Lesser Bargain at Frankly CuriousFrankly Curious

Fiscal Cliff As I reported before, changing how the government adjusts for inflation to the chained-CPI would affect both Social Security and income taxes. But the main thing that has been covered in the media is the effect on Social Security. I think this is mostly because while running for re-election, President Obama explicitly stated that he would not touch the program. Although few want to come out and say it, it is a gotcha moment. I just wish they would be substantially more hysterical about it.

Nowhere in the major media do we see any discussion of what I think is the most important issue. Obama and Boehner are negotiating over the budget deficit. Social Security is not part of this. Social Security has its own funding stream and budget. Social Security will not have a deficit for at least 20 years. Why are we talking about changing anything about Social Security in these budget negotiations?

Politico reported yesterday that, “The scope of a potential fiscal cliff deal narrowed dramatically Friday.” The deal would be to raise taxes on incomes over $250,000, extend unemployment benefits, and delay the sequester. On its merits, this is a much better and more progressive solution than the last one that Obama offered to Boehner.

There is no mention of two other very important parts of the Fiscal Cliff. The capital gains tax rate is scheduled to go up from 15% now to 20% next year. Also: dividend income, which is currently taxed as capital gains, will be taxed as regular income as of 1 January. These are excellent changes, but the Republicans will be very much against them since they hit the rich hard. But these changes will not hurt the economy; they will just make the rich a little less so.

Regardless of whether these tax cuts are included, this “lesser bargain” is a good thing. As Matt Yglesias puts it:

The quest for the lesser bargain is important because achieving it will improve the short-term economic picture. The grand bargain, by contrast, is impossible and pointless and its relentless pursuit is positively harmful since it generates these damaging crises.

Of course, Yglesias also argues that Obama has always been in favor of cutting Social Security. He goes back to The Audacity of Hope and shows that while Obama won’t come right out and say he wants to cut the program, he is always hearkening back to deals that did just that.

So as usual, it seems we have that crazy Republicans to thank for saving Obama from himself. We just might get a Fiscal Cliff deal that doesn’t suck.