A Boring Fiscal Cliff Thread

Looks like Biden and McConnell have agreed on the tax side of things, with $450K (couples) set as the rate increase point. Still no deal on any spending cuts at this point. Obama is set to address the nation at 12:30 Central.

Bleh, bad deal. I'm not sure why the President is willing to settle for a deal that gives him less in terms of revenue than he already claimed he gets for free. We're going to have a debt ceiling hostage situation in the next two months and striking this deal now gives him much less credibility when that comes around.

I assume because he assumes that is required to get anything passed. It clearly was not going to get accepted with the $250K set point. And even $450K is a pretty significant thing to get the GOP to accept. Assuming they spending cuts side reaches some type of agreement, which it appears not to at this point.

Boehner has agreed to bring whatever the Senate passes up for a straight up and down vote in the House, so the Dems just need to be unified and pull some GOPers in the House to keep the Tea Party from scuttling a deal.

So the details as far as I can tell are these:

- Bush tax cuts expire for income over 450k.
- Various stimulus incentives (tax cuts) are extended for a year. These are not new tax cuts; it's preserving existing cuts.
- Milkageddon averted.
- SGR patched for another year.
- Capital Gains tax rate increased to 20% for incomes over 450k.
- Estate tax related stuff
- AMT patch

What's not in the current deal:
- Deficit reduction; it's roughly deficit neutral.
- Anything related to the debt ceiling.
- Extension of payroll tax holiday; everyones taxes go up by ~1k tomorrow.

Revenue wise this represents ~650bn over 10 years; not all that much. It's a bit more than a third of the President's original goal of 1.6tn, about half of his revised goal of 1.2tn, and less than the 800bn he claimed he got "for free" while negotiating with John Boehner. It represents a fairly considerable fold by Democrats. They get a bit of extra revenue, in exchange they offer up a bunch of stuff on which there's basically bipartisan consensus (nobody wants Milkageddon, everyone wants to do an AMT patch, Doc Fix, etc).

Substantively this is mostly a bunch of can-kicking. We've still got sequestration to deal with (totally unaddressed), and we've still got a debt ceiling fight coming. John Boehner has made it clear he's going to use that as a hostage for major spending cuts; the President claims he's not negotiating over the debt ceiling. The President also claims any replacement for sequestration will have a 1:1 ratio of spending cuts to revenue increases. At this point does anyone believe him? Certainly not I.

The Senate will probably pass this; here's hoping that Democrats in the House balk.

edit: @JeffL: This is almost certainly a bad deal for Democrats; they're permanently surrendering the one major bargaining chip they have: the Bush tax cuts. While they get some OK short-term stimulus out of this deal, I really don't see what leverage they're going to have when it comes time to negotiate over sequestration or the debt ceiling. If I'm Speaker Pelosi or the average Democrat in the House, I am pretty furious right about now.

The GOP is the best, most skilled political party in the world. Losing an election and still being the one to actually decide about every single policy is quite an achievement.
Getting your opposition to agree to a "deal" in which they get less than they would have gotten by doing nothing is pretty neat too.

I couldn't imagine a weaker position for the Democrats in any future negotiation.

I'm not butthurt over $450k. They were previously talking $1m, so this is progress.

$250k puts it firmly into the top 2% camp, whereas $450k only hits the 1%. I'm totally fine with that.

The issue is they're not getting anything meaningful for it.

I explained this to Huzurdaddi over on qt3: the dynamic at play is that there are three major budgetary issues to be worked out:
1) What to do about the Bush tax cuts
2) What to do about sequestration
3) What to do about the debt ceiling.

Up until recently the President's approach was to lump these all together. The Bush tax cuts expire on income above 250k; sequestration is replaced by a 1:1 ratio of spending to revenue, and the debt ceiling goes up. Because of the GOP's fantaticism on taxes, he had a somewhat powerful hand here: give me what I want or taxes go up on everyone. As he's rumored to have said during negotiations: the current deal baseline is +800bn in revenue; he gets that for free.

What this deal represents is the GOP successfully decoupling #1 from the other two. By getting the President to enshrine the Bush tax cuts permanently into law the GOP takes away his most powerful bargaining chip. Now this was always going to happen, the question was always what would the President get for it? From what it sounds like: not very much. Extending emergency unemployment insurance is a genuinely important thing to do; without it millions of people were going to endure some real suffering. He got that for a year. Other than that? It looks like a short-term extension to various stimulus-related tax stuff. Note the asymmetry: the President gets some short term stuff (whose macroeconomic significance is, IMO, overrated) and in exchange for which he permanently disarms.

Now that was always going to happen. The problem is that it's happening in a world where #2 and #3 aren't being addressed whatsoever. The President is significantly weakening his position with regards to sequestration. And in no way did he get the GOP to disarm with regards to their most powerful bargaining chip: the debt ceiling.

I'm skeptical if this can make it past the house - which may be the Democratic plan all along - use the Tea Party as cover to shoot down a deal that seems "reasonable".
Afterwards they can use the outcry to force Boehner to accept a more lopsided deal that the Democratic caucus in the House will vote for, with whatever Republican votes he can muster up...

Latest headlines from nbcnews are indicating the House will not hold any vote tonight. Looks like we're cliff diving! I'm guessing Boehner knows if he brings any deal that raises taxes to a vote and it passes with Democratic support, his speakership is over.

Ladies and Gentleman, your GOP House majority! Willing to screw the country because the President said something mean.

Okay, so is it actually possible Obama deliberately aimed to make an offer that both seemed like he made way too many concessions for his supporters but that the House Republicans still wouldn't pass? Because... as a deliberate strategy I can almost see the sense in that, if the House GOP's response really could be guaranteed.

It's worth highlighting specifically what the GOP found objectionable about the President's remarks. This is as good a place as any for an overview of the situation, but I'm going to quote some specifics:

Perhaps he shouldn't needle Congress. But seriously? Apparently in the fever swamp of the GOP mind, pointing out the fact that Congress is mostly useless is reason to scuttle a deal. I thought Republicans were supposed to be tough; this is all it takes to get them to pick up their ball and go home? Jeez. What a bunch of wimps!

More substantively, the President said this regarding the sequestration:

This is nothing new; the President has been saying it since these negotiations began: sequestration gets replaced with a mix of revenue and cuts, not straight cuts.

Ladies and Gentleman, your Republican majority! Willing to inflict pain on the American people because the President kind of sort of made fun of them!

Meserach: honestly I don't buy the eleven-dimensional chess theory. Insofar as this may work out in the President's favor it's because the GOP House caucus is really, really batshit crazy and so it's hard not to end up looking like a master tactician when you're facing off against them.

I've been expecting going over the "cliff" (ie speed bump) the entire time because saying you voted for a tax cut is more fun than saying you voted "not to raise taxes for some people."

*shrug*

Probably in another couple of hours we're out of time; there's only so fast you can do roll calls and conference and get it to the President's desk to be signed.

I'm interested to see what happens next. If I'm the Democrats in the Senate, I'm going to reject the McConnell deal. That was good before we went over the cliff; but we just pocketed A LOT of revenue. If they want some of it back, they can fucking pay for it.

They better deny McConnell's deal. Already prepared to be furious.

So: 11 dimensional chess, or just lucky his opponents are idiots?

Or as I like to call it, "any offer."

It's much too soon to be decrying the idiocy of the GOP. If they get shellacked in the next election or if they have demonstrably weaker bargaining power in the next negotiations, then maybe we can talk about how stupid the GOP is. But up to this point, their intransigence, dickishness, and willingness to throw the country under the wheels of the bus for political gain has served them well. Hell, just in these recent negotiations it appears that the Democrats were willing to concede way more ground than they should have.

The latter.

Obama is definitely in a position of strength right now, and I think he showed off a little bit by issuing an executive order unfreezing pay raises for federal employees in 2013 (it had been frozen for 2-3 years depending on one's role). Even though it was only about a 1% raise, the crazies are already lighting up Bookface with various proposals about O's weakness as President by proposing new ideas like legislation prohibiting any pay raise to any federal employee until our national debt is under a couple billion. It's truly laughable.

But back in the real world, O's doing the best one might expect given his position (which includes a healthy bit of luck) and it will probably carry some weight into the next mid-cycle election for Congress.

Something that puzzles me is how Greg Mankiw - who is a first rate economic mind - can be such a total hack. Case in point.

Of course what Greg leaves out is that Simpson-Bowles assumes the expiration of all Bush tax cuts. While it does advocate for base-broadening reform, it does so from a dramatically larger tax base. Also note that his post offers no commentary on the degree of responsibility Republicans in Congress have for last night's deal.

Why is Greg Mankiw such a hack?

Huffpo claims that we've kicked the can down the road for a couple of months. I don't really understand what's going on. (Link)

Looks like the Senate passed a deal to delay the sequester a couple months and prevent the tax cut expiry at the $400k level (89-8), so now it'll be in the House's hands to pass this before tomorrow.

I'm not convinced that the House will pass this bill, since it's essentially the same thing that was already proposed to them as a last-minute compromise deal. The news is that the Senate went ahead and voted on it, and passed it with strong bipartisan support. So I guess the House Republicans gets a chance to give it a thumbs down for a second time, only this time they get to look even more stubborn and intractable while doing it, since the Senate Republicans gave it their blessing. I'm honestly not sure which way they will go.

Either way, it just delays the same damn fight for a couple of months. We'll be doing this whole thing again in February.

In February? If this passes in the next day or two, we're on to All Sequester and All Debt Limit All The Time by Friday. The debt ceiling was already reached, it's dancing Treasury Department time again.

You guys sure must be regretting getting rid of the King right now. You know Queen Liz wouldn't stand for this shit.

HuffPo has it that:

Man, if that happens, here's hoping and praying that Obama and the Senate Dems grow some balls and call it off.

I'm liking my theory more and more, as crazy and unevidenced as it is.

Latest seems to be a whip count to see if the House GOP can get together the 218 votes to pass an amendment. Everyone basically seems to agree that the Senate will have no truck with that whatever, so amending the bill becomes equivalent to killing it. Allegedly if Boehner can't get them in line for that, though, he will let it go for an up-or-down vote in the House.

Theoretically the new Congress doesn't begin until the 3rd (Thursday). While technically the Senate could do something tomorrow, I believe that they've effectively gone home. The logistics of getting a quorum on short notice may be insurmountable.

He'll lose his speakership if he does that; I'm not sure he's principled enough to go that far. Certainly nothing he's shown us indicates he is.

HuffPo ses:

A commission to be named later, who of course won't be able to come to any agreement and will end up cutting nothing.

Word now is that we're getting the up-down vote, no amendments. And Boehner says he'll vote for it.

Voting now...