What a Fiscal Cliff Deal Will Probably Look Like

For indispensable reporting on the coronavirus crisis, the election, and more, subscribe to the Mother Jones Daily newsletter.


Paul Krugman is agonizing over the fiscal cliff deal that’s apparently on the table right now:

The tax hike on earned income only falls on those making $400,000 or more. As I understand it […] taxes on unearned income are going back to pre-Bush levels: capital gains at 20 instead of 15 percent, dividends taxed as ordinary income. If I’m wrong about that, this is easy: no deal. And there’s extra revenue too, notably from changing the treatment of itemized deductions: instead of being a deduction from taxable income, they offer a tax credit, not to exceed 28 percent — which means a further substantial tax rise for people in the top bracket. Overall, there’s more revenue in this deal than you get from letting the high-end tax cuts expire after the cliff.

So the revenue side isn’t that bad….Also on the plus side, extended unemployment benefits and more infrastructure spending….But then there’s the Social Security cut.

Switching from the regular CPI to the chained CPI doesn’t affect benefits immediately after retirement, which are based on your past earnings.What it does mean is that after retirement your payments grow more slowly….This is not good; there’s no good policy reason to be doing this, because the savings won’t have any significant impact on the underlying budget issues. And for many older people it would hurt.

I suppose it was never likely that Obama was going to get a deal that liberals would be wholly enthusiastic about, and I’m not excited about the Social Security cut either. However, one thing to watch out for is whether there’s more to it. It’s possible that Obama will agree to chained CPI but insist on compensating changes for the lowest earners, so that the most vulnerable seniors are held harmless. We’ll have to wait and see.

In addition to the fact that the Social Security cuts would hurt retirees, I continue to think it sets a bad precedent to link Social Security to a broad deficit deal that’s otherwise focused on general fund spending and revenue. Social Security is a separate program, and if a deal is going to be made, compromises should be made within the program. It’s one thing to hammer out an agreement to raise revenues and cut benefits that affect only Social Security, but it’s quite another to cut Social Security benefits in return for general fund tax increases. I don’t like that, and I don’t like the idea that Obama is setting a precedent to do that kind of thing again in the future.

Overall, this doesn’t sound like it’s the worst deal in the world. So far, though, I’m with Krugman: it doesn’t sound all that great either, and it’s not clear if it’s better than what Obama could get if he simply waited a bit and went over the cliff. But I guess that was never in the cards. He seemed intent from the beginning on avoiding that.

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

payment methods

We Recommend

Latest