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| Three questions about the president's latest fiscal cliff proposal | Three questions about the president's latest fiscal cliff proposal |
| (4 months later) | |
| There is nothing that America is hoping for more than deal for the fiscal cliff before Christmas, mainly so that everyone can go ahead and celebrate Christmas. A deal looks tantalizingly close, with the White House's latest offer, which is the first real and solid offer that's been on the table for the duration of the 13 hellish months this discussion has overtaken Washington. | There is nothing that America is hoping for more than deal for the fiscal cliff before Christmas, mainly so that everyone can go ahead and celebrate Christmas. A deal looks tantalizingly close, with the White House's latest offer, which is the first real and solid offer that's been on the table for the duration of the 13 hellish months this discussion has overtaken Washington. |
| Here are the high points of the White House's latest offer: | Here are the high points of the White House's latest offer: |
| • Raise taxes on people earning more than $400,000 a year. • Permanently extend the Bush tax cuts for everyone making less than $400,000 a year. • Apply an inflation-based cost-of-living limit to social security payments. • Allow the payroll tax cuts, in place for the past two years, to lapse. • Allow unemployment benefits to remain for 2 million people whose benefits will stop if the country goes over the fiscal cliff. | • Raise taxes on people earning more than $400,000 a year. • Permanently extend the Bush tax cuts for everyone making less than $400,000 a year. • Apply an inflation-based cost-of-living limit to social security payments. • Allow the payroll tax cuts, in place for the past two years, to lapse. • Allow unemployment benefits to remain for 2 million people whose benefits will stop if the country goes over the fiscal cliff. |
| Great! Wonderful! Sounds like a plan, right? Cut and print, no? Let's get this thing over with, yes? Happy holidays! | Great! Wonderful! Sounds like a plan, right? Cut and print, no? Let's get this thing over with, yes? Happy holidays! |
| Not so fast. No plan is perfect, and the White House plan, despite one major advantage – that is, that is an actual plan – has some shortcomings. Already there are some talking about the flaws in the White House's proposal. Keeping in mind the comedians' best advice – "everybody's a critic" – let's look at what questions people have about the president's proposal. | Not so fast. No plan is perfect, and the White House plan, despite one major advantage – that is, that is an actual plan – has some shortcomings. Already there are some talking about the flaws in the White House's proposal. Keeping in mind the comedians' best advice – "everybody's a critic" – let's look at what questions people have about the president's proposal. |
| Linking social security to cost-of-living increases | Linking social security to cost-of-living increases |
| This cost-of-living increase has the incredibly nerdy name of "chained CPI," because it is based on a very tight definition of the Consumer Price Index. | This cost-of-living increase has the incredibly nerdy name of "chained CPI," because it is based on a very tight definition of the Consumer Price Index. |
| This is the aspect of the president's plan that has drawn the most criticism, especially from his own base of support, because the president has long promised that there would be no cuts to social security, Medicare or other social support programs. | This is the aspect of the president's plan that has drawn the most criticism, especially from his own base of support, because the president has long promised that there would be no cuts to social security, Medicare or other social support programs. |
| Senator Bernie Sanders, an Independent from Vermont, has been tweeting up a storm about it today: "Enacting a chained CPI would cut #SocialSecurity benefits by $112bn over 10 years. #budget #fiscalcliff," he protested this morning. | Senator Bernie Sanders, an Independent from Vermont, has been tweeting up a storm about it today: "Enacting a chained CPI would cut #SocialSecurity benefits by $112bn over 10 years. #budget #fiscalcliff," he protested this morning. |
| Justin Ruben, the executive director of MoveOn.org, the progressive organization, also blasted the president's plan and called on Senate majority leader Harry Reid to speak up. | Justin Ruben, the executive director of MoveOn.org, the progressive organization, also blasted the president's plan and called on Senate majority leader Harry Reid to speak up. |
| "MoveOn members overwhelmingly oppose cuts to social security, Medicare, and Medicaid benefits, and they've made clear that they would see any fiscal agreement that cuts such benefits as a betrayal that sells out working and middle class families … If such a deal were proposed by the president and Speaker, MoveOn members would expect every Senate and House Democrat to do everything in their power to block it. Senate majority leader Reid would play a crucial role, as MoveOn members would count on him and other senators to remain true to their repeated promises to keep social security benefits off the table." | "MoveOn members overwhelmingly oppose cuts to social security, Medicare, and Medicaid benefits, and they've made clear that they would see any fiscal agreement that cuts such benefits as a betrayal that sells out working and middle class families … If such a deal were proposed by the president and Speaker, MoveOn members would expect every Senate and House Democrat to do everything in their power to block it. Senate majority leader Reid would play a crucial role, as MoveOn members would count on him and other senators to remain true to their repeated promises to keep social security benefits off the table." |
| Not even economists are sold on it. Logan Cobb, an economist based in Washington, tweeted that chained CPI doesn't count full consumer prices until 18 months have passed: "2012 numbers not finalized until Feb 2014," he wrote. That would create an exceptionally long lag time for calculating social security cost-of-living adjustments, he said, and would make using chained CPI "unacceptable from a public policy standpoint", according to a statement Cobb gave to Politico. | Not even economists are sold on it. Logan Cobb, an economist based in Washington, tweeted that chained CPI doesn't count full consumer prices until 18 months have passed: "2012 numbers not finalized until Feb 2014," he wrote. That would create an exceptionally long lag time for calculating social security cost-of-living adjustments, he said, and would make using chained CPI "unacceptable from a public policy standpoint", according to a statement Cobb gave to Politico. |
| The Congressional Budget Office also points out that chained-CPI gets revised several times before the final figure comes out – which means cost-of-living adjustments for social security would have to be based on an estimate at first – and that estimate could well later turn out to be wrong. | The Congressional Budget Office also points out that chained-CPI gets revised several times before the final figure comes out – which means cost-of-living adjustments for social security would have to be based on an estimate at first – and that estimate could well later turn out to be wrong. |
| Letting the payroll tax cut lapse will have a subtle but noticeable impact on the paychecks of ordinary Americans | Letting the payroll tax cut lapse will have a subtle but noticeable impact on the paychecks of ordinary Americans |
| The Bush tax cuts are the biggest part of the fiscal cliff, worth $197bn in 2013 according to IHS Global Insight estimates. Most economists and lawmakers agree that it would be a mistake to let them lapse for middle-class Americans. The National Economic Council estimated that letting the Bush tax cuts expire would cost $2,200 to an average family of four – which, in turn, would cause Americans to spend $200bn less than currently expected in 2013. | The Bush tax cuts are the biggest part of the fiscal cliff, worth $197bn in 2013 according to IHS Global Insight estimates. Most economists and lawmakers agree that it would be a mistake to let them lapse for middle-class Americans. The National Economic Council estimated that letting the Bush tax cuts expire would cost $2,200 to an average family of four – which, in turn, would cause Americans to spend $200bn less than currently expected in 2013. |
| But letting the smaller payroll tax cuts expire – worth $117bn in 2013 – would also hurt people, where they could see it: in their paychecks. In fact, the Obama administration instituted the payroll tax cut in 2010 to "increase workers' take-home pay and thus stimulate the economy through higher consumer spending", in the words of the Tax Policy Center. It stands to reason that if the payroll tax cuts made Americans feel richer, its absence will make Americans feel a bit poorer. | But letting the smaller payroll tax cuts expire – worth $117bn in 2013 – would also hurt people, where they could see it: in their paychecks. In fact, the Obama administration instituted the payroll tax cut in 2010 to "increase workers' take-home pay and thus stimulate the economy through higher consumer spending", in the words of the Tax Policy Center. It stands to reason that if the payroll tax cuts made Americans feel richer, its absence will make Americans feel a bit poorer. |
| The Center on Budget and Policy Priorities estimates that the payroll tax cut currently applies to about 121 million families in the United States; if it goes away, they'll have to pay $934 more in taxes a year. Most families would miss nearly $1,000 in their disposable income; in many places, that would be the equivalent of a mortgage payment or a month's rent. For a computer programmer, that hit could increase to $1,500 a year, according to the handy chart from the CBPP. | The Center on Budget and Policy Priorities estimates that the payroll tax cut currently applies to about 121 million families in the United States; if it goes away, they'll have to pay $934 more in taxes a year. Most families would miss nearly $1,000 in their disposable income; in many places, that would be the equivalent of a mortgage payment or a month's rent. For a computer programmer, that hit could increase to $1,500 a year, according to the handy chart from the CBPP. |
| The White House proposal may not do enough close the deficit or stimulate the economy | The White House proposal may not do enough close the deficit or stimulate the economy |
| Joseph Brusuelas, an economist with Bloomberg LP, came out with a skeptical note this morning lauding the progress in the fiscal cliff talks but noting that they wouldn't close the deal. | Joseph Brusuelas, an economist with Bloomberg LP, came out with a skeptical note this morning lauding the progress in the fiscal cliff talks but noting that they wouldn't close the deal. |
| "The scale of the deficit and debt dynamics are such that what may seem like a major concession in Washington is relatively small compared with the painful steps that will have to be taken over the next several years to put the economy on track," Brusuelas wrote to clients. He noted that the budget cuts in the White House proposal fall short of the cuts necessary to close the deficit, which are closer to around $1tn – and the Boehner proposal falls short of this as well, as noted by Barclays analysts today. | "The scale of the deficit and debt dynamics are such that what may seem like a major concession in Washington is relatively small compared with the painful steps that will have to be taken over the next several years to put the economy on track," Brusuelas wrote to clients. He noted that the budget cuts in the White House proposal fall short of the cuts necessary to close the deficit, which are closer to around $1tn – and the Boehner proposal falls short of this as well, as noted by Barclays analysts today. |
| Brusuelas also protested that the White House proposal included no spending on infrastructure, which "would bring the US transportation grid into the 21st century". | Brusuelas also protested that the White House proposal included no spending on infrastructure, which "would bring the US transportation grid into the 21st century". |
| These three points of friction are likely to be the ones to attract the most debate over the next few days. But, to quote a notation from High Frequency Economics today, "They are talking at least." | These three points of friction are likely to be the ones to attract the most debate over the next few days. But, to quote a notation from High Frequency Economics today, "They are talking at least." |
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