“Grand Bargain” Nearly Done, Say Reports

The New York Times sets out the shape of the coming deal to avert the self-inflicted “fiscal cliff”:

The two sides are now dickering over price, not philosophical differences, and the numbers are very close.

…The White House plan would permanently extend Bush-era tax cuts on household incomes below $400,000, meaning that only the top tax bracket, 35 percent, would increase to 39.6 percent. The current cutoff between the top rate and the next highest rate, 33 percent, is $388,350.

On spending, the two sides are also converging.

The White House says the president’s plan would cut spending by $1.22 trillion over 10 years, compared with $1.2 trillion in cuts from the Republicans’ initial offer. Of that, $800 billion is cuts to programs, and $122 billion comes from adopting a new measure of inflation that slows the growth of government benefits, especially Social Security. The White House is also counting on $290 billion in savings from lower interest costs on a reduced national debt.

Of the $800 billion in straight cuts, the president said half would come from federal health care programs; $200 billion from other so-called mandatory programs, like farm price supports, not subject to Congress’s annual spending bills; $100 billion from military spending; and $100 billion from domestic programs under Congress’s annual discretion.

To make all this happen, Mr. Obama proposed fast-track procedures to help Congressional tax writers overhaul the individual and corporate tax code and make changes to other programs.

There’s still a little bit of “dickering” to be done – but we now know that, as expected, the price of that gourd known as “bipartisanship” involves serious, harmful, cuts in the already-tattered safety net of those who can least afford it while still giving money away to those who earn enough that they’re not hurting.

Update: Robert Kuttner.

Especially foolish is the cut in Social Security benefits, disguised as a change in the cost-of-living adjustment formula. Before getting to the arcane details of the formula, here’s the bottom line. The proposed change will save only $122 billion over ten years, but it will significantly cut benefits for the elderly.

Because the cut is in the form of a change in the Consumer Price Index (CPI), the longer you live, the more is the total cut. On average, the cut is about 3 percent a year, but if you live twenty years after you start drawing benefits (the average), that adds up to over ten thousand dollars.

Put this in the context of the reliance of the elderly on Social Security. More than 70 percent of all recipients depend on Social Security for more than half their income. The average Social Security benefit is less than $15,000 a year, and in recent years all of the cost-of-living adjustments and more have gone to defray the annual increases in Medicare premiums and other health costs.

…it’s unconscionable to cut Social Security at all when then president is proposing to reduce the proposed taxes on the wealthiest by $400 billion—more than three times the savings of the planned cuts in Social Security.

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Steve Hynd

Most recently I was Editor in Chief of The Agonist from Feb 2012 to Feb 2013. My blogging began at Newshoggers and I’ve had the immense pleasure of working with some great writers there and around the web ever since, including at Crooks & Liars. I'm a late 40′s, Scottish ex-pat, now married to a wonderful Texan, with Honours in Philosophy from Univ. of Stirling, UK 1986. I worked most of life in business insurance industry (fire, accident, liability) including 12 years as a broker/underwriter/correspondent at Lloyd’s of London. Being from the other side of the pond, my political interests tend to focus on how US foreign policy affects the rest of the planet. Other interests include early and dark-ages British history, literature and cognitive philosophy/science.

7 CommentsLeave a comment

  • How many people are remarking that the cut in Social Security does not actually reduce the federal deficit at all? Anyone? Social Security is a self funded program, the funding for which is provided by payroll deductions which are paid into the Social Security trust fund from which benefits are paid.

    “The proposed change will save only $122 billion over ten years…” Nonsense. It will save the federal budget exactly zero. Nada. Ziltch. It will reduce outgo from the Social Security trust fund by $122 billion. Period.

    Why does this never get brought up in the budget discussions?

    • You are correct that SS is de jure self-funded by it’s own tax. The problem began when Clinton wanted to spend without taxing. Bills were passed, egos stroked, deals cut and the Social Security Trust Fund was required to invest ‘surplus funds’ (funds not needed for current payouts) in – TaDa! – government securities! Our SS deductions thus found their way into the General Fund instead of being held in trust for the retired.
      Gives new meaning to the term ‘trustee’, doesn’t it?

      Effectively, the Trust Fund now holds IOUs from the government and if/when it needs to call in those markers, taxes would be the only source of that revenue. Then it really will become an issue of raising taxes to support SS. Even today, funding would not be a problem if the cap for FICA deduction (currently $106,800 I believe) were raised and the wealthy were taxed above that limit. . The longer the issue goes unresolved, the worse it will eventually be. The battle of retirees needing SS vs the the un-retired and the ultra-wealthy fighting tax hikes will be nasty. But as the percentage of retirees increases, the Grey Vote may just prevail.

      One upside is that Teabaggers will self-destruct in a blast of cognitive dissonance.

      • “The problem began when … the Social Security Trust Fund was required to invest … in government securities!” How is that a problem? Government securities are not high yield, but they are the safest investment around. It’s a perfectly good investment, and one that would be highly recommended by any respectable trust fund advisor. What else would you suggest that the Social Security Trust Fund do with its excess revenue? Put it in high risk stocks? Buy Facebook stock?

        “Our SS deductions thus found their way into the General Fund instead of being held in trust for the retired.” They did nothing of the sort. They are in the trust fund, invested wisely in government bonds and awaiting the need to be used for payout of benefits. The government general fund is borrowing money, and one of the places it borrowed from has been the Social Security Trust Fund, but that money is still on the books of the trust fund as an asset unless the US government decides to renege on its debt.

        The reason that legislators want to cut benefits is that it postpones the point at which the government will be called upon by the Social Security Trust Fund to repay that debt. Like all profligate debtors, the government does not want to have to repay what it owes.

        “…if/when it needs to call in those markers, taxes would be the only source of that revenue.” Actually, no. It can roll the debt over and sell more treasury bonds, or it can simply print more money.

        • Rolling the debt over just means taking it out of the General Fund’s left pocket and putting into the right pocket. In theory, the government can always borrow to meet whatever debt it has, but in practice, political considerations limit that ability.

          What happens if, in the political climate of the day when repayment is needed, Congress won’t agree to allow the government to borrow to repay what it owes Social Security? It would either reduce benefits (or default – politically impossible) or raise revenue. That revenue would have to come from taxes or at the expense of other budget items.

          As far as where else funds could have been invested, the answer is ‘nowhere’. Investment is only needed if you are after growth beyond the funding by employee FICA withholding. While government securities may indeed be safer than the stock market, they could have simply left the fund alone, since it was financially sound as it was. The low ROI of government securities has not significantly benefited the trust fund and investing has made the fund vulnerable to politically-motivated budget battles down the road, such as the ‘fiscal cliff’ nonsense we see happening now. In effect, they have borrowed from SS Trust Fund to finance war and when the bill came due, they want to welch on the debt by cutting the social safety net (as they continue to fund war).

          • All government debt is term limited bonds which has to be paid off when it matures, so the government sells more bonds with which pay it off. It is a routine process which happens every single day. If the trust fund needs their money the government would simply sell general obligation bonds to replace the Social Security bonds. Congress would not need to “allow them to borrow,” because the process would not increase the debt. They sell an amount equal to that which is being paid off, and the debt remains the same.

            The routine exercise in raising the debt cieling is not caused by rolling over expired bonds, it is caused by spending more than is received in revenue. The portion of the debt cieling “freakout” of 2010 that said the government would default on its debt was that the government would be unable to sell new bonds to replace the maturing ones, and it was nonsense designed to panic the public and create an outcry which would force an increase in the debt cieling. The part about shutting down government was real enough.

            As for investment of the trust fund, it has to be invested. At the very least it would be invested in a bank where it would draw interest. The only alternative would be to dig a hole in the ground and bury it. The program began generating excess revenue in 1983 and immediately invested in treasury bonds because they were as safe as banks, if not safer, and the interest on them was a bit better than banks at the time.

            Bill Clinton had plans to revise Social Security, but it did not include any new requirement to invest in T-bills; they were already doing that. He wanted to add 50% of the general revenue surplus to the Social Security thrut fund, and he wanted the trust fund to invest in the stock market. (Just as George Bush later thried to do.)

      • “…if/when it needs to call in those markers, taxes would be the only source of that revenue.” Actually, no. It can roll the debt over and sell more treasury bonds, or it can simply print more money.

  • Yep, Austerity for Main Street and let the good times roll for ws. If anyone is surprised by 0 then I have a bridge I would like to sell you. This will only get worse as more info becomes available. I was going to get another $27.00 of SS but that might just a dream.

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