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:


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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pragmatic hobo's picture

when Bush enacted "temporary" tax cut, which mostly benefited the rich, understanding was that it would expire after due time. So how did it turn into "tax increase" and how did it become bargaining chip for cutting benefit to the needy?

Insideher Trading's picture

They've run out of ideas.

You know the rubicon has been crossed when we are trying to tax carbon usage.

carbon tax...puhlease. When the gov. tries to tax you for creating plant food through the process of, uh, living, you know they have simply run out of ideas.

They should try a movement tax. If you move your ass, gov. is gona' tax that ass.

Mr Lennon Hendrix's picture

Carbon trading creates dead weight loss.

Dre4dwolf's picture

The thing that sucks is, earning 1 million a year, isn't even enough to sustain your standard of living depending where you live after taxes.

If you won 1 million dollars right now, before you even spent it , atleast 20~30% of it would of disapeared before you got a dime, and then buy 1 house and boom your too broke to keep the house.

1 Million dollars just isn't a lot of money, a family of 4 ~ 5 with a moderate standard of living (3 Tvs, 2 cars, 1 small house, 1 kid in grade school and another in college (because your "too rich" for financial aid) and boom you burnt through w/e the govt left you of your 1 million within 3 years.... even if your working.


They should raise taxes on people earning more than 1.5 Million Dollars, and lower taxes on people earning less than 1.5 Million.


They should also exempt higher taxes on the first Million a new Millionare earns , and then tax the following years earnings at a higher rate (the first time you earn a million its tax free or something).


So that the new found successful people aren't instantly gobbled up before they have a chance to spend the money they earned into the economy.


Some people are just getting at that point in their lives where they actually started earning enough money to live well for once, and Obama wants to go and steal the success they waited 50 years to achieve... which is sad.... that after 30~40 years of working and finaly making it, it all gets stollen by big government.... 

A billion is the new million, and a million is the new 100,000, and 100,000 is the new 50,000.

Tax rates don't adjust for inflation, (inflation forces you into higher tax brackets than you deserve because your earning devalued dollars).

Tax rates should be fixed to the price of gold, so the govt has a reason to keep inflation low.

Cthonic's picture

Downsizing, it's not just for corporations anymore.

newengland's picture

Income tax is wrong. It is a construct of the old money masters of Britain, and their European monarchists. The only just tax is one decided locally to fund local things, and only fund wars if the Republic is forced to defend itself here.

ZeroAvatar's picture

"First, they came for the millionaires, and I said nothing............."

Dre4dwolf's picture

I can balance the budget, just fire everyone.


Problem solved, then these losers in government will suffer like the rest of the country, instead of getting a free ride.

ZeroAvatar's picture

People wonder why boomers weren't able to save enough for retirement.  Well, now they'll find out first hand for themselves.

jim249's picture

Let's kick the can one more time!

newengland's picture

The USA was founded as a Republic, by the people, for the people. That  is not a democracy, nor a monarchy,but it has become a corporatist thing: big government,big banks and any big religion that suits it.

Automotic income tax is wrong.

War abroad is wrong.

Uncontrolled immigration is wrong. Only people who believe in the Constitution and learn to speak a common English language can defend the Republic. No country can prosper without one common language and value system, regardless of race, color or religion.

CONgress is filled with ambitious people, sophists.

Anyone who flouts the Constitution and Declaration of Independence will die by their own hands. The Constitution and Declaration of Independence is for all who believe in it.

Theos's picture

Fuck it i give up.

newengland's picture

Never give up. Death awaits you if you do. No one owns you.

spanish inquisition's picture

With Ben printing they should think of moving the rich line to $30 Billion/year. Of course you will need to be nimble with the presses running on high, maybe a daily tax on income if you make more than the cost of (5K loafs of bread/365).