“Fiscal Cliff” Talks: An Update

Today, for the first time since the election, President Obama and House Speaker John Boehner met alone, face-to-face, at the White House to discuss ongoing negotions over the budget.   (I can’t help but see the photo, which shows Obama with a hand on Boehnr’s shoulder, as a reference to the “Saturday Night Live” skit that appeared last night.  

I’m more and more hopeful about the budget negotiations. Recentlly, I wrote that Obama had “won round one,” explaining that I believed CNN’s report that  the Republicans and Democrats have reached a deal on taxes. “Both sides agree the wealthy will pay more, so now fiscal cliff talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.”  Based on everything I know about the economics and the politics of the situation, this makes sense. /

Since then Boehner has said:  “No progress has been made.”

This does not change the story:  If, as CNN’s sources say, (and I believe) Republicans have conceded that taxes cuts for the top 2% must expire Janauary 1, while cuts for the remaining 98% will continue, that doesn’t mean they are ready to make the agreement public.

Understandably, Republicans are not willing to acknowledge that they lost round one of negotiations until they can also announce that they won something in round two.  Nor does  President Obama want to blind-side Boehner by letting it leak that a tax deal is in place. That would be counter-productive.

                          The Inside Story and the Outside Story

Recentlly, the Washington Post’s Ezra Klein reported:  “Right now, the fiscal cliff negotiations are proceeding on two tracks.

“One track includes the press releases, public statements and legislative tactics the two parties are deploying to prove the purity of their faith and their commitment to beating the other side to a bloody pulp. Watch these closely and it’s easy to get depressed.  . . ‘There isn’t a progress report;’ Republican House Speaker John Boehner sighed Friday, ‘because there’s no progress to report.’

“The other track includes the offers, counteroffers and red lines proposed by Boehner and President Obama. If you look at these closely, a deal is taking shape.”

 I agree with Ezra about the “two tracks”. But I don’t agree regarding the “shape” of the deal that is emerging.

First, I agree that  the majority of Republicans in Congress have accepted the fact that the Bush-era tax breaks for folks earning over $200,000 (and couples earning over $250,000) will have to expire. I won’t try to guess when politicians will complete the two stages of bargaining and be ready to announce a deal. We may go right up to the January 1 deadline.

Moreover, it is  possible that when it comes to cutting government spending, too many Republicans will remain stubbornly, and foolishly, intransigent — insisting on concessions that would inflict pain on the middle-class.

If that happens, I predict that President Obama will let us sail over the so-called “fiscal cliff.”  He knows this wouldn’t do any permanent damage to the economy.  As Rutgers reported today, even Wall Street does not seem panicked by the prospect: “Investors have peered over the cliff and realized they are looking at a gentle slope . . . . some investors say lawmakers still have time in early 2013 to strike a deficit-reduction deal without imperiling the economy. A survey of 62 Wall Street money managers released on December 5 showed market losses would be manageable if the U.S. goes over the fiscal cliff, even though worries still run deep.

Many on Wall Street understand that, early in the spring, the administration could undo Draconian spending cuts, while lowering tax rates for the 98%. Public pressure will ensure that happens. (In the meantime, the Treasury Secretary could lower withholding rates so that middle-class Americans didn’t suddenly see their paychecks trimmed.)

But taking a ride down that slope would do lasting damage to the GOP.  Polls show that voters would blame Republicans. This is why I think that, in the end, Republican leadership in Congress will do whatever it must to make a deal before January.  As I indicate in the post below. Tea Party extremists in the Republican party are being side-lined.

                                         How Much Will Democrats Give Up?

Ezra Klein writes: “Talk to smart folks in Washington, and here’s what they think will happen: The final tax deal will raise rates a bit, giving Democrats a win, but not all the way back to 39.6 percent, giving Republicans a win. That won’t raise enough revenue on its own, so it will be combined with some policy to cap tax deductions, perhaps at $25,000 or $50,000, with a substantial phase-in and an exemption for charitable contributions.

“The harder question is what Republicans will get on the spending side of the deal. But even that’s not such a mystery. . . .the headline Democratic concession is likely to be that the Medicare eligibility age rises from 65 to 67.  Klein doesn’t name who “the smart folks in Washington” are.  I know that at least a few beltway journalists who I greatly respct are speculating that rates won’t go back up to 39.6 percent. But I’m not convinced.

Noble-prize winning economist Paul Krugman is not “one of the smartest folks in Washington.” (He is in Princeton and, sometimes, in New York. This may be an advantage: Krugman isn’t in the D.C. echo chamber. He is able to sit quietly and think for himself. )  But he is one of the smarter people around (I know that Klein would agree), and Krugman asks a very reasonable question:

“Why on earth would Obama be selling Medicare away to raise top tax rates when he gets a big rate rise on January 1 just by doing nothing? And no, vague promises about closing loopholes won’t do it: a rate rise is the real deal, no questions, and should not be traded away for who knows what.”

On tax rates, let me add, if Bush could lower rates by that much in one fell swoop, why can’t the Obama administration lift them by an equal amount? (Some conservatives have a child-like tendency to stamp their feet and scream bloody murder when Demorcrats propose doing exactly what the other party did when it was in power: “They Can’t do that; that would be Unfair!“)

But consider this: we only are talking about raising the rates on what  a wealthy family earns above and beyond $250,000. This will not lower the living standards of a household earning $275,000: they would pay the highr rate on just $25,000.

 On Medicare:  “Most of the Pain Would Be Blunted by the Affordable Care Act”—Not True

As for raising the Medicare age, Klein himself acknowledges that this is “not a policy I like much, but New York magazine’s Jonathan Chait accurately conveys the White House thinking here: They see it as having “weirdly disproportionate symbolic power” . . . and most of the pain will be blunted by the Affordable Care Act. “

Unfortunately, this is not corrct. As I observed out in an earlier post,  under the ACA, insurers will be able to charge 65-year-olds three times as much as they charge a 30-year-old for the same policy. The Kaiser Family Foundation points out that in 2014 “premiums could reach $10,000 to $12,000 for 65- and 66-year-old individuals and twice that for couples.”

Meanwhile if they have to wait until they are 67 to apply for Medicare “half of the 65-and-66-year-olds who would have to rely on the exchanges would have incomes that are too high” for subsidies. (A 65-year-old earning more than $46,000 would not qualify). Yet few could afford to spend more than 25% of their income on premiums. A great many would wind up uninsured.

Others, that qualified for subsidies would discover that their out-of-pocket costs much higher than they would be under Medicare. Meanwhile, employers would not want to pick up the slack. If  sixty-five and sixty-six year-olds no longer qualified for Medicare they would find it very difficult to find –or hold onto–full-time jobs. 

Many people would be hurt, and hurt badly. And when those who were left uninsured finally turned 67, their health problems would have gotten worse. In the end, they would cost Medicare more, not less. Indeed, a Congressional Budget Office study of the proposal to raise the Medicare age to 67 found it would have “little effect on the trajectory of Medicare’s long-term spending

Many Democrats, (including House Minority Leader Nancy Pelosi) understand all of this. Today, speaking on Meet the Press, Senate Majority Whip Dick Durbin (D-IL) made it clear that raising the age at which seniors can receive Medicare from 65 to 67 would leave retired seniors with a dangerous gap in their health coverage.

Over at Mother Jones, Kevin Drum wonders how the rumor that Democrats were willing to concede the point ever got started in the first place “There’s been a tremendous amount of chatter lately about the possibility of raising the Medicare eligibility age as part of a fiscal cliff deal.  Why so much chatter? As near as I can tell, it’s mostly because Ezra Klein wrote a piece a few days ago suggesting that “smart folks in Washington” think it will be part of a final package. This is testimony to Ezra’s immense agenda-setting power among the chattering classes, since there doesn’t really appear to be any additional evidence that this is actually on the table. Amazing guy, that Ezra.” Drum then admits that he has drifted  off topic: “What’s ontopic is Adele Stan, suggesting that maybe the worm is turning and Obama won’t agree to raise the Medicare age after all.                   

                “A Deal That Makes No Sense”–Politically or Financially

In the end, Krugman offers the most persuasive argument:

I’m going to cross my fingers and hope that” Klein’s claim that Democrats are ready to raise the age to 67 “is just a case of creeping Broderism, that it’s a VSP fantasy about how we’re going to resolve this in a bipartisan way. Because if Obama really does make this deal, there will be hell to pay.

“First raising the Medicare age is terrible policy. It would be terrible policy even if the Affordable Care Act were going to be there in full force for 65 and 66 year olds, because it would cost the public $2 for every dollar in federal funds saved. And in case you haven’t noticed, Republican governors are still fighting the ACA tooth and nail; if they block the Medicaid expansion, as some will, lower-income seniors will just be pitched into the abyss.

 “So this looks crazy to me; it looks like a deal that makes no sense either substantively or in terms of the actual bargaining strength of the parties. And if it does happen, the disillusionment on the Democratic side would be huge. All that effort to reelect Obama, and the first thing he does is give away two years of Medicare? How’s that going to play in future attempts to get out the vote?”

Yes.  Both politically and financially, asking seniors to wait another two years before receiving Medicare makes no sense  even if this were phased in over time.

Moreover, it would set a terrible precedent, encouraging conservatives in their hopes that, over time, we will dismantle the nation’s safety nets.

That is not where health reform is headed. In the future, once we have squeezed more of the waste out of Medicare, and turned it into a program that provides more affordable, more efficient, safer, better-coordinated care, we may well think about lowering the eligibility age for Medicare.  Ideally, all Americans will have a choice between private-sector insurance, and a “public option” modeled on the new, improved Medicare.

President Obama does not “have to give the Republicans something” that will harm  either the economy or the middle class. The president does not “have to” do anything. Politics is not a game where you must try to make sure that, in the end, everyone feels the game was fair. This is is not Little League.

The President is supposed to worry, not  about his opponent’s bruises (or their rage),  but about whether the American people feel that the outcome was just. He represents the public, not the players in Washington’s poltical football.  And the majority of Americans agree with him about raising taxes for the very wealthy, and about protecting Medicare, Social Security and Medicaid. This is one reason why he won the election.

Finally, no matter how many concessions the president makes, extreme conservatives will always believe that the  fact “this man” is in the White House is outrageous. They still cannot believe that they lost. They will not co-operate with him during this second term, just as they did not even consider compromise during his first term.

But over the next four years, some of the hard-liners will be replaced, and, already, saner voices within the Congressional GOP are beginning to come forward. They want to broaden their party’s base, and they will cross the aisle to talk to Democrats.




6 thoughts on ““Fiscal Cliff” Talks: An Update

  1. This pseudo-hysteria is a joke. Anything that coerces unnecessary economic contraction will make this depression/’Great Recession’ worse. They both know it. I handicap the chances of going over the cliff by about 0.1%. Concomitantly, QE3 will print up about 1 trillion dollars next year, most of which will be used to buy debt. What a mess!

    As for the ACA, it still looks like a *massive* windfall for the insurance industry.



  2. Ruth–
    Under the Affordable Care Act,
    the insurance industry must:
    –cover anyone with a pre-existing condition without charging them more
    — cover all essential benefits for anyone who buys insurance in the Exchanges– including dental and vision care for children under 18 (now very rarely covered) maternity benefits (rarely covered except by large employer plans)l
    all preventive care without co-pays or deductibles; contraception without co-pays or deductibles; and insurers will no longer be able to charge women more because they are women.
    (Who will buy insurance in the Exchanges?
    (people who work for small firms, people whose employers don’t provide insurance, and anyone who buys their own insurance. In other words millions of people)
    In addition, insurers will no longer be able to put a annual cap or a lifetime cap on how much they pay out for any individual. (In other words, if your child has cancer, is treated for 7 years, and it costs $1 million they have to pay the $1 million. . In addition, the amount they can ask you to pay in in co-pays and deductibles is limited– no deductibles over $2,000.)
    Finally under the Affordable Care Act, insurers covering a large group must pay out 85% of premiums in direct medical benefits to its customers–or send them a rebate. In other words they cannot keep more than 15% of premiums to cover their overhead, marketing expenses, salaries, profits ,payments to insurance agents and brokers, etc. etc. This part of the law has already kicked in and they are already sending out rebates.”
    Does this sounds like a windfall to you?
    Insurance company profit margins will be very tight. Many companies will go out of business. Others are merging or being acquired.
    Trust me– this is not a windfall for the industry.
    But the Affordable Care Act is very good for patients:
    –we all can have access to care; –middle-income (up to $92,000 income for a family of four) plus low-income people will get subsidies that will make insurance affordable;
    —insurance companies will no longer be able to sell us “Swiss Cheese” policies filled with holes.
    Finally, insurers will be “regulated” as they are in Europe. (No Europe does not have single-payer. Onlyl Canada and the UK hae single-payer and their systems are not as good as some in Europe (in terms of patient satisfaction and outcomes).

  3. Nancy Pelosi to the rescued once again.

    After first being the leader who drove the ACA into the goal back in 2010 when many other Democrats worried that the loss of the Kennedy seat in MA would prevent its passage, today she threw off the gloves to fight for the preservation of Medicare, indicating that she and her caucus could not and would not support raising the Medicare age — knowing that no austerity crisis deal will pass the House without her support.

    All this, of course, makes her the single most hated Democrat for the right wing noise machine, but I will now predict that fifty years from now, assuming that anyone still studies history then, she will be considered one of the greatest and most important leaders of her era. Emma Stone will be about the right age to play her in the movie.

  4. Pat S.

    Yes, and when Pelosi decided to “throw off her gloves to fight for the preservation of Medicare”, I became very hopeful that she would win. (As you know, Senator Durbin has now told reporters that raising the Medicare age is “off the table.” This isn’t certain, but I remain very hopeful.
    As you say Pelosi was the driving force behind passage
    of the Affordable Care Act. She went out on a limb — and President Obama joined her on that limb only after she was certain that she had the votes–early in 2010. At the time, I believed the ACA would pass because Pelosi knows how to count votes (and as the daughter of a old-time politician, she knows how to wring those votes out of her colleagues.
    Of course Republicans hate her. They also hate Elizabeth Warren–for the same reasons. They spent a fortune trying to keep Warren out of the Senate. Now, not only is she in the senate, she is on the Banking Committee.
    Warren 2; Wall Street 0.
    I can imagine a not-too-distant future in which Warren is a leading figure in the Senate (eventually she could become Majority leader), Pelosi is the Democratic leader in the House, and Hillary is in the White House.
    I don’t mean to suggest that our government should be an “all-girl band” (Hillary would need a very strong male VP )
    but those three could get a lot done!
    I like the idea of Emma Stone playing Pelosi.
    Meryl Streep could transform herself into Hillary, much as she “became” Thatcher.
    Now who could play Warren?

    • Emma Stone would only work for 50 years in the future, when Pelosi will be one of the women on the monument to the leaders who dragged the nation back from the abyss in the early 21st century.

      Now, I would go for Marisa Tomei as Pelosi, Streep as Hilary, Helen Mirren as Warren, Dustin Hoffman as Harry Reid, and Idris Elba as Obama. 😉