Five sticking points in the fiscal cliff deal

December 18, 2012

President Obama's latest fiscal cliff offer has brought the outlines of a final deal into focus. But there are still some major sticking points and outstanding questions that have to be resolved before a final deal will be able to pass Congress. 


President Obama and House Speaker John Boehner meet at White House. (Getty Images)

1) Will low-income seniors be protected from Social Security cuts? If so, how? Liberals are not happy with this concession to Republicans, calling it a "backdoor benefit cut." The administration has tried to allay these concerns by promising to shield the impoverished elderly from harm. The White House hasn't gone into details, but the top-line numbers indicate that Obama is backing a modified plan with less sweeping benefit cuts: Obama's latest offers promises $130 billion in savings from chained CPI, which is significantly less than the $220 billion in savings that the Congressional Budget Office says would be achieved through a full-out transition to the new inflation index. 

That suggests that Obama would protect some retirees, giving up some savings in the process. But Democrats will want to know exactly how low-income seniors are protected — CBPP's Jared Bernstein, for one, wants to make sure any deal exempts benefit changes to Supplementary Security Income, which goes to the elderly, blind  and disabled. And it won't necessarily be easy, policywise, to protect the elderly against cuts, as Mike Konczal argues. At the same time, Republicans could push Obama to squeeze even more savings out of Social Security than he's currently offering: House Speaker John Boehner's original proposal contained $200 billion in chained CPI savings.

2) Will House Republicans go along with tax hikes? On the one hand, the end game on taxes seems clear: Boehner has moved to a $1 million threshold for the Bush tax cuts, and Obama has moved to $400,000, indicating that a deal is somewhere in between. That's assuming, however, that Boehner will be able to keep his own caucus in line: More Republicans have called for the party to concede on marginal tax rates, but they're still a minority in the party. Today, Boehner vowed to hold a House vote  this week on a tax extension on a $1 million threshold. That could be a hardball negotiating tactic with the White House. But it could also be a litmus test of sorts for his own party's willingness to accept any tax hike. 

3) How much short-term stimulus will survive in a final deal? The White House has made a major concession by giving up an extension of the payroll tax holiday — a move that will be a significant drag on economic growth in 2013, as my colleague Neil explains. It has  tried to soften the blow by proposing an extension of federal unemployment benefits ($30 billion) and new infrastructure spending (unspecified). But Boehner has made it clear that he would count such expenditures against the spending cuts that Obama is offering, which he thinks are too low. "My question is how tough is the White House is willing to stand on that. I can assure you that Republicans would like to trade that away," Bernstein said.

4) What kind of enforcement mechanism will be attached to the health-care cuts? The two parties have gotten closer on health-care cuts, with the White House proposing $400 billion in savings in its latest offer, compared to $600 billion that Boehner offered originally. But the consensus seems to be that the details will get worked out later in 2013, with only a framework with a numerical target settled upon right now. That suggests that there will be some kind of trigger or other enforcement mechanism attached — setting up, essentially, another fiscal cliff.

It's unclear what that will look like, however, and the design of the backstop could end up being as significant (and divisive) as the top-line numerical target that party leaders agree upon.  "Any enforcement trigger regarding spending cuts would have to be targeted, realistic, and have real teeth," said Tevi Troy, a senior fellow at the Hudson Institute. "Republicans don't want to be left in the same situation as the sequester we currently face, in which the spending reductions called for are ones everyone is trying to avoid, rather than ones Congress is actually going to implement."

5) How will the debt ceiling be resolved? Obama has given up on his demand for taking the authority over the debt limit out of Congress' hands entirely. Instead, he's asked for a two-year extension of the debt ceiling, as opposed to Boehner's offer of a one-year extension. On paper, that doesn't seem like that big of a gap. But Republicans will be loath to give up any more leverage on the debt limit, and Democrats will be equally unwilling to give in any further.

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