ChrisWeigant.com

The New Deal

[ Posted Wednesday, November 28th, 2012 – 18:20 PST ]

Lest F.D.R. rise up from his grave and begin to haunt me, allow me to begin by putting that headline in the proper context. Correct capitalization should really be "the new deal" -- so as to not cause confusion with historical references. The words are capitalized above merely because they are in a title, and for no other reason.

By this point, even "scare quotes" are not necessary for talking about the upcoming fiscal cliff. The term has been repetitively bandied about in the media world so thoroughly that it is (at least for the time being) self-evident. However, what is lacking from the inside-the-Beltway crowd is some sort of snappy moniker for the (lower-case!) new deal that Congress and President Obama are now working towards. Whether the deal eventually happens or not, it's time to give it a name. I'm going to begin using a rather mundane name for this deal, in the hopes that it goes viral: the "Grand Bargain II" or (for those with an itchy Twitter finger) "GB2." The original "Grand Bargain," a year and a half ago, did not actually happen between John Boehner and the president but it got named all the same, so I think it'll be fine to just recycle it. But I do not write today merely to speak of political branding. Just wanted to get it out of the way so I have something to use for the rest of this article, that's all.

Instead of focusing on whether a GB2 deal will be struck between Obama and the House Republicans, or even when such a deal might be finalized, I think far too few pundits are focusing on what the deal might contain. So I thought I'd peer into my cracked and foggy crystal ball and make an attempt at predicting which way the GB2 chips are going to fall. Please note, though, that I'm not endorsing (or condemning, for that matter) any of the following outcomes, I'm just attempting to read the political language emanating from the principal negotiators involved and draw some likely conclusions of what is likely going to be in such a deal. With that caveat firmly in place, here's how I see things working out.

 

Sequestration

This is really the gorilla in the room that everyone seems to be ignoring. While there is much talk of taxes and entitlements, few are addressing the budget-cutting trigger which was the only pathetic result of the earlier congressional "supercommittee." These cuts are known in Washington-speak as "sequestration."

I'm predicting that this can is going to be kicked down the road (in some fashion or another) to the incoming Congress. While some spending cuts may be part of GB2, most of the military and social program cuts (other than entitlements, which I am addressing separately, below) will quietly be shelved for a period of months, if not a full year. Oh, sure, there'll be talk of "triggers" and dire consequences, but my guess is that they'll be about as substantial as swamp miasma.

Both parties will decide that punting on the sequester cuts is the right thing to do politically, and they will hand the problem off to the next Congress. Which will bring up talk of a "Grand Bargain III," of course, but we're getting ahead of ourselves.

 

Debt ceiling

This is a much more immediate problem. President Obama and the Democrats obviously want a debt ceiling raise to be part of the GB2 deal. Republicans, equally as obviously, do not. The reason Republicans are fighting against it is that they know that it'll just force all the budgetary issues to be discussed all over again in the next few months. The debt ceiling will officially be reached some time around the first of the year, but with Treasury accounting tricks, the real crisis won't hit for at least a month or two down the road. Republicans will want another bite at the budget apple after GB2, because they think they will have more leverage in this fight.

They're right, too. Right now, if Congress does nothing, the Bush tax cuts (more on them in a moment, too) will go up automatically -- which gives Democrats lots of leverage to get something done. But with the debt ceiling, if Congress does nothing, then Obama will (the Republicans figure) be the one to pay a political price. Whether they're right or not, it's hefty political leverage to wield.

But I remain optimistic. Obama is going to use a giant threat -- in private, most likely -- to force the Republicans to accept a debt ceiling hike. The president will calmly explain to the Republican leaders that have two -- and only two -- choices: either raise the debt ceiling as part of GB2, or Obama will personally declare the debt ceiling itself null and void and utterly meaningless (using what has been called "the Fourteenth Amendment option"). So Congress can either raise the debt ceiling as part of the deal, or the entire issue will be taken away from them permanently. Republicans may seethe (this is why this bargaining chip will likely be played in private, to allow Republicans to save face in public), but they will in the end swallow this pill. The talking point from the White House will be: "We're not going to do this all over again, a month from now."

 

Taxes

There are quite a few details in the tax portion of the fiscal cliff. Most of the attention has been on the Bush tax cuts expiring for the wealthiest earners, but there are a lot of chips to bargain with that haven't received as much media or public attention.

The Alternative Minimum Tax problem will be solved -- but only short-term, for a year or possibly two. This is an enormous lie that both parties are complicit in foisting on the public, for the purposes of making the 10-year budget deficit projections look much smaller than reality. Neither side's going to want to open up this can of worms, instead they will both agree to do what they always do on the issue -- fix it for a year, and kick the can down the road one more time. This is a shame, because honestly fixing this tax would truly be the way to solve the problem of taxing upper-income folks fairly. But it's not going to happen.

One big victory for Republicans will be raising a tax (yes, you read that correctly). For the past two years, Obama has gotten a "payroll tax holiday" for all American workers which (unless you make six figures a year) has meant an automatic two percent raise in your paycheck. This is going to end on New Year's Day. Even though it is a tax cut for everyone, Republicans hate it because Obama's for it (that's as near as I can figure), so Obama will allow them to claim victory on the issue. This will mean the "holiday" will be over, and everyone will get hit with a small tax hike beginning immediately.

What Obama will get out of this phase of the bargain will be the continuation of all the minor parts of the "Bush tax cuts" -- increased credits and deductions, for instance. These may be limited to those making under $250,000 a year, but they will continue. The other thing Obama will get is a big rise in the estate tax (what Republicans call the "death tax") -- which was one of the gifts Bush gave to the stratospherically-wealthy in his original tax cut package. Estate tax rates will go back to what they were under Clinton. Taxes on dividends could go either way. If the Bush tax cuts expired, taxes on dividends would go up by five percentage points. If this tax break is continued, it may be phased out for the over-$250K folks.

The big question on taxes, however, is what to do about the Bush tax rate cuts. This is currently the central part of the argument, at least in the media. Obama wants the Bush tax rates to continue for 98 percent of earners, and have the top two percent revert to the Clinton-era rate. Republicans seem adamant about not raising anyone's tax rate, and instead limiting deductions and loopholes for the wealthiest earners.

The 98 percent will be taken care of -- that's as close to a sure bet as you can make about GB2. Whether it happens before or after the first of January is still an open question, but when the deal is struck, it will continue the Bush tax rates for everyone's income, up to $250K.

Both sides in this fight have drawn rather bright and well-defined lines of battle. Obama has repeatedly issued veto threats for any bill which does not raise tax rates on the top two percent. Republicans have made what Harry Reid calls "happy talk" about "raising revenues," but they appear to have dug in their heels on "raising tax rates." Especially in the House. This is going to come down to the question of what John Boehner can sell to enough House Republicans to pass a bill. I could see a compromise being worked out on this one, something along the lines of "the tax rate for the top incomes will rise -- but not up to where they were under Clinton -- while deductions for the over-$250K set will be limited in some way." There's going to be some awfully creative accounting on this question, no matter how it gets resolved -- that's my guess. This way, both sides will be able to claim minor victories on the issue to their base.

 

Entitlements

Republicans are pushing hard for large cuts to the big three social programs -- Medicare, Medicaid, and Social Security. Democrats are pushing hard to exempt all three from any cuts whatsoever.

Social Security will not be touched. This round goes to Obama. If it changes at all, the only change will be raising the "cap on earnings" far above where it stands now (only roughly the first $110,000 anyone makes is taxed currently -- which is an enormous tax break for the wealthy, right there). However, I don't really expect even this to change. Obama will stand firm on Social Security, and Republicans will give up fighting on the issue.

Medicare and Medicaid are another story, however. Chuck Obamacare into that category, as Republicans are insisting. And there's always the yearly "doc fix" (see comments above, on A.M.T. yearly "fixes"). This is where Republicans are going to get some concessions from the Democrats. Hopefully, Democrats will be the ones to write the terms of the cuts, so that benefits to beneficiaries are not impacted, but in some way or another health care spending is going to be cut. Perhaps Democrats can get creative, and demand that Medicare Part D (the Bush "prescription drug benefit") be allowed to negotiate volume discounts from drug companies -- which would be a minor Democratic victory, in the midst of a Republican win. I do think these cuts will stop short of raising the eligibility age for Medicare, but I could easily be wrong about that.

Republicans are going to have to have something in GB2 that they can sell to their House members, and to enough senators to get the bill passed. This is where Obama's going to cave, and allow cuts to be made. This will allow Obama to say he has compromised and position himself as cutting a "centrist" deal. Perhaps he'll get one final bargaining chip out of the deal and continue unemployment benefits, but most likely not.

 

There's going to be pain all around in whatever deal is struck. Most Americans are going to be directly impacted in one way or another by whatever bargain is made between President Obama and congressional Republicans. Obama's got most of the leverage on his side, including the fact that he just won a rather impressive election victory and he currently has a higher job approval rating than he's had since Osama Bin Laden died. The biggest leverage is the deadline of New Year's Day, but I still think it's too early to tell whether a "Grand Bargain II" will be struck before or after the fiscal cliff is reached.

Perhaps the GB2 will be finalized before Congress goes home for the holidays. Perhaps America will go through a "Wile E. Coyote moment" where we dash off the cliff and stand in midair for a moment before realizing that there's nothing under our feet but air. Perhaps the GB2 deal won't be struck until we're on our way down. However it plays out, I've laid out what I consider to be the most probable outlines of such a deal. Once again, I'm not advocating any of these as solutions, I'm merely predicting which outcome is most likely, given the facts on the ground and the way the players on both sides are talking about things in public at the moment.

-- Chris Weigant

 

Cross-posted at Business Insider
Cross-posted at The Huffington Post

Follow Chris on Twitter: @ChrisWeigant

 

35 Comments on “The New Deal”

  1. [1] 
    dsws wrote:

    I think far too few pundits are focusing on what the deal might contain.

    Just start from what Obama wants, and then go three-halves of the way toward what Boehner wants. It's that, or no deal.

    The only question is what Boehner wants.

  2. [2] 
    Michale wrote:

    "The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a Sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies."
    -Barack Obama

    I'm just sayin'....

    Michale.....
    091

  3. [3] 
    michty6 wrote:

    CW,
    Even though it is a tax cut for everyone, Republicans hate it because Obama's for it

    It is amazing how much of the media is completely ignoring the payroll tax hike in their drama filled over-the-top discussions about whether or not Republicans will break the 'pledge'. Yes, they will and are making the pledge.

    But I disagree with your point here. Actually it seems that both Democrats and Republicans are happy to have this end. I'd have liked Obama to put up more of a 'fake fight' to try and save this before 'caving' but we all know that it seems (at least the way the media reports it) he is not a good negotiator...

    But I don't think there will be a 'GB2'. I could be wrong, but even post-election Republicans are too insane to act moderately whatsoever. The fact they are willing to destroy the American economy in the 1st half of 2013 by playing hostage with the debt ceiling is enough evidence of this. You can't 'bargain' with insane people.

    For this reason, I think the negotiations will result in tax increases for those >$250k with vague spending cuts to be negotiated at a future date. I don't see them agreeing much else, unless the Republicans magically moderate overnight (won't be holding my breath).

    Republicans are pushing hard for large cuts to the big three social programs -- Medicare, Medicaid, and Social Security.

    This is another thing that amazes me. It is funny how they weren't pushing hard for these cuts pre-election. In fact, they were lying about Obama 'stealing' from Medicare to pay for Obamacare and wanted to give $700b 'back' to the Medicare insurers. Wonder why they weren't honest about their intentions (like how they tried to lie on almost every other unpopular policy issue they have)? Of course, once again the media gives them a giant pass on this.

  4. [4] 
    michty6 wrote:

    PS. Off-topic but congrats to the US on their GDP number for Q2. Increased from 2% to 2.7% post-election. Must be those rigged economists that tried to rig the election by making the economy look worse at it again... Oh wait. Fox News can't run that headline today. Damn.

  5. [5] 
    michty6 wrote:

    * Q3 not Q2

  6. [6] 
    TheStig wrote:

    The 14th amendment option seems intellectually and constitutionally honest. The debt ceiling only caps debt payment, not incurring the debt itself...

    ...and the 4th section of the 14th does say the validity of the debt can't be questioned. There are some qualifying clauses, but these just excludes debt incurred by the Confederacy and disallow compensation for freed slaves.

    Not paying your debt is the ultimate way of questioning it.

    Time to go Full Monty. Mr. President, tear off this fiscal fig leaf. Of course, the Heavens will Rumble.

  7. [7] 
    TheStig wrote:

    Speaking of Boehner and what he wants. I think it's mostly re-election, so he can retain that big gavel. (Insert your own snark about gavel size: doodle correlation).

    Boehner rules the most Gerrymandered district I've ever seen. I think this extremely convoluted district accounts for a lot of Boehner's low effectiveness as speaker. He's got to be the most politically purified Tea Party district in Ohio, if not the country. Utterly safe for JoBo in a general election, cause the TP is an absolute minority even in this Bizzaro district,but how about in a primary fight, where only the highly motivated tend to vote. He might just lose a primary in that district.

    Every time Boehner talks compromise, there is a pause, then he jerks spastically to his right. Within hours, maybe minutes. It's fun to watch. I think the Tea Party Money is jerking his choke collar. Heel JoBo! heel! Pavlovian conditioning may do it alone by this point. Not only is John bad at his job, he really looks miserable most of the time. It's not the bouts of crying (he's sentimental) it's the persistent scowling.

    The Tea Party may walk him about, but they won't clean up the mess he leaves behind.

  8. [8] 
    Michale wrote:

    http://www.nationalreview.com/articles/333990/transparency-walk-walk-mr-president-john-fund

    Once again, the irony abounds that it's the Democrats who are ushering in the age of 1984

    Open Transparent negotiations, Dems..

    What's the problem??

    Personally, I believe that if Democrats can't come up with some real spending cuts (Ya know?? Compromise??), Republicans should walk away and let Dems get re-shellacked in 2014...

    Michale
    097

  9. [9] 
    michty6 wrote:

    Transparency is not even an issue, I don't even think that's up for debate, as much as that incredibly ill-informed and poorly researched article suggests. It's all very well having your un-elected budget spokesman Grover spouting off to the media, when your party itself is doing nothing itself to promote these ideals.

    If Republicans walked away it would not be Democrats getting shellacked in 2014 Michale....

  10. [10] 
    michty6 wrote:

    Anyone else excited about tomorrow's jobs report?? I feel like this is Romney's last chance to get back into this election...

  11. [11] 
    michty6 wrote:
  12. [12] 
    dsws wrote:

    I repeat my prediction that Republicans will make big gains in the midterms -- no matter what either side does on the fiscal cliff and debt ceiling. Moderates don't vote in large numbers in off years, and the Republicans have way more extremists.

  13. [13] 
    Michale wrote:

    Michty,

    If Republicans walked away it would not be Democrats getting shellacked in 2014 Michale....

    If Democrats refuse to compromise (seems to be ya'alls favorite watchword.. Except when it comes to Democrats.. Go figger) on spending cuts, you can bet it will be Democrats who get shellacked..

    Transparency is not even an issue,

    Of course not. EXCEPT when ya'all are talking about Republicans...

    Once again, the power of the almighty '-D'.....

    Michale
    098

  14. [14] 
    TheStig wrote:

    DWS, that's a good Bayesian bet. I went against it in 2010 and have learned my lesson...oh yeah! Still, it's just a very historically reasonable prior probability. But, there is better than expected, large, very large and Oh Mama!

    It will be interesting to see how much of the Obama campaign style (combined arms of politics, that's for you Michael) becomes coordinated Democratic doctrine applied to Congressional races.

    Of course, Democrats being Democrats.....

  15. [15] 
    Michale wrote:

    "Who changed the Benghazi talking points?

    See, this is very dangerous to the White House if journalists should suddenly start asking real questions.

    Just imagine how dangerous it would have been to Obama if so-called "journalists" would have asked him real questions in 2007 when he first threw his hat into the ring.

    Or in 2008. Or 2009. Et cetera. Et cetera."

    http://newsbusters.org/blogs/noel-sheppard/2012/11/30/leno-very-dangerous-white-house-if-journalists-should-suddenly-start#ixzz2Di8QB1t6

    "It's funny because it's true..."
    -Fat Tony, THE SIMPSONS

    Michale
    099

  16. [16] 
    TheStig wrote:

    Michael, I think the Republicans are likely to adopt your gambit and walk....at least for a bit.

    It's a locally safe for most reps (and the the prime directive for a rep is get reelected) but is arguably (very arguably IMHO) against the long term national success of the Republican Party.

    That's an interesting tension. Short term usually wins out over long term in my experience..."The knee is nearer than the shin."

  17. [17] 
    TheStig wrote:

    Michael RE[15]

    The Benghazi talking points (coming mostly from 3 mouths, with lots of echo) would largely go away if Kerry would simply make a Sherman-esque statement.

    "I have no interest in State.

    If nominated, I will not accept.

    If appointed in absentia, I will not serve.

    Scott Brown is going to have wait his turn."

  18. [18] 
    TheStig wrote:

    Michael, bravest of hedgehogs in a blog full of foxes.

    Make it 100!

  19. [19] 
    Michale wrote:

    TS

    pppppppppppfffffffffffffffffttttttttttttttttttttttttt

    :D

    Michale
    0100

  20. [20] 
    TheStig wrote:

    Might as well put this sad item out here.

    I was shocked, shocked I tells ya, to read the CFTC has effectively shut US citizens out of the Intrade Prediction Markets. :-(

    Shut out is of course a relative term, it's been inconvenient for US residents to move money into and out of Intrade accounts, and I'm sure clever traders will devise workarounds. Which may involve receiving unexpected visits from the IRS, or even Fat Tony.

    Intrade really was useful, in part because it had so many markets that didn't involve sports. Intrade's track record was good. Taking Americans out of the picture won't kill it, but it may maim the utility, especially with regards to US politics and US economics.

    Let's not forget the severe effects this is going to have on all the little people who work for a living. By little people I mean the Leprechauns who keep Intrade running, who will be forced to go back to tricking "Big Folk" and looking for gold on an island that has basically no gold. "Mummy, why is daddy chasing after that rainbow"?

    Intrade claims it is working on a fix. I hope so.
    Until then:

    Taps

    http://www.outsidethebeltway.com/americans-shut-out-of-intrade/

  21. [21] 
    TheStig wrote:

    Michael

    I am rearing the horse up on its hind legs. I am doffing my plumed hat and sweeping it low. (My back is gonna kill me tomorrow).

    Class act man !!!!!!!!!!

  22. [22] 
    michty6 wrote:

    If Republicans walk, Democrats move is pretty simple: propose a bill on Jan 1st 2013 that will reduce the tax burden for 98% of Americans. Republicans would be forced to sign it.

    This is why the current deficit discussions are interesting, because Republicans know this and for once are being FORCED to compromise. By 'compromising' to force progressive tax rates on to the rich, they avoid being forced to have to do this at a later date anyway...

    I was shocked, shocked I tells ya, to read the CFTC has effectively shut US citizens out of the Intrade Prediction Markets. :-(

    Me too :( Was only a matter of time, thanks to the UIGEA, effectively banning all online financial transactions for 'gambling' - passed by the Republican party, champion of freedom (except for when said freedoms contradict with their strict, backwards religious beliefs).

  23. [23] 
    Michale wrote:

    The problem here is that Democrats are believing their own press releases and thinking they can enact massive tax hikes w/o ANY spending cuts..

    I don't think ANYONE here is dumb enough to think that the American people will let Democrats get away with that..

    Like I said.. Ya'all speak of compromise.... Yet there is NONE coming from the Left...

    Michale
    101

  24. [24] 
    Michale wrote:

    I am rearing the horse up on its hind legs. I am doffing my plumed hat and sweeping it low. (My back is gonna kill me tomorrow).

    Class act man !!!!!!!!!!

    Thanx :D The most fun I have around here is the Holiday Fund Drive.. I get to get a little crazy(er)... :D

    Michale
    102

  25. [25] 
    Michale wrote:

    Me too :( Was only a matter of time, thanks to the UIGEA, effectively banning all online financial transactions for 'gambling' - passed by the Republican party, champion of freedom (except for when said freedoms contradict with their strict, backwards religious beliefs).

    Yea.. And Democrats are the champions of freedoms, right???

    Democratic Rep: Amend Constitution To Allow Control Of Speech
    http://atlanta.cbslocal.com/2012/11/30/democratic-rep-amend-constitution-to-allow-control-of-speech/

    I saids it befores and I'll says it again..

    There ain't NOTHING that you can slam the GOP for that can't be turned around and pinned on the Dems...

    NOTHING...

    Michale.....
    0103

  26. [26] 
    michty6 wrote:

    Loooooooool that proposal is talking about essentially editing the constitution so that Citizen's United is reversed - absolutely nothing to do with 'control of speech' lol good one.

  27. [27] 
    Michale wrote:

    Loooooooool that proposal is talking about essentially editing the constitution so that Citizen's United is reversed - absolutely nothing to do with 'control of speech' lol good one.

    Spin it any way you want..

    The fact is, Democrats have a FAR WORSE track record on freedom infringement than GOP does of late..

    One only has to recall the recent Hate Speech discussion to know this is true...

    Michale
    0104

  28. [28] 
    michty6 wrote:

    Michale: here is a good video on how the US went from the rosy prospects of the Clinton surplus to where they are now. Note how little spending (except for military spending, which Republicans (and some Democrats) are unwilling to cut) had so little to do with the deficit: http://www.upworthy.com/the-complete-guide-of-what-to-blame-for-our-debt-problem-brought-to-you-by-math?g=2

  29. [29] 
    michty6 wrote:

    Michale you're comparing apples to banana-cakes. Your logic is like saying 'Republicans banned online gambling but look at Democrats - they banned murder! You aren't even free to murder your fellow human beings!'

    Of course there are some things that people should not be free to do. But if you think it is Democrats that go over the top in limiting freedom based on their anachronistic religious beliefs you are BLIND to reality.

  30. [30] 
    Michale wrote:

    So, ya'all don't have a problem with limiting the free speech of Unions??

    Is that right?? :D

    Michale
    0105

  31. [31] 
    michty6 wrote:

    Do I think unions should be allowed to buy unlimited amounts of TV political ad time? No I don't.

  32. [32] 
    michty6 wrote:

    Btw the video I posted is basically a nice graphical representation of the Wikipedia entry on US debt and how it enlarged from 2001 (http://en.wikipedia.org/wiki/United_States_public_debt#Change_in_debt_position_since_2001)

  33. [33] 
    Michale wrote:

    http://www.latimes.com/news/politics/la-pn-obama-toy-factory-speech-20121130,0,6261666.story

    Jeezus H!!!

    The narcissistic tendencies of Obama knows NO bounds..

    No wonder his numbers are going back down..

    Michale
    0106

  34. [34] 
    Michale wrote:

    Do I think unions should be allowed to buy unlimited amounts of TV political ad time? No I don't.

    Why not??

    If the Unions are PAYING for it, why shouldn't they get all the air time they want!???

    Michale
    0107

  35. [35] 
    dsws wrote:

    Money is not speech. Hiring is different from persuading.

    In discourse, statements get repeated because someone thought they were worthy of it -- not necessarily worth agreeing with, but worth rebutting. In current politics, statements get repeated mostly mechanically, because someone was paid to broadcast them.

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