Latest "Grand Bargain" Compromise Shifts 'Rich' Threshold

Tyler Durden's picture

The rumor mill on unnamed sources and strawmen is full tonight with Reuters, Bloomberg, and WaPo all reporting on a new new deal from Obama that 'meets the Republicans more than halfway' apparently. The crux appears to be a $1.2tn tax increase (over 10 years of course) thanks to higher rates on households earning over $400k (up from his original $250k but below Boehner's $1mm) and $930bn in spending reductions, including the much-discussed 'accounting' gimmick of cost-of-living-adjustments (and unChained CPI - see below) in Social Security. The offer also has a 'debt ceiling' proviso to increase the borrowing capability for two years via McConnell's proposal. S&P futures got a lift from this great 'austerity' news (that will perplex the Keynesians) but seemingly got most of the excitement out of the way this afternoon.

Boehner appears to have seen through the guise of accounting jiggery-pokery and debt-ceiling removery and responded:

  • OBAMA BUDGET OFFER STILL NOT 'BALANCED,' BOEHNER AIDE SAYS

More from Bloomberg:

Boehner spokesman Brendan Buck, in an e-mailed statement tonight, called the offer “a step in the right direction” though he said it “cannot be considered balanced.” He said the offer included $1.3 trillion in revenue and $930 billion in spending cuts.

 

That calculation doesn’t count $290 billion in lower interest payments as part of the spending cut. Interest savings are a byproduct of tax and spending decisions. Buck said the speaker hopes to continue negotiations.

 

Boehner and Majority Leader Eric Cantor will give House Republicans an update on the negotiations at their weekly conference meeting tomorrow, according to a leadership aide who requested anonymity to talk about the leaders’ plans.

 

Obama’s offer would set the top tax rates on dividends and capital gains at 20 percent, the person said. Combined with tax increases from the 2010 health care law scheduled to take effect in January, the top rates would be 23.8 percent.

 

Obama would return the estate tax to 2009 parameters, with a $3.5 million per-person exemption and a 45 percent top rate.

 

The dividend proposal matches the bill Senate Democrats passed in May and would raise less money than Obama’s budget, which called for taxing dividends as ordinary income. The estate proposal is less generous than the parameters backed by many Senate Democrats, who would extend the $5.12 million exemption and 35 percent top rate

 

* * *

 

About $130 billion of the spending savings would come from switching the way that annual inflation increases for Social Security benefits are calculated. Obama’s offer would include protections for the most vulnerable recipients, the person said.

Some more on Chained CPI (via Washington Post):

When President Obama tried to reach a comprehensive bargain with Republicans to pay down the federal deficit last year, he floated the idea of changing the cost-of-living adjustment for Social Security benefits from the traditional consumer price index to something called a chained Consumer Price Index, or “chained CPI.”

 

Economics and policymakers generally make the assumption that when prices rise, people will turn to a less expensive product. They’ll buy chicken instead of more expensive beef, iceberg lettuce instead of arugula, store-brand, instead of name-brand cereal. The chained CPI attempts to account for how people react to inflated prices.

 

It’s an arcane detail in the ongoing budget debate, but the chained CPI is appealing to budget experts and some Republicans and Democrats, because it only slightly tweaks the inflation formula, while building significant savings over time, perhaps more than $100 billion over a decade.

 

Making such a change also means paying out less in Social Security benefits over time — something liberal Democrats can’t stomach. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. People in that position had an average initial monthly benefit of $1,435, or $17,220 a year, according to the Social Security Administration. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit would be up to $1,986 a month in 2013, or $23,832 a year. But if payouts were adjusted using chained CPI, the sum would be around $1,880 a month, or $22,560 a year — a cut of more than 5 percent and more as the years go by.

 

As for taxes, the nonpartisan Tax Policy Center has calculated that most Americans would pay a little more than $100 more per year. Families making between $30,000 and $40,000 a year would see the biggest increases — almost six times that faced by millionaires — but that’s because upper-income Americans are already in the top bracket and not being pushed into higher marginal rates because of changing bracket thresholds.

 

All told, chained CPI would lead to a larger across-the-board cut in Social Security benefits and a 0.19 percent income surtax, according to experts. Those changes could make the proposal politically unpalatable for some, which is why some budget watchdog groups have argued that the only fair way to implement such a change would be to couple it with an increase in Social Security benefits and to exempt Supplemental Security Income, which provides support for impoverished elderly, disabled and blind people.

 

Will lawmakers unveil some kind of proposal using chained CPI and other adjustments in federal benefits emerge in the coming days to help strike a deal? Stay tuned.

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Everybodys All American's picture

Tell that to Zimbabwe. Argentina. Greece. Spain. The Wiemar Republic.

fonzannoon's picture

Excactly. Tell it to lehman etc. too. How were the ratings agencies doing with them prior to them blowing up?

gjp's picture

They are in fact worse than useless. Just another bunch of cronies.

HurricaneSeason's picture

The Bernank is buying the whole annual deficit.  What difference does it make what the ratings say?  As he frees up bogus mortgages, the banks can use that money to buy treasuries. If China and Russia start dumping faster or The Bernank chokes when it gets to too many trillion, then it goes, not ratings.

Freddie's picture

Moodys is a buffett company and S&P aka McGraw Hill makes it real money on textbooks which is another scam.   Fitch is owned by Hearst (as in starting the Spanish American war hearst) and a French company.

Anyone who downgrads O Amerika will get visits by the FBI, SEC and probably SEIU.

Everybodys All American's picture

Obama will not have any say in this outcome. What makes you think he doesn't want this? Come on Freddie you know Obama better than this. He wants the crisis. He wants America downgraded. How else do you explain six trillion in debt in four yrs? And still no acknowledgement of a spending problem.

CrashisOptimistic's picture

Those numbers are over 10 years, and back loaded for the spending cuts.

It looks like deficit reduction of maybe 100 billion in 2013, max.  

Out of 1.1 Trillion.  Leaving the deficit at 1 Trillion, almost to the penny what the Fed will lend.

Less than 1% of GDP drag.  Pathetic.

fonzannoon's picture

Totally pathetic. You were expecting something other than that?

CrashisOptimistic's picture

Well, there could be some additions.  Like letting the payroll tax cut expire.  And extended unemployment.  If those were tacked on, we'd get over 1% of GDP drag.  

fonzannoon's picture

why bother? They are so far from close it's pointless.

kito's picture

They have chosen the inevitable massive coronary instead of the much needed quadruple bypass............grab a defibrillator.....or two.....or three.....

1100-TACTICAL-12's picture

Whop de fuckin do.. $211 trillion give or take a littlt unfunded libilities. How they gonna comprmise their stuipid asses outa that ?

Cursive's picture

Phew.  At least it's finally over.  Now Obama can get back to the business of governing the American sheeple.   -_-

klockwerks's picture

Well not exactly, he will be basking in the Hawaiian sun.

Cursive's picture

@klockwerks

LOL.  It ain't over by a long shot.  We'll be subjected to this sorry ass soap opera for at least another two weeks, probably longer.  Anyone who is tired of the Greece melodrama will be craving gyros before this is all over.

 

ETA:

OBAMA BUDGET OFFER STILL NOT ‘BALANCED,’ BOEHNER AIDE SAYS

1fortheroad's picture

Deal or no Deal, should be good for another 100 handles up on the S&P

lolmao500's picture

Congress giving Obama the power to the raise the debt ceiling is total treason. If you gonna do that, GET RID OF IT ENTIRELY WHILE YOU'RE AT IT.

Who are the dumbfucks reelecting McConnell and Boehner??? Nuke their districts from orbit, it's the only way.

 

fonzannoon's picture

it's just for two years,. they will get the debt stuff squared away by then.

surf0766's picture

New cpi for social security.. Great do it  . let the baby boomers soak through them diapers when they hear the news..........

Cursive's picture

@surf0766

 

Trust nothing that begins with, "Economics (sic) and policymakers generally make the assumption...."  Holy shit!  We're dealing with general assumptions of the pointiest-headed dimwits on earth.  To borrow a thought from William F. Buckley, I would rather be governed by the first 10 names in the phone book than these hapless, evil motherfuckers.  Have these people seen what the store brands such as Kroger's private label and Target's Archer Farms cost?  Newsflash - the private label goods are as much if not more than the brand name goods.  Adam Lanza is one form of evil, Ben BernanQE and the Washington politicians are yet another form of evil and much, much more powerful form at that.

Insideher Trading's picture

Term limits need to be taken to the table.

The founders envisaged 4 years as President as a lenghty term. They didn't envisage GPS, Phones, E-mail, search engines, cell phones, planes, cars etc.

You can do more in 1 month today than you could in 4 years - 300 years ago.

knowless's picture

I still don't get why tax rates are determined by nominal yearly gross income, why isn't percentage based on extraction rates in a weighted basket of commodities? Food, energy, etc..

If your relevant "income" ex weighted commodities is within a multiple range above subsistance/relevance/opulence you pay in, nominal rates are extremely arbitrary and not feasible long term when dealing with fiat currencies..

Like, i get that it's practically a useless distinction, but it seems like it would streamline the tax code for a fiat system to remove nominal targets.. Might even provide added price stability and "equality" "fair share".

1fortheroad's picture

Get rid of the FED and no taxes are needed

GMadScientist's picture

Because they are easier to game; next question.

 

knowless's picture

im in, trust me; but for reals, designing a tax code that reflects market principles, bainers all around. 

 

think of limited systems, communities if you will, how do you mathematically allocate value based on disparate contribution? you can gloss over it with "fuck taxes" or you can address how a community allocates voluntary shared resource/skills. it's up to you. personally, i want ideas for building a sound structure in my own life that isn't pointless, attribute this to federal politics if you wish.

ptoemmes's picture

Damn...now I am an additonal $150,000 away from being considered rich.  Talk about the Red Queen...I'll never get there if this keeps up.  Maybe I don't want to..hmmm.

LongSoupLine's picture

A fucking shit stack of trillions in debt... And these assholes are making "deals". We are way beyond fucking deals. It's max pain on both sides to even get a ticket into the fucking recovery show.

Joe moneybags's picture

Obama is eating Boner's lunch.  The  POTUS protected his big spending plans, in perpetuity (his final term), and gets to keep his wealthy friends (his wealthy friends are the same as Boner's) happy with the most modest of all tax hikes.  No budget, and no spending ceiling forever!

knukles's picture

The American Dream

No budget, no spending ceiling and a Fed to buy every dollar of debt for free, forever!

pragmatic hobo's picture

yup, ... steal from the poor to pay the well to do.

batterycharged's picture

I have a question for all the people that say "$250,000 ain't rich in NYC or San Francisco".

What is the min wage in those cities? Is it $50/hr?

I mean if $250K ain't rich in those cities, no one should be making less than say $60K in those locations, right?

So do people at McDonalds in the bay area make $30/hr? That would make sense since making 7x that amount would not be rich.

In other areas McDonald workers make 1/3rd of the mean income.

$250K is rich, please stop saying it ain't. It's a bit like saying $200 per month for food is not enough....for someone that eats nothing but lobster and caviar.

Freddie's picture

The cost of living, housing and  taxes in NYC/San Fran is pretty insane.  My guess is taxes are easily 50%.  When you add up all the taxes many people pay - it is staggering. Maybe 60%.   This is payroll, state, property, sales tax, utilities, gas, and the list is really endless.

Then housing is crazy along with gas prices.  Usually if someone is making that - they buy a lot of stupid crap too.   If they have kids, they probably go to private school and that is probably a minimum of $12,000 a year.

I am not disagreeing with you but $250,000 in those areas goes very very fast.

I would bet McDonalds workers are making maybe $10 an hour.

Mr Lennon Hendrix's picture

There will be that too.  That and a VAT. 

Joe moneybags's picture

No bankers, brokers, war-profiteers, or other 1 percenters were harmed during the filming of this travesty.

andrew123's picture

What is the two year McConnell proposal? Is it give Obama everything he wants, but have a meaningless vote so he can tell the folks back home he was against it?

Mr Lennon Hendrix's picture

It's totally awesome.

So Congress will automatically not increase the debt ceiling.  Then Obama can veto that.  Then Congress needs a 2/3rds majority to not increase it.

Bazza McKenzie's picture

I understand this was the arrangement proposed by McConnell LAST time the debt ceiling debate occurred, to get through to the end of 2012.  It was proposed as a one-off for that occasion and he is, apparently, opposed to any perpetuation.  But Obama, who of course wants no control on spending, is promoting its continuation as the "McConnell proposal" to show how bipartisan he is by accepting something that his opponents are actually not advocating.

Mr Lennon Hendrix's picture

"Like goods" making convenient replacements on CPI is a nod to coming inflation.

Eat your peas.

Mentaliusanything's picture

Oh Mr Hendrix, you have both answers -  Beranke prints so inflation is inevitable down the track so change the way the CPI is measured.Then introduce a consumption tax to gear off the inflation. once its in you can shear the sheep right to the flesh.

Your before your time 

moroots's picture

Is the $930 billion in spending reductions actually a decrease in year-over-year spending or is it just a slowdown in the projected/scheduled growth of spending?  

Cthonic's picture

 fiscal 'cliff' -> "From fiscal year 2012 to 2013, federal tax revenue is expected to increase by 19.63%, while spending outlays are expected to decline by 0.25%" -- wikipedia

Point being that $930B in reductions spread over 10 ten years isn't jack shit however you wish to calculate it...

andrew123's picture

Are the people of Kentucky complete idiots? They were smart enough to elect Rand Paul, but why do they continue to support McConnell?

GlenD's picture

Instead of reducing war spending ... 3.7 trillion spent on wars fighting people that cannot fight back, they go after the poorer american people, to make them even poorer.

Perhaps someone will find the 2.3 trillion that rumsfled lost and save the day.

Or perhaps all talk of budget cuts and fiscal cliffs are bullshit given that US is prining its way into oblivion.

 

 

 

 

 

Zer0head's picture

 

I bet some were wondering how a mentally handicapped mass murderer story could be transformed into it's all the fault of right wing extremists. I myself was surprised that they were not blamed in the first 5 minutes as they have been (incorrectly) in other recent massacres.  But have no fear as thhis SMH article should address all your concerns with a cameo by none other than  Ted Kaczynski, yes the new meme is that the SandyHook massacre was derivative of right wing extremism.

 

http://www.smh.com.au/world/preparing-for-teotwawki-how-a-disparate-grou...

Mr Lennon Hendrix's picture

I blame liberals. 

I don't know why but I do.

Old Poor Richard's picture

Who's the lying dickhead who took a bi-partisan deficit-cutting agreement and renamed it "The Fiscal Cliff", implying that this sensible plan to help balance the budget was anything but a good idea?

Instead of bi-partisan deficit reduction we get $10 Trillion in new taxes.

Can we draft Ron Paul back into the House as Speaker?

 

bobert's picture

I've a bright idea <sarc on>:

Let me appear to defend the rich against increasing tax rates and be in favor of cutting Medicare benefits instead.

<sarc off>

How could the Republicans be so stupid to get themselves painted into this corner???

Their opposition takes the position that the rich should incur higher taxes and Medicare should be defended against cuts.

Which is the position that will garner votes in the 2014 mid term elections?

If our economy is not in the toilet prior to the above elections it will be soon after.

I'm weary of the stupidity.

JustPrintMoreDuh's picture

It's a Christmas miracle!  God Bless our hard-working honorable "elected" leaders bitchez.