The fiscal cliff is finished
Ezra Klein's Wonkbook
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Wonkbook’s Number of the Day: 77. That’s the percentage of households which will see their tax burden rise in 2013, according to a story by Binyamin Appelbaum and Catherine Rampell in The New York Times. For most, the expiration of the payroll tax cut is the largest change. Only 0.7 percent of households will see their income taxes rise, by comparison.
Wonkblog’s Graph of the Day: The falling price of solar panel cells
Today in Wonkbook: the fiscal cliff; and gun control.
Top story: The fiscal cliff deal is sealed
The deal has passed the House. ”The House voted 257 to 167 to send the measure to Obama for his signature; the vote came less than 24 hours after the Senate overwhelmingly approved the legislation. The bill drew 85 votes from Republicans and 172 from Democrats, meaning well more than half of its support came from the Democratic minority. With 151 Republicans voting ‘no,’ the GOP tally fell far short of a majority of the GOP caucus.” Lori Montgomery and Rosalind S. Helderman in The Washington Post.
Wonkblog explains: Five things to know about the House's fiscal cliff vote.
Look: A map of how the House voted.
Boehner and Cantor split. ”GOP leadership was split. While House Speaker John Boehner (Ohio) and 2012 vice presidential nominee and Budget Committee Chairman Paul Ryan (Wis.) voted yes, House Majority Leader Eric Cantor (Va.) and Majority Whip Kevin McCarthy (Calif.) voted no...Ryan's vote is noteworthy because another major 2016 presidential contender, Sen. Marco Rubio (R-Fla.), was one of just eight senators to vote no early Tuesday morning, as did another potential presidential candidate, Sen. Rand Paul (R-Ky.).” Aaron Blake in The Washington Post.
How the deal almost wasn’t. ”This account of the behind-the-scenes drama that pushed the nation to the brink was drawn from dozens of interviews with key players at the White House and in Congress who were directly involved in the talks. The look back reveals a tumultuous two months as the country's top leaders stumbled — some would say blundered their way — toward an agreement.” John Bresnahan, Carrie Budoff Brown, Manu Raju, and Jake Sherman in Politico.
@Austan_Goolsbee: Since tax rates rose jan 1, technically didnt we go over the cliff and then sort out rather than averting the cliff?
'Fiscal cliff' deal does little to tame threats from debt ceiling, high unemployment rates. ”The agreement, approved only hours after the government hit the limit on federal borrowing, fails to defuse the prospect of a catastrophic national default two months from now. The deal does not raise the debt ceiling, leaving the Treasury to use what it calls ‘extraordinary measures’ as long as it can to pay the government's bills...Nor does the package do anything to address stubbornly high levels of unemployment, with 12 million Americans out of work.” Zachary A. Goldfarb in The Washington Post.
@RonBrownstein: How many Senate democrats voted in 2003 for the dividend and cap gains tax cuts extended almost entirely by #fiscal cliff deal? Two.
And it falls short, no matter your economic persuasion. ”Economists generally offer three theories for what's hampering the still-sluggish U.S. economy: the Keynesian theory, which would like to see lower taxes or more government spending; the spending/debt theory, which would like to see both of those reined in; and the uncertainty theory. Under none of them can the deal to avert the ‘fiscal cliff’ be considered an economic success.” Jim Tankersley in The Washington Post.
@ObsoleteDogma: The fiscal cliff is over. Now the debt ceiling cliff begins. And then the budget cliff. And then….
The fiscal cliff deal's price tag: -$3.9 trillion or +$600 billion. ”The nonpartisan Joint Committee on Taxation estimates that the entire package will increase the deficit by $3.9 trillion over 10 years, with a $280 billion increase in 2013 alone. That's because the JCT is comparing the deal to what would happen if the entire fiscal cliff were allowed to take effect...The numbers look better if you compare the deal to a world in which we had kept the tax code the way it was in 2012: Then, the package raises more than $600 billion in additional revenue (and cuts interest payments by about $50 billion).” Suzy Khimm in The Washington Post.
@BobCusack: 89 percent of Senate Republicans voted yes on fiscal cliff bill. 36 percent of House Republicans voted yes.
Lack of grand bargain complicates second-term plan. ”For President Barack Obama, the new year was supposed to bring an end to fiscal-cliff negotiations and the opportunity to begin work on a second-term agenda.But the failure to craft a grand bargain to address the country’s fiscal woes means that contentious discussions about spending cuts and the debt ceiling will continue in 2013 — potentially diminishing the time and goodwill Mr. Obama needs to pursue his policy priorities.” Colleen McCain Nelson in The Wall Street Journal.
@DouthatNYT: If bill passes, Boehner will have averted gov’t shutdown, debt default, and fiscal cliff dive. Now he gets to do all three all over again.
Some of the Left thinks Obama gave away too much in the deal. ”While Mr. Obama got most of what he sought in the agreement, he found himself under withering criticism from some in his liberal base who accused him of caving in to Republicans by not taxing the rich more. Just as Speaker John A. Boehner has been under pressure from his right, Mr. Obama faces a virtual Tea Party of the left that sees his compromise as capitulation. The main difference is that in the Obama era, the Democratic establishment has been less influenced, or intimidated, by the left than the Republican establishment has been by the right. Liberals have not mounted sustained primary challenges to take out wayward incumbents the way conservatives have.” Peter Baker in The New York Times.
@Goldfarb: What’s good about the fiscal deal: Stops fiscal cliff, extends UI, delays sequestration, raises revenues for deficit reduction
...And this is a bitter pill for the Tea Party, too. ”To a tea-party-influenced crop of House Republicans, the bill to resolve the "fiscal cliff" crisis was everything they had wanted to change about the way Washington worked. Too rushed. Too bloated. Too secretive. Too expensive.” David A. Fahrenthold, Rosalind S. Helderman and Ed O'Keefe in The Washington Post.
@ezraklein: Yes, lots of House R’s voted no. But they brought the bill to the floor so it would pass. That was the real vote, and it was for the deal.
...But this is a deal that Republicans, by all rights, should love. ”Just a few years ago, the tax deal pushed through Congress on Tuesday would have been a Republican fiscal fantasy, a sweeping bill that locks in virtually all of the Bush-era tax cuts, exempts almost all estates from taxation, and enshrines the former president's credo that dividends and capital gains should be taxed equally and gently.” Jonathan Weisman in The New York Times.
@Reddy: Boehner prepares for spending fight next: House GOP will seek “significant spending cuts and reforms to the entitlement program” in 2013.
77 percent of households will pay higher taxes in 2013. ”Only about 0.7 percent of households will be subject to an income tax increase this year, according to the Tax Policy Center, a nonpartisan research group in Washington. The increases will apply almost exclusively to households making at least half a million dollars, the center estimated in an analysis published Tuesday. But lawmakers' decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households will pay a larger share of income to the federal government this year, according to the center's analysis...Indeed, for most lower- and middle-income households, the payroll tax increase will most likely will equal or exceed the value of the income tax savings.” Binyamin Appelbaum and Catherine Rampell in The New York Times.
@ezraklein: Joe Biden is much more important to this White House than he’s typically given credit for.
America’s high earners face their first major tax increase in years. ”All told, more than 90% of the tax increases in the bill would fall on households with income of $1 million or more, said economist Roberton Williams of the Tax Policy Center, a nonpartisan group in Washington. For a couple with one child and $1 million of income, including $250,000 of itemized deductions, the tax increase from higher rates and other provisions taking effect next year would run almost $37,000 over what they paid in 2012, according to estimates made by Dave Kautter, an official with the Kogod Tax Center at American University.” Laura Saunders in The Wall Street Journal.
@AlecMacGillis: What we really need to know: does the deal raise or lower Simpson-Bowles’ speaking fees? Can you still get $40K per, post-cliff??
...But Norquist says it’s OK. ”For Grover Norquist, the Senate-backed fiscal cliff bill on its way to the House floor Tuesday is a tax cut that House Republicans can vote for and defend to their constituents without violating their anti-tax increase pledges.” Bobby Cervantes in Politico.
Today might be a good day for the markets. ”American stock indexes saw their biggest jump in over a month on Monday in anticipation of a deal moving swiftly through Congress. In early trading on Wednesday, leading indexes rose 2.6 percent in Hong Kong and 1.2 percent in Australia...In the longer term, investor uncertainty heading into the new year underscored the degree to which Wall Street has become consumed by a seemingly never ending series of battles in Washington, in which one budget dispute bleeds into another.” Nathaniel Popper in The New York Times.
KLEIN: Lessons of the fiscal cliff. ”There is a narrative in American politics that goes something like this: The White House can't negotiate. House Republicans can't be reasoned with. And so the country is caught between pragmatists who can't hold their ground and radicals who can't compromise. The last few days complicate those narratives.” Ezra Klein in The Washington Post.
BARTLETT: When the deficit will be fixed. ”Historically, what has moved Congress to enact big deficit-reduction packages was the prospect of quick improvement in terms of inflation, growth and interest rates. Given that deficit reduction today is very unlikely to improve any of these in the near term, deficit hawks lack any real payoff from a grand bargain. The two problems most likely to result from budget deficits are inflation and high interest rates.” Bruce Bartlett in The New York Times.
YGLESIAS: Who benefits and who pays. ”Raising the threshold for higher taxes from $250,000 to $450,000 is a big tax cut for all kinds of rich people, not just those with adjusted gross incomes between the two figures. That's because taxes are assessed on marginal income, meaning that even if you make $600,000 or even $1 million a year you still have a very large share of your income that's taxed at a lower rate thanks to this deal...As recently as yesterday morning, it was taken for granted that one of the major provisions of an alternative to the fiscal cliff would be cuts in the federal retirement security programs that are the main long-term drivers of deficits. But ultimately Democrats cared more about avoiding spending cuts than securing tax revenues, and Republicans cared more about low taxes than cutting spending. Old people are the winners.” Matt Yglesias in Slate.
CRFB: The good, the bad, and the ugly in the fiscal cliff deal. ”The Good: Avoids most of the abrupt economic harm from the fiscal cliff by extending or delaying most provisions...Raises $620 billion in gross revenues relative to current policy, which would contribute to reducing the deficit compared to current policy…Sets the precedent that extending the sequester has to be paid for and strengthens the precedent that the doc fix should be waived only along with offsetting health provisions.” Committee for a Responsible Federal Budget.
Music recommendations interlude: R.E.M., “Shiny Happy People,” 1991.
GOLDHILL: Focus on health costs, and you end up with more spending. ”In 1983, the Ronald Reagan administration enacted one of the most significant cost reforms in Medicare's history. The prospective payment system switched inpatient hospital reimbursement from open-ended fee-for-service to fixed fees paid per diagnosis. In theory, this would give hospitals the incentive to treat patients as quickly and economically as possible. The new rules did drive big changes. Since 1983, the total number of days spent by Medicare patients in hospitals has fallen 40 percent, even as the number of Medicare enrollees has risen 60 percent. The average inpatient stay is now just over five days, down from 10.” David Goldhill in Bloomberg.
SUMNER: The central bank should target nominal spending. ”The central bank would set a growth path for nominal GDP of perhaps 4 per cent or 5 per cent per year, and commit to return to that trend line when spending falls short or overshoots. Nominal GDP targeting would moderate the business cycle by being more contractionary than inflation targeting during a boom and more expansionary during a recession. And NGDP could do this while still delivering roughly the same long-run rate of inflation.” Scott Sumner in The Financial Times.
WESSEL: Taking the economy’s pulse. ”The U.S. economy is recovering slowly from the financial heart attack it suffered in 2008. Like a middle-aged man talking to his doctors, it now asks: When will I feel like myself again? Will I ever get back to normal? Will it be soon?…Lurking beneath the short-term prognosis are bigger questions: Did the financial crisis do long-lasting harm to the economy’s muscle? Has it slowed growth in productivity, or output per hour of work, the magic elixir of rising living standards?” David Wessel in The Wall Street Journal.
XKCD interlude: On New Year’s resolutions.
Gun control after Newtown, Conn.
GOLDBERG: 9 myths of the gun-control debate. ”Myth No. 1: The extremism of the National Rifle Association and its chief executive officer, Wayne LaPierre, is hurting its cause.LaPierre's seemingly unhinged recent performances, first at his no-questions news conference and then on NBC's ‘Meet the Press,’ have convinced gun-control advocates and members of the news media that he is out of his mind. He isn't. His appearances were calibrated to appeal to the Second Amendment absolutists who make up the NRA's base, and to help sell weapons manufactured by companies that rely on the NRA to keep their market as unregulated as possible. The NRA's tactic is to gin up paranoia among gun owners that President Barack Obama is going to confiscate their legally owned weapons.” Jeffrey Goldberg in Bloomberg.
COLE: Who pays for the right to bear arms? ”The right to bear arms typically invokes the romantic image of a cowboy toting a rifle on the plains. In modern-day America, though, the more realistic picture is that of a young black man gunned down in his prime in a dark alley. When we celebrate gun rights, we all too often ignore their disproportionate racial burdens. Any effort to address gun violence must focus on the inner city.” David Cole in The New York Times.
NEWMAN: At the E.R., bearing witness to gun violence. ”Research suggests that homes with a gun are two to three times more likely to experience a firearm death than homes without guns, and that members of the household are 18 times more likely to be the victim than intruders. I know that in 2009, the most recent year for which data is available, nearly 400 American children (age 14 and under) were killed with a firearm and nearly 1,000 were injured. That means that this week we can expect 26 more children to be injured or killed with a firearm.” David H. Newman in The New York Times.
Gangnam Style remakes interlude: Canadian Iniut edition.
Health care predictions for 2013. Staff of Kaiser Health News.
House pulls plug on Sandy aid bill. David Rogers in Politico.
The renewable-energy tax credit survived the fiscal cliff. Ryan Tracy in The Wall Street Journal.
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