Krugman: The Deal Dilemma

[ProSense]

The Deal Dilemma

<...>

So how does the possible deal differ? It doesn’t raise rates on the second-highest bracket, which means that the tax hike on earned income only falls on those making $400,000 or more. As I understand it — the reporting is weirdly silent on this, but it’s what I got from my own conversation with an SAO — is that 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.

<...>

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, about 0.3 percent each year. So if you retire at 65, your income at 75 would be 3 percent less under this proposal than under current law; at 85 it would be 6 percent less; there’s supposedly a bump-up in benefits for people who make it that far.

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. Also, the symbolism of a Democratic president cutting Social Security is pretty awful.

http://krugman.blogs.nytimes.com/2012/12/18/the-deal-dilemma

Harry Reid "not prepared to accept the emerging deal yet"
http://www.democraticunderground.com/10022019627

[cthulu2016]

1. This is a good piece. rec

[sasha031]

2. K/r for later

[pscot]

3. Krugman is one of the vanishingly small group

of public figures I still trust. Sad to say, the President is not among their number.

[Doctor_J]

4. No cuts to SS, Medicare, Medicaid, period

this isn't that complicated.