Budget

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Chained CPI explained

So.  President Obama proposed moving to something called Chained CPI (Consumer Price Index) in his budget.  It looks as if the proposal is probably DOA.  My personal, maybe naive thought is that the President proposed it to show, one more time, that he is open to compromise suspecting that the Republicans wouldn’t accept his offer.  I think he might have expected the outcry from the progressives side.  Maybe he wanted us to protest showing the Republicans that he can put things on the table that his supporters don’t like.  (Sneaky, that man.)  But he needs to make sure the proposal itself didn’t open a crack in a door the Republicans want to open – the subject for a different post.

But since Chained CPI seems to keep popping up  I thought I would try to understand what it is and why it is not so good not only for retirees, but for the middle class taxpayer.

Ezra Klein explained it this way.

Here are the facts. Chained-CPI does mean that Social Security beneficiaries will see their benefits cut. Imagine a person born in 1936 who retired in 2001, at age 65. For simplicity, let’s assume they’re eligible for the maximum benefit. Given that the cap was below $30,000 a year as recently as 1980, it’s not inconceivable that a middle or upper-middle class person with steadily increasing earnings since 1958 would be in this situation.

Their initial benefit would have been $1,538 a month, or $18,456 a year. Under existing law, they would have gotten a series of cost-of-living adjustments (COLAs). By 2013, COLAs would have increased this person’s annual benefit to $24,689.49. However, under chained CPI, it would be $23,820.19, a decrease of $869.30. That’s a 3.5 percent cut in benefits. And, of course, a 3.5 percent cut in income matters a lot more when you’re barely clearing $20,000 a year than it does when you’re making a regular middle-class salary.

chainedcpi_cuts1

There are also a lot of questions about how the Chained CPI would be calculated.

There would be other complications as well. Kenneth Stewart, an economist in the Division of Consumer Prices and Price Indexes at the Bureau of Labor Statistics (BLS), is one of the guys who computes the various CPIs every month. He notes that one benefit of CPI-W and other unchained CPIs is that they are final upon issuance. That is, the numbers are never revised. Two weeks after this month ends, BLS will release the April 2013 CPI, and that will always and forever be the April 2013 CPI.

Not so for chained CPI. “The chained CPI-U is subject to revision because we don’t get the actual expenditure data until 1 or 2 years later,” he notes. For example, in 2005 we had access to final chained CPI data for 2003, and only interim data for 2004. If we were to adopt chained CPI, we’d either have to use incomplete data, or else wait until we had final data to implement COLAs, which would further compound the cuts. The former, of course, would reduce the accuracy of the measure, a feature that proponents often tout.

George Zornick published a long and interesting piece in the Nation on the myths about Chained CPI which is well worth reading.  In addition to the benefit cuts to seniors, taxes would also go up because the plan would be to link everything to the Chain.  Look at this chart.

Notice the group getting the biggest tax hike is families making between $30,000 and $40,000 a year. Their increase is almost six times that faced by millionaires.

Notice the group getting the biggest tax hike is families making between $30,000 and $40,000 a year. Their increase is almost six times that faced by millionaires.

Both Zornick and Klein talk about a special Chained CPI for the elderly based on the goods and services the elderly purchase most:  housing and health care.

Klein says

…critics of chained CPI have sometimes promoted the CPI-E, an experimental index meant to measure price changes within products bought by the elderly. Because it’s experimental and simply a result of reweighing the existing CPI measures to more heavily account for goods like housing and health care, the BLS doesn’t publish the data on its website, but it’s available upon request. Stewart, who helped develop CPI-E, explains that it’s an unchained measure, and because of that its numbers don’t need to be revised.

In the mid-2000s, the housing bubble and boom in health-care prices meant that CPI-E, which weights both more heavily, rose faster than conventional inflation measures. In 2008, for instance, adopting CPI-E as Social Security’s inflation measure would have given our hypothetical retiree $327.88 more a year. However, since the housing bubble burst and health-care prices started slowing in growth, that effect has diminished. “Medical care inflation has been relatively subdued,” Stewart says. “Shelter prices have also been very tame in, really, the last seven or eight years.” As a result, in 2013 CPI-E would have resulted in only $56 in additional annual benefits for our test retiree.

A money saver, right?  Zornick says no.

The Economic Policy Institute has the numbers here:

In short, the 65-and-older households spend roughly three times what the rest of the population does on health care, measured as a share of total spending. Further, between 1989 and 2007,prices for health care have risen nearly twice as fast as overall inflation—growing 100% over that timespan, compared with 53% growth in overall prices of consumption goods.

Seniors spend a lot of money on health care, and just aren’t able to buy different, cheaper drugs when the price of their medication goes up—so the Chained CPI argument just doesn’t work here. And the price of those drugs is going up much faster than the prices of most consumer goods, and the same is true of Medicare premiums.

I  won’t argue that the CPI is a great definitive measure.  Sending people around to price stuff every month is mildly nuts, but the CPI has worked for a long time.  I think we need to look at some other ways to “save”  Social Security.  And Social Security shouldn’t be part of any budget cutting plan to begin with.  Chained CPI is not a winner, no matter what some Democrats, some economists and many Republicans may claim.

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Impasse?! We should look at the Progressive Caucus Budget

President Obama met with the Republicans in the House yesterday.  I think Politico had the best take on the meeting.

After years of pining for more face time with the president, House Republicans  found out Wednesday that Barack Obama looks and sounds the same behind closed  doors as he does on TV.

President Obama meets with Congress. AP Photograph

President Obama meets with Congress. AP Photograph

I think they are finally learning what many of us have known for a while:  what you see is what you get with Barack Obama.  Michelle has been trying to tell everyone this for years.  So he has his line and the Republicans led by Paul Ryan have theirs.  But where does that leave the rest of  us?  How to deal in a meaningful way with the sequester and the budget?  I see two paths:  One, those affected by the cuts start putting on the pressure and two, we begin looking at alternatives to either the Republican or White House budget proposals.

On the first, the lobbying has begun.  The New York Times reports

Construction companies are lobbying the government to spare their projects from across-the-board cuts. Drug companies are pleading with the White House to use all the fees they pay to speed the approval of new medicines.

And supporters of Israel have begun a campaign to make sure the Jewish state receives the full amount of military assistance promised by the United States.

A frenzy of lobbying has been touched off by President Obama’s order to slice spending this year by $85 billion, divided equally between military and civilian programs. The cuts have created new alliances and strange bedfellows.

Hunter R. Rawlings III, a historian of ancient Greece who is the president of the Association of American Universities, joined Wesley G. Bush, the chief executive of Northrop Grumman, the maker of surveillance drones and B-2 bombers, in a news conference in which they denounced the automatic cuts known as sequestration.

Health care and education groups, advocates for poor people, and state and local officials who fought in the past for bigger budgets are now trying to minimize the pain.

How much money do you think will be spent on lobbying?  I don’t even want to begin to add it up.  What a waste of money.  But I guess some people will still have jobs.

For an alternate budget we can look at the Congressional Progressive Caucus budget proposal.    The Economic Policy Institute assisted in putting the budget together and scoring it.  Dean Baker from the Center for Economic and Policy Research calls it “A Serious Budget That the Serious People Won’t Take Seriously”.  The Progressive Caucus has been proposing budgets for a number of years now and takes the position that if their proposals had been adopted, we wouldn’t be in the mess we are in now.

So what exactly are they proposing?

Direct hire programs that create a School Improvement Corps, a Park Improvement Corps, and a Student Jobs Corps, among others.

Targeted tax incentives that spur clean energy, manufacturing, and cutting-edge technological investments in the private sector.

Widespread domestic investments including an infrastructure bank, a $556 billion surface transportation bill, and approximately $2.1 trillion in widespread domestic investment.

Ends tax cuts for the top 2% of Americans on schedule at year’s end

Extends tax relief for middle class households and the vast majority of Americans

Creates new tax brackets for millionaires and billionaires

Eliminates the tax code’s preferential treatment of capital gains and dividends

Abolishes corporate welfare for oil, gas, and coal companies

Eliminates loopholes that allow businesses to dodge their true tax liability

Calls for the adoption of the “Buffett Rule”

Creates a publicly funded federal election system that gets corporate money out of politics for good.

Provides a Making Work Pay tax credit for families struggling with high gas and food cost 2013-2015

Extends Earned Income Tax Credit, and the Child and Dependent Care Credit

Invests in programs to stave off further foreclosures to keep families in their homes

Invests in our children’s education by increasing Education, Training, and Social Services

It would also end the war in Afghanistan and do selective, not blanket cuts to the military budget.  It basically spends money to put people back to work and stabilize the economy.  This assumes that people who work pay taxes and put money back into the economy.  It also achieves deficit reduction.  All through government spending.  As Dean Baker poinst out

For those upset that the budget debate is getting ever further removed from the real world problems of an economy that is suffering from a deficit of 9 million jobs, there is good news. The Congressional Progressive Caucus (CPC) has produced a budget that is intended to make the unemployment situation better rather than worse.

The story of course is that we are still in a situation where we need the government as a source of demand in the economy. This is independent of how much we like the government or the private sector. The private sector does not expand and create jobs just because governments want it to, as is being discovered now by leaders in the United Kingdom, Greece, Italy, Spain and everywhere else where deficit reduction is now in vogue. In the current economic situation, loss of demand from the government is a loss of demand to the economy. That is why recent steps to reduce the deficit, such as the ending of the payroll tax cut (which put money in consumers’ pockets) and the sequester, will lead to slower growth and higher unemployment.

Would this happen with the adoption of the progressive budget?  I don’t know, but I know that what is going on now isn’t working either.  And what is worse, people are tuning out and shrugging their shoulders assuming nothing can be done.

Gail Collins has this fantasy.

White smoke poured from the Capitol today and crowds of onlookers broke into shouts of jubilation, crying: “We have a budget!”

Inside, where the nation’s legislators had been walled off in seclusion, the newly chosen tax-and-spending plan was garbed in the traditional brass staples for its first public appearance. Insiders said it planned to take the name of Budget for Fiscal Year 2014.

I guess that is alternative number three.  Maybe we should try sequestering Congress.

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OK. No one cares about the sequester

No one cares about the sequester.  Or maybe, no one knows about it.  Or maybe everyone is just tired of Congress.

Here is Mike Luckovich today with a history of our recent financial crises.

Gee. I don't know why you think all this is my fault.

Gee. I don’t know why you think all this is my fault.

No wonder the general public doesn’t care right now.  And they probably won’t care until cuts start to hurt them.  Let’s face it:  both sides are using those old techniques of  putting forward the arguments that make the best case for their point of view.  The Republicans are right in that it won’t hurt for a little while – maybe a month or so.  And the Democrats are right that this whole exercise is unnecessary and, in the long run not helpful to recovery.

Thomas Mann and Norman Ornstein who wrote the excellent book, “It’s Even Worse Than It Looks”, have an excellent piece in today’s Washington Post titled “Five myths about the sequester”.

1. Blame Obama — the sequester was his White House’s idea.

Identifying the origins of the sequester has become a major Washington fight. Bob Woodward weighed in recently with a Washington Post op-ed making the case that the idea began in the White House. He’s right in a narrow sense, mainly because he focuses on the middle of the 2011 negotiations between Obama and Republican lawmakers. If you look before and after, a different picture emerges.

In our view, what happened is quite straightforward: In 2011, House Republican leaders used their new majority to force their priorities on the Democratically controlled Senate and the president by holding the debt limit hostage to demands for deep and immediate spending cuts. After negotiations between Obama and House Speaker John A. Boehner failed (Eric Cantor recently took credit for scuttling a deal), the parties at the eleventh hour settled on a two-part solution: immediate discretionary spending caps that would result in cuts of almost $1 trillion over 10 years; and the creation of a “supercommittee” tasked with reducing the 2012-2021 deficit by another $1.2 trillion to $1.5 trillion. If the supercommittee didn’t broker a deal, automatic spending cuts of $1.2 trillion over the next decade — the sequester — would go into effect. The sequester was designed to be so potentially destructive that the supercommittee would surely reach a deal to avert it.

The sequester’s origins can’t be blamed on one person — or one party. Republicans insisted on a trigger for automatic cuts; Jack Lew, then the White House budget director, suggested the specifics, modeled after a sequester-like mechanism Congress used in the 1980s, but with automatic tax increases added. Republicans rejected the latter but, at the time, took credit for the rest. Obama took the deal to get a debt-ceiling increase. But the president never accepted the prospect that the sequester would occur, nor did he ever agree to take tax increases off the table.

And of course no deal has been reached yet.

2. At least the automatic cuts will reduce runaway spending and begin to control the deficit.

What runaway spending? The $787 billion stimulus was a one-time expenditure that has come and gone. Under current law not including the sequester, non-defense discretionary spending as a share of the economy will shrink to a level not seen in 50 years. Defense spending grew substantially over the past decade, but that pattern has slowed and will soon end. Additional reductions must be achieved intelligently, tied to legitimate national security needs.

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The annual budget deficit is projected to fall by almost 50 percent in 2013 compared with the height of the recession. Reducing the deficit over the long term requires going where the money is — boosting economic growth, controlling health-care costs and increasing revenue to handle the expense of an aging population. Deeper discretionary-spending cuts are counterproductive; immediate cuts, as Europe has made recently, could lead to a recession and bigger deficits.

I guess the Republicans want us to be like Greece after all.

And finally, one for the Democrats.

4. The cuts are so large, they will be catastrophic.

The administration has released state-by-state estimates of the sequester and highlighted the cutbacks most likely to harm or inconvenience the public. The reality is not so immediate or dramatic. The damage will accumulate in less visible ways, as irrational reductions in public spending impede economic growth and job creation; reduce investments in education, infrastructure and scientific research; and further disrupt the routines of a modern democracy. The longer the sequester remains in place, the more harm is inflicted.

So it may take a while to feel the cuts.  Maybe long enough for the Obama Administration to submit a sensible budget that everyone can agree on.  And no, I’m not smoking anything.  Just counting on mayors and governors to continue to put the pressure on Congress.

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Still more on sequestration

This morning The Fix by Chris Cillizza included this interesting post by Aaron Blake.  Blake posted four great graphics explaining the impact of the sequester.  I am going to copy 2 of them here, but you should look at the entire post.

Blake explains

First up is Pew’s illustration of the year-by-year spending cuts that are included in the sequester. As you can see, the cuts start out relatively small — less than $75 billion in 2013 — but they grow to more than twice that size by 2021, for a total of more than $1 trillion.

The biggest growth in cuts over that time occurs in the interest payments, but everything except for mandatory spending cuts grow steadily over time.

And then there is this depressing news.  Sequester will not have that big of a positive impact.

There has to be a better way.  Maybe spend some money to put people back to work and let them pay taxes thus increasing revenue?  And we do have to fix the tax code so Facebook executives actually pay taxes.  And maybe we can cut programs and defense more selectively.  This won’t be as dramatic, and it might be slower, but it will hurt fewer people.

Meanwhile, members of Congress of both parties are doing their best to keep funding for their own districts.  Politico quotes Senator Lindsey Graham, an opponent of the sequester

I’m almost relishing the moment all these tough-talking guys say: ‘Can you  help me with my base?’” Sen. Lindsey Graham (R-S.C.), one of the most vocal  critics of the sequester, told POLITICO.

“When it’s somebody else’s base and district, it’s good government. When it’s  in your state or your backyard, it’s devastating,” he added.

Of course Graham’s solution is to do away with the Affordable Care Act or Obama care.  Is the momentum swinging toward a rational budget and solution?  Probably not.

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The Lord of the Coin or another take on the trillion dollar coin.

Ruben Bolling’s take on the magic coin.

td130111.gif

And so, once again Joe Biden causes trouble.

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The trillion dollar coin explained – sort of

When I started hearing about the possibility of the treasury minting a trillion dollar coin which could end all the endless debates about the debt ceiling, I thought it was a joke.  Turns out, that is only partly true.  Here are two views of the platinum coin.

The first is Neil Irwin’s as posted on the Wonkblog.

I’ll lay out this econo-pundit’s conclusion upfront: I hate the platinum coin idea. But if there is no resolution of the debt ceiling through the legislative process, I hate some of the alternatives more.

The issue, for those who need a refresher: To avoid running into the debt ceiling in the next couple of months, the Treasury secretary could exploit a legal loophole, create a platinum coin, assign it a value of $1 trillion or some other very high number, and deposit it at the Fed, thus enabling the government to carry out its previously promised tax and spending policies without broaching the legal cap on debt issuance.

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To back up a minute, it is important to understand what the debt ceiling does, and why it is problematic. Congress passes laws to spend money: This many dollars for fighter aircraft, Social Security benefits paid according to such and such formula, and so on. It passes laws to enact a tax code. And the difference between that spending and the money raised in taxes the government funds by issuing debt. But Congress also has a third constraint: An overall ceiling on how much debt the Treasury can issue. In the past, Congress has raised that ceiling to whatever it needed to be to match the previously approved taxes and spending as a matter of course.

Now, House Republicans are viewing the debt ceiling differently. They are treating the debt ceiling–and the need to raise it–as a lever through which to try to win battles over spending that they lost in previous negotiations. They want to not pass an increase to the debt ceiling unless they get some major concessions from Democrats on cutting spending—concessions that Democratic senators and the White House say are non-starters.

So the idea of the trillion dollar coin would be to put this whole impasse to rest.  Irwin goes on to explain what the coin would not do.

A couple of the widespread objections don’t hold water. So long as the Federal Reserve does its job, the platinum coin would not be inflationary. In the current ultra-low interest rate environment, the Treasury depositing a $1 trillion coin at the Fed would not affect the supply of money in the broader economy any differently from it issuing $1 trillion in Treasury bills. Nothing about the platinum coin would prevent the Fed from hiking interest rates when it sees an inflationary threat on the horizon.

That’s not to say a platinum coin gambit would be much fun for the Fed. Chairman Ben Bernanke and New York Fed president Bill Dudley would face a moment of truth, and scores of Fed lawyers would be working overtime, as the central bank had to decide whether to treat the $1 trillion coin as a legal deposit. The Fed in general hates to end up in the middle of political disputes, and this would be a highly uncomfortable spot.

On the other side is Paul Krugman who begins by explaining the whole debt ceiling business.

Where does the debt ceiling fit into all this? Actually, it doesn’t. Since Congress already determines revenue and spending, and hence the amount the Treasury needs to borrow, we shouldn’t need another vote empowering that borrowing. But for historical reasons any increase in federal debt must be approved by yet another vote. And now Republicans in the House are threatening to deny that approval unless President Obama makes major policy concessions.

It’s crucial to understand three things about this situation. First, raising the debt ceiling wouldn’t grant the president any new powers; every dollar he spent would still have to be approved by Congress. Second, if the debt ceiling isn’t raised, the president will be forced to break the law, one way or another; either he borrows funds in defiance of Congress, or he fails to spend money Congress has told him to spend.

So in reality, Congress would just have to authorize borrowing money that they have already said could be spent.  And part of the issue is that not enough people are working and paying enough taxes to create enough revenue.  In some ways you can understand the Republicans who want to set a fixed amount for a budget and then make everything fit.  No borrowing.  But then you have things like Hurricane Sandy and extra spending for the Bush wars for which no revenue was ever raised, and etc., etc. and we end up either cutting things no one wants to cut or borrowing.  Back to Krugman.

Finally, just consider the vileness of that G.O.P. threat. If we were to hit the debt ceiling, the U.S. government would end up defaulting on many of its obligations. This would have disastrous effects on financial markets, the economy, and our standing in the world. Yet Republicans are threatening to trigger this disaster unless they get spending cuts that they weren’t able to enact through normal, Constitutional means.

Republicans go wild at this analogy, but it’s unavoidable. This is exactly like someone walking into a crowded room, announcing that he has a bomb strapped to his chest, and threatening to set that bomb off unless his demands are met.

Which brings us to the coin.

…

Here’s how it would work: The Treasury would mint a platinum coin with a face value of $1 trillion (or many coins with smaller values; it doesn’t really matter). This coin would immediately be deposited at the Federal Reserve, which would credit the sum to the government’s account. And the government could then write checks against that account, continuing normal operations without issuing new debt.

…

But wouldn’t the coin trick be undignified? Yes, it would — but better to look slightly silly than to let a financial and Constitutional crisis explode.

A downgrade of the United States credit rating again will end up costing us in interest which seems to me to defeat the purpose since we will probably have to borrow more to pay extra to borrow.  Maybe enough Republicans will join with enough Democrats to raise the ceiling to a trillion dollars and we won’t need the magic coin.  This is what Irwin is hoping for.

The platinum coin gambit could be terrible for the U.S. government’s long-term standing as a premier destination for global capital. This is a moment for Republicans to take responsibility for governing and to accept the fact that their leverage is limited with control of only one house of Congress. But if the alternative truly is default, a crazy coin option may indeed be less bad than the alternatives.

What would be on the other side?  Some suggestions include the Cat in the Hat, Alfred E. Newman (both sent in to the Takeaway) and my favorite idea, Mark Twain who once said, “Suppose you were an idiot. And suppose you were a member of Congress. But I  repeat myself.”

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I had been thinking about a post on the deficit, but then “The Fifth” did the work for me. Thanks, Kstreet607.

kstreet607's avatarThe Fifth Column

The Huffington Post

1.   The Deficit Has Grown Mostly Because Of The Recession

The deficit has ballooned not because of specific spending measures, but because of the recession. The deficit more than doubled between 2008 and 2009, as the economy was in free fall, since laid-off workers paid less in taxes and needed more benefits. The deficit then shrank in 2010 and 2011.

2.   The Stimulus Cost Much Less Than Bush’s Wars, Tax Cuts

Republicans frequently have blamed the $787 billion stimulus for the national debt, but, when all government spending is taken into account, the stimulus frankly wasn’t that big. In contrast, the U.S. will have spent nearly $4 trillion on wars in the Middle East by the time those conflicts end, according to a recent report by Brown University.  The Bush tax cuts have cost nearly $1.3 trillionover 10 years.

 3.   The…

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The “old” House votes on the fiscal cliff

David Jarman posted an interesting analysis of the voting on the Senate Bill to dodge the fiscal cliff in which he credits Nancy Pelosi for getting it done.  Here are some of the highlights.

Tuesday’s House vote on the fiscal cliff is one of those rare votes where you don’t get a straight party line vote like most contentious votes, but one where the House shatters into pieces and the winner is the side that reassembles the most fragments. Of course, this time it was Nancy Pelosi who did that, putting together a strange coalition of most of the Dems (minus a few defections on the caucus’s left and right flanks), plus the bulk of the establishmentarian and/or moderate Republicans (including the vote of John Boehner himself, no “moderate” but certainly “establishment”).

On the Republican side, there were 85 yes and 151 no votes (with 5 non-votes, from Ann Marie Buerkle, Dan Burton, Sam Graves, Jerry Lewis, and Ron Paul). That’s too many votes to replicate the entire list, but there was a significant geographic dichotomy here, one that seems to support the larger idea that the GOP is increasingly becoming a regional rump party.

Look at the New York Times map.  They also have the entire roll call at this link.

Map of fiscal cliff votes

Of those 85 yes votes, only 13 were Republicans from the Census-defined “southern” states, and many of those were either ones with ties to leadership (ex-NRCC chairs Tom Cole and Pete Sessions, Appropriations Chair Hal Rogers) or ones with atypical, moderate districts in Florida (Mario Diaz-Balart, Ileana Ros-Lehtinen, Bill Young). Rodney Alexander, Kevin Brady, Howard Coble, Ander Crenshaw, John Sullivan, Mac Thornberry, and Steve Womack, most of whom are also pretty establishment-flavored, round out the list.

And how did the Democrats vote?

On the Democratic side, there were 172 yes and 16 no votes (with 3 non-votes, from Pete Stark, Lynn Woolsey, and John Lewis). Within those 16, though, there seem to be two camps: Xavier Becerra, Earl Blumenauer, Peter DeFazio, Rosa DeLauro, Jim McDermott, Brad Miller, Jim Moran, and Bobby Scott (most of whom are Progressive Caucus members) voting against it from the left, and John Barrow, Jim Cooper, Jim Matheson, Mike McIntyre, Colin Peterson, Kurt Schrader, Adam Smith, and Pete Visclosky (most of whom are Blue Dogs) voting against it from the right.

It may not be that simple, though: DeFazio has in recent years been one of the likeliest members of the Progressive Caucus to stray from the party line (for example, he voted against both the Progressive budget and even the leadership budget last year); it’s increasingly hard to tell if he’s becoming more conservative or if DeFazio, always irascible, has just gotten more willing to dig his heels in on bills that feel like half-measures. Adam Smith, on the other hand, has generally been a New Democrat establishment-type player, but he might be looking to remake himself a bit with his newly configured, much more liberal district, which now contains a slice of Seattle. And Moran and Visclosky, even though Moran (who represents northern Virginia) is significantly more liberal than Visclosky, are probably coming from the same mindset, whatever that might be; they’re tight, and are some of the last remaining members of that John Murtha/Norm Dicks appropriations clique that didn’t really fit within any of the Dem caucuses.

Jarman doesn’t talk about Bobby Scott and John Lewis but both are in the Black Caucus as well as in the Progressive Caucus.  Lewis just didn’t vote, but Bobby (who I knew from back in my Virginia Days) represents a district that touches Eric Cantor’s and he might also have had the conservative white voter from his district in mind.

Jarman leaves us with this to think about

Fifteen of the GOP “yes” votes were members who, either because of defeat or retirement, won’t be coming back (Charlie Bass, Judy Biggert, Brian Bilbray, Mary Bono Mack, Bob Dold, David Dreier, Jo Ann Emerson, Elton Gallegly, Nan Hayworth, Tim Johnson, Steve LaTourette, Dan Lungren, Todd Platts, John Sullivan, and Bob Turner). Twenty end-of-the-liners, however, voted “no” (Sandy Adams, Todd Akin, Steve Austria, Rick Berg, Quico Canseco, Chip Cravaack, Jeff Flake, Frank Guinta, Connie Mack, Sue Myrick, Mike Pence, Ben Quayle, Denny Rehberg, David Rivera, Bobby Schilling, Jean Schmidt, Tim Scott, Cliff Stearns, Joe Walsh, and Allen West), though I suspect some of the more establishment-flavored names on that list would probably have been willing to offer a “yes” if the vote had looked closer than it actually was.

Tomorrow starts a new Congress so we can’t really look to this vote when we are reading the tea leaves about the upcoming fight on the debt ceiling and the budget.  There will be more Democrats – enough so Nancy Pelosi won’t need so many Republican votes (I think it may be 21, 17 with vacancies) – if John Boehner can be persuaded to bring things to the floor.

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Going over the cliff?!

The Senate is back in town with very unhappy members who would rather be kicking back at home and who can blame them.  Senator McConnell who really, really doesn’ t want to make a fool of  himself a la Boehner and Plan B, keeps asking for a proposal from the President.  I thought the President had made at least two proposals, but I guess Mitch doesn’t follow the new much.  Meanwhile the House is called back into session on Sunday night.  That is the night of December 30 a little more than 24 hours before the cliff.  So what is going on here?  Not being an economist, I can’t explain it all but I have found a couple of things this morning that have given me some things to think about as we play chicken with the deadline.

First is this handy chart from the New York Times from the Debt Reckoning blog.

It was posted last night with this explanation.

The deadline for resolving the pending fiscal crisis is less than a week away and, absent a breakthrough, spending cuts and tax increases on every income level will go into effect on Jan. 2. During their negotiations, President Obama and Speaker John A. Boehner have sought to keep tax rates at their current level for some taxpayers while letting them rise for high earners, but they have not agreed on where to set the income threshold. Mr. Obama has called for rates to go up on income above $250,000 (he later increased his offer to $400,000), Congressional Democrats have said they would agree to $500,000, and Mr. Boehner has called for a $1 million threshold.

So we aren’t talking about a lot of taxpayers here since the vast majority of us make under $250,000 in taxable income.  As I understand it, none of these proposals would impact investment income.  (Which as we have learned from Mitt Romney, is taxed differently.)  But we do pay a lot more taxes than just income tax and if we go over the cliff, these will go up.  Payroll taxes, business taxes, various tax credits like for child care, and unemployment insurance will all be affected.

The other thing I read this morning is from the Washington Post’s Wonkblog, They have put together a set of very helpful Frequently Asked Questions – with answers.

For example

What is the fiscal cliff in one sentence?

Much too much austerity, much too quickly.

And since this is Ezra Klein and company, there are a couple of helpful graphs.

On or around Jan. 1, about $500 billion in tax increases and $200 billion in spending cuts (see table 1) [ above] are scheduled to take effect. That’s equal to about four percent of GDP, which is according to the Congressional Budget Office, more than enough to throw us into a recession

Next question:  What matters most?

It’s important to recognize that the austerity crisis is a collision between deficit reduction and stimulus. The good news is that if you look at the various components of the fiscal cliff separately, you’ll see that the parts that do the most for deficit reduction do the least for the recovery, and vice versa. This suggests the possibility of “a la carte” approach to the fiscal cliff, in which we extend the most stimulative policies and wave goodbye to the most costly policies. And if you’re looking to go a la carte then here, via the Economic Policy Institute, is the menu.

I recommend that Senator McConnell take a look at this list and the chart showing the impact of various tax increase proposals, pull out his own calculator and make a proposal.  Of course given the House and Senate rules, we will probably go over the cliff before anything can be passed.

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About the Republican request for a balanced approach

Ezra Klein posted this today

This is a very sharp point by Josh Barro:

The Republicans’ main problem in this negotiation is that they know President Barack Obama will not agree to cut in the area they want to cut: aid to the poor. The signal Obama has sent is that he is willing to make a deal that cuts old-age entitlements, meaning Medicare and Social Security, and Republicans are internally conflicted over those programs.

He’s right. Think back to Mitt Romney’s proposed budget. Medicare and Social Security were held harmless for at least 10 years. Defense spending got a lift. PBS and the National Endowment for the Arts were on the table, but they cost so little it hardly mattered.

And there is the Ryan budget problem which remains the basic Republican budget outline.  It is what they ran on.

These are, however, classes of cuts the White House won’t even consider. A year ago, they were open to modest cuts in Medicaid, but after the Supreme Court’s health-care decision, even that door has shut. As for discretionary spending cuts, so many of those were made in 2011, there’s just not much left to do.

That leaves Medicare and Social Security. It’s possible that the negotiators will enact a backdoor, but significant, cut to Social Security by changing the government’s measure of inflation. But they’re not going to come at Social Security from the front. It’s too politically potent. Even Ryan’s budget left Social Security alone.

As for Medicare, as Barro says, if “Republicans ask for near-term Medicare cuts, that will mean reversing a position that is popular with a core constituency (old white people) and giving up a cudgel that they feel they have used effectively to beat up the president since 2009.” It’s a pickle.

In addition, as Steve Benen on the Rachel Maddow blog reminds us, the President has already offered spending cuts, of about 1.7 trillion over 10 years.

The White House keeps saying it wants a ‘balanced approach’ but this offer is completely unbalanced and unrealistic,” a Capitol Hill Republican said yesterday. “It calls for $1.6 trillion in tax hikes — all of that upfront — in exchange for only $400 billion in spending cuts that come later.”

Let’s put aside, for now, the irony of hearing Republicans talking about “balanced” debt-reduction plans. Instead, the importance of complaints like these is that they overlook everything that happened a year ago. Jonathan Cohn had a good piece on this.

…As part of the 2011 Budget Control Act, Obama agreed to spending  reductions of about $1.5 trillion over the next ten years. If you count  the interest, the savings is actually $1.7 trillion. Boehner should have  no problem remembering the details of that deal: As Greg Sargent points out, Boehner at the time actually gloated about the fact that the deal was “all spending cuts.”

And now, with this latest offer, Obama is proposing yet more spending  reductions, to the tune of several hundred billion dollars. Add it up  and it’s more than $2 trillion in spending cuts Obama has either signed  into law or is endorsing now. That’s obviously greater than the $1.6 trillion in new tax revenue he’s seeking. (And that doesn’t even take into account automatic cuts  from the 2011 budget sequester, which Obama has proposed to defer, or  savings from ending the wars in Afghanistan and Iraq.)

I can understand the temptation to block 2011 from memory, but what transpired is clearly relevant to the current debate. Obama wanted a “balanced” approach last year — some cuts, some new revenue — but didn’t get it. Instead, faced with the prospect of Republicans crashing the economy on purpose, the president accepted a deal with a whole lot of spending cuts.

How much new tax revenue came as the result of last year’s deal? Zero. The entire package came in the form of spending reductions and savings.

So with the new tax revenues and the already proposed budget cuts, President Obama is offering exactly what the Republicans keep asking for:  a balanced approach.  I’m not sure what they are waiting for.  Senator Harry Reid is mystified and so am I.

We need a comprehensive solution that lasts for a couple of years at a minimum because this non-economist doesn’t think the economy will improve as long as we seem to be in a continuous a budget or debt ceiling crisis.

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