What a Fiscal Cliff Deal Will Probably Look Like

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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.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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