purpose --- but going over the cliff would have solved that problem.

I would be baffled by the calculation that leads the Democrats to walk away with so little except for this, as Jamelle Bouie succinctly outlines:

Not only did President Obama win reelection on a message of higher taxes for the wealthiest Americans, but the actual mechanism of the fiscal cliff— automatic tax increases on all Americans, beginning Jan. 1 — gave Obama space to drive a hard bargain. And indeed, his initial offer on the fiscal cliff was promising: $1.6 trillion in new revenue, unemployment insurance, billions in new stimulus, a permanent fix for the debt ceiling, and several hundred billion in undefined spending cuts.

Of course, Republicans rejected this offer. And given their power in the House of Representatives, Obama had no choice but to make some concessions. But in his apparent zeal for a “grand bargain,” he went further, lowering his ask for revenue and floating cuts to Social Security in the form of “chained consumer price index,” a different way to measure inflation and calculate benefits. Republicans rejected this as well, and talks between Obama and Boehner fell apart.

The current Democratic offer is even further from ideal than the one presented by President Obama, and it represents a huge erosion of leverage. Republicans are now the ones in control, and as Jonathan Chait notes, it has everything to do with the president’s willingness to cave on taxes and his genuine desire to avoid the fiscal cliff.

I believe they are afraid of the cliff, for reasons that are obscure. Perhaps they should stop watching cable news for a while. But at bottom I think it's the Grand Bargain that drives them, otherwise they wouldn't have floated the Medicare eligibility age and the Chained-CPI. Unfortunately, I'm guessing that the combination of lower deficit reduction from the tax hikes and the looming debt ceiling fight will give them another bite at that apple. The Grand Bargain lives.

But it also gives progressives some time to organize against the next call for "shared sacrifice." Every day that we avoid austerity is a day that the economy may improve and the long term deficit assumptions will change for the better. Fight one battle at a time.

This one seems to have come to a draw, in my view, when it could have been a win. But according to Ezra Klein, the GOP sees it as a huge win for them, and you can see why:

Obama is already negotiating over the debt ceiling, [the Republicans] point out. He began the fiscal cliff negotiations by saying he wanted a permanent solution to the debt ceiling. Then it was a two-year increase in the debt limit. Now he’s going to sign off on a mini-deal that doesn’t increase the debt ceiling at all. Does that really sound like someone who’s going to hold firm when faced with global economic chaos? The White House always talks tough at the beginning of negotiations and then always folds at the end. Republicans are confident that the debt ceiling will be no different.

All this raises the tantalizing prospect for Republicans that they could end these negotiations having given up less tax revenue than they ever thought possible — less tax revenue than Boehner offered Obama, even — but still getting their entitlement cuts. Oh, and because there was never a big deal, they won’t have to agree to much stimulus, either. All in all, a pretty big win, and it wouldn’t have been possible without the White House’s baffling inability to stick to a negotiating position.

Apparently the White House is telling Klein that they fully intend to hang tough on the debt ceiling, you betcha. No way, no how are they going to negotiate. I might find that believable if the President wasn't obviously still chasing his white whale of a Grand Bargain (which he reiterated just yesterday on Meet the Press with his statement that cuts to programs that are "really important to seniors, student and so forth have to be part of the mix.") It has been obvious that the president seeks to cut the so-called entitlements since he first talked about it in 2009, saying that "everyone's got to have skin in the game." That's the danger we've faced from the beginning. And it's only because the Republicans don't want their fingerprints on it and the Democrats risk being mau-maued out of office by those same hypocritical Republicans that it's so difficult for him to get it done.

If this deal happens (no guarantee) then there will at least be some time to organize once more against these unnecessary spending cuts to vital programs. That's about the best I can say for it.


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