I've suggested this before and I'm going to go out on the limb again. What the hey let me "predict" that it's going to happen. Before Christmas? Yes. I don't see any gain for Boehner and company by waiting. In January the deal will probably not be as good as what they will get now. For that matter who knows if Boehner will even still be Speaker then?
There is one theory that some of the dyed in the wool Tea Party House members will refuse to sign onto any deal that can in any sense be labeled a "tax increase" even with the blessing of Grover Norquist-who did just that for the failed Plan B.
For more on the failed Plan B see:
Plan B is stillborn
http://diaryofarepublicanhater.blogspot.com/2012/12/back-to-drawing-board-plan-b-stands-for.html
Yet I think the fact that they won't get a better deal next year coupled with the fact that Obama and Boehner really aren't so far away means they will do it now.
"Despite all the overheated rhetoric, Obama and Boehner aren’t that far apart on the actual numbers. On the question of how much new revenue the government should bring in through higher taxes, the two are separated by $200 billion in a multi-trillion dollar deal. On spending cuts, the two are again only $200 billion apart, not an unbridgeable gulf."
http://www.nationaljournal.com/why-a-fiscal-cliff-deal-is-still-possible-20121220?mrefid=flyout
Meanwhile, with the House out until at least December 27 Boehner and Obama will be back negotiating by themselves. Arguably that's where the real action happens anyway and often the biggest breakthroughs are when Congress is out of town:
"The failed vote creates space for Boehner and Obama to restart negotiations. Both the House and Senate aren't expected to take any more action on the cliff until after Christmas."
"With lawmakers back home and the nation tuned out for the holidays, Obama and Boehner could resume talks in a much less frenzied environment. In fact, some of the biggest breakthroughs in the negotiations so far have come after lawmakers have left town. Just last Friday, for example, Boehner offered to raise tax rates on millionaires."
As then-Republican Senate Majority Leader Trent Lott used to say, the best time to cut a deal is when the Capitol is empty.
As for that failed vote last night, it doesn't necessarily mean that any future deal is doomed as Boehner won't need 218 votes from his own party to get it done as if it's agreed to by the President, the House Dems will get behind it:
"Though Boehner couldn't get his caucus on record supporting a tax hike, his voter counters now have a much better idea of how many Republicans could get behind that approach."
"That's important because if Obama and Boehner strike a deal, he won't need to deliver all the votes himself. An Obama-blessed package will win support from House Democrats, who opposed Plan B. Most Republican insiders believe Boehner only has to deliver about half his members to keep his speakership."
"And even before Thursday's scuttled vote, Republican House Rules Committee Chairman David Dreier signaled that GOP leadership understood that Boehner's talks with the president were far from over."
“The president’s in the midst of negotiations,” he said. “There is clear recognition this is not going to be the final package that we’re going have. I don’t think anyone has come to that conclusion.”
"Obama echoed Dreier in a statement it released tonight vowing to "work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy."
So I still think we get a deal for Christmas. We'll see what the final deal is but the one the President put forward was pretty sound. I know everyone hates Chained CPI and I'm no fan of it either. Yet you have to give Boehner something-unfortunately. If you are grousing let me ask you this: would you prefer a raise in the Medicare retirement age?
What I do think is if we do get a deal with no Medicare raise, a plan that takes the debt ceiling off the table till 2014 and one that also raises taxes on capital gains and dividends for the rich then we've got a pretty good deal.
Some liberals are a lot quicker to bail on the President than I am I guess. A post at HuffingtonPost even referred to the President's dropping an extension of the payroll tax holiday as his wanting an tax increase for the middle class. This ignores that he's left in proposals for extending Unemployment Insurance and more stimulus spending. As to Chained CPI from what I've read, the devil in in the details. The liberal Center for American Progress says that if it's done right it won't hurt seniors so much.
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/18/three-cuts-to-social-security-that-are-way-way-more-progressive-than-chained-cpi/
Ok, it's not great. I don't want it. However, there are enough good things in it that I would celebrate it's passing. On the other hand, maybe it won't be in the final proposal. Maybe Obama will try one fo these other 3 cuts Ezra Klein mentions that are "way, way more progressive than Chained CPI."
One idea is "progressive price indexing."
"This option, floated by the George W. Bush administration in 2005, is a bigger cut than either the Orszag/Diamond reform or chained CPI, but it’s much more progressive than the latter. Under progressive price indexing, poor workers would see their initial benefits indexed to wages, as described above, but rich workers would see them indexed to prices, meaning their benefits would shrink considerably. Average workers would see big cuts, too, a reason why progressive groups like the Center for Budget and Policy Priorities decry the plan."
"Just like Orszag/Diamond, it changes the formula so that rich people get a lot less, but unlike that plan it also hits those making at least 60 percent of the median national income. So the middle-class pays a lot, too."
"That said, the Social Security Administration has found that almost all progressive price indexing plans don’t increase poverty, and that all of them raise a large amount of revenue. Even a plan that exempts 60 percent of beneficiaries from cuts, such that they only apply to the upper-middle and upper classes, would reduce the long-run budget shortfall by 31 percent, making it three times as big as the Orszag/Diamond reform."
"So, progressive price indexing that exempts 60 percent of seniors would raise a ton of revenue — three times as much as Orszag/Diamond, which probably raises about three times as much as chained CPI — without hurting vulnerable seniors. It beats chained CPI on both counts."
I would rather the number be higher than 60 percent of median income. The obvious and best choice, really the only cut to Social Security that I not only can stand but would love is the next one Klein looks at: raising the Social Security cap. This so obvious I don't know why it hasn't been done long ago. Ok, I do know, the GOP hates raising taxes on rich people though it cares nothing about doing it to poor people as even the much heralded Tipper ONeil-Reagan 1983 deal did.
"There was a time when almost all wages were subject to Social Security payroll taxes. There’s always been a cap — it’s $110,100 in 2012 — on wages subject to the tax. In the late 1970s and early 1980s that cap was high enough to grab around 90 percent of all wages in the economy. But as income inequality has swiftly widened, the base for those taxes has eroded. Now, only about 85 percent of wages are taxed."
"As the chart shows, that’s more than it was for most of the program’s history, but the trend has been downward in recent decades. So some have proposed setting the cap on wages subject to the tax so that it always grabs 90 percent of American worker’s wages. According to the CBO, that raises almost $500 billion over 10 years, all from rich households earning over $100,000 a year. That’s about five times what chained CPI brings in, and, again, it’s much more progressive. Eliminating the cap altogether would make Social Security solvent in perpetuity."
Again, I give the President some slack as these are negotiations. However, I hope the White House read this piece by Klein. If we raised the cap that would be a great idea. Maybe Chained CPI could at least be modified with at least a raise of the cap if not outright elimination.
P.S. Of course, if you believe in rational expectations a la Scott Sumner you don't believe being right in a prediction means much. RE in Sumner's mold tends to chalk being right here to luck.
Often it's the analysis that is more valuable than the prediction in any case. For the record I'm a skeptic about RE. The trouble is that there's a difference between an individual who may well have rational expectations based on what he knows and the aggregate market. What you learn from reading people like Skidelsky and Steve Keen is that there's a failure of composition in RE. Two individuals can make rational choices and yet the net aggregate effect is irrational. In addition, there's something wrong with the RE definition of "rational." It's not so much that people are irrational in their decisions as the RE school is irrational in its definition of what is rational.
I'm just reading Keen's Debunking Economics right now and it's excellent. Just what I needed. If you want to get beyond the Neoclassical straitjacket but are intimidated by the impressive conceptual edifice of its models then Keen is the perfect medicine.
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