Obama surrendering to Boehner?

There's growing worry that Obama is about to give away too much to the GOP. Here are 5 reasons to be concerned


Steve Kornacki
December 18, 2012 5:41PM (UTC)

We need to get the disclaimer out of the way immediately: Nothing has been officially announced and a lot is surely still up in the air. That said, reporting out of Washington points to a fiscal cliff deal between Barack Obama and John Boehner rapidly taking shape, with the president sending to the speaker Monday night a new offer that's not very different from the plan Boehner submitted last Friday.

According to multiple reports, the main features of the emerging compromise include a tax rate hike on income over $400,000 and new rules for deductions, a jump from 15 to 20 percent in the capital gains rate, an extension of unemployment benefits, the end of the payroll tax holiday, and a change to the cost-of-living formula for Social Security benefits. Further cuts to Medicaid or Medicare, needed to meet Boehner’s demand for more than $1 trillion in spending cuts, would be sorted out by Congress, and both parties would agree to pursue tax reform in the new year. The debt ceiling would also be raised, although the parties remain apart on the duration of the increase. Overall, there’d be about $1.2 trillion in new revenue, with spending cuts of a roughly equal amount.

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There’s a lot to chew on here, obviously, and crucial details are still unknown. But at first glance, there are some obvious areas of concern for progressives, who will measure any deal against what Obama could achieve simply by doing nothing. Remember, unlike in the debt ceiling showdown of 2011, the president has the upper hand in the current negotiations. Plus, he has the trump card of last month’s election results. He can argue – and has been arguing – that the voters have blessed his vision of a “balanced” deal.

The question for progressives, then, is whether Obama is giving too much ground relative to his bargaining position. From this standpoint, there are five obvious red flags in the framework that’s been reported so far:

1. Social Security: Many Democrats have pointed out that talk of a Social Security crisis is basically bogus and that Washington has no business putting it on the chopping block. The emerging Obama-Boehner deal, according to reports, would cut costs by using chained CPI – a less generous way of calculating inflation for benefits. This would reduce benefits for the average retiree by about 5 percent; if it’s also applied to tax rates, it could push a disproportionate number of lower-income families into higher brackets. To soften the blow for the elderly, Obama’s new offer to Boehner apparently includes an increase in benefits for those over 85 – who would otherwise be hit the hardest by chained CPI – and would exempt those collecting disability payments under SSI. These protections have been pushed by the left-leaning Center for Budget and Policy Priorities, which has argued that chained-CPI could be acceptable as long as they are included.

2. The payroll tax: It’s been set at 4.2 percent for a few years now, but Obama is apparently ready to let it return to 6.2 percent on Jan. 1. The argument for doing this is that the tax holiday was always supposed to be temporary and that payroll tax revenue is needed for Social Security. The argument against it is that the recovery is fragile, stimulus is needed, and the payroll tax holiday boosts the paychecks of working- and middle-class Americans – who are most likely to put the money directly into the economy. Reverting to 6.2 percent, according to one estimate, could slow growth by .6 percent in 2013.

3. Medicare still at risk? Since chained-CPI alone wouldn’t meet the GOP’s demands for spending cuts, more will be needed – and unspecified cuts to health programs will likely be part of a deal. Because of the high cost of healthcare, Medicare costs account for  a big chunk of federal spending, and Republicans have made trimming it a major point of emphasis. One particular change the GOP has advocated is a boost from 65 to 67 in the Medicare eligibility age. The idea is anathema to defenders of the social safety net, and there are strong signs the White House was scared off of considering it by the outcry from the left last week. (Also: Presumably, one of the White House’s arguments to the left for embracing chained CPI would be that it’s an easier pill to swallow than raising the Medicare age.) But to cut more than $1 trillion, the money has to come from somewhere. It may be premature to say the Medicare eligibility age is totally off the table.

4. Triumph of Bush: Until now, Obama’s bottom line on tax rates has been adamant, and not that unreasonable: A return to the Clinton-era rates for income over $250,000. For everyone else – 98 percent of Americans – the Bush tax cuts would be made permanent. Given that the Clinton rates did absolutely nothing to harm the economy in the 1990s, and given the deficit reduction goals that both parties have set, Obama’s tax posture was really pretty modest. And now it’s apparently getting more modest – with only income over $400,000 subject to a rate hike. If that’s the deal, then the Bush tax cuts will go away for only about 1 percent of Americans.

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5. Debt Ceiling politics reinforced? The White House has been insistent that it won’t let Republicans use a debt ceiling increase as leverage again. But as TPM’s Brian Beutler explained, if the debt limit is only increased for a year, Republicans will be able to claim they lived up to their (newfound, in the Obama-era) principle of offsetting any debt ceiling hike with an equal amount of spending cuts. And even if the extension is for two years, which Obama is pushing for, it will certainly look like the White House did, in fact, engage in negotiations over the debt ceiling. In other words, Obama will have failed to reestablish the old tradition of the debt ceiling not being a bargaining chip. And the possibility of another showdown in a year or two will be real – a showdown that, as Beutler notes, would be much further removed from the 2012 election, meaning that Obama might have less leverage and moral authority than he now enjoys.

 

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Steve Kornacki

Steve Kornacki is an MSNBC host and political correspondent. Previously, he hosted “Up with Steve Kornacki” on Saturday and Sunday 8-10 a.m. ET and was a co-host on MSNBC’s ensemble show “The Cycle.” He has written for the New York Observer, covered Congress for Roll Call, and was the politics editor for Salon. His book, which focuses on the political history of the 1990s, is due out in 2017.

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