Fiscal Cliff Winners and Losers

The agreement to stave off the fiscal cliff is more complicated than it appears and there are unlikely winners. In the long run, the Republicans won by losing. President Obama ran on a platform of raising taxes on the rich. That was it. He wanted a blank slate so that he wouldn't be tied down. He got his tax increases but now he is without a mandate to do anything in his second term. While that leaves him free to try anything he wants, it also means that he cannot claim a mandate on anything.

It also frees the Republicans from the Democrats' most effective charge - that they are the party of the rich. That will not stop the Democrats from saying it but it will be harder to make the charges stick. This will be important in the next two elections.

Another winner is Social Security. The Social Security tax, euphemistically called the Payroll Tax, was cut two years ago in an effort to help the economy. Obama and the Democrats chose to cut this tax because it falls disproportionately on the lower incomes. The problem is that after the cut, there was not enough money coming in to pay current benefits. Social Security had to start cashing in its special bonds. Even if you believe in the trust fund, this was bad policy.

The President and the Democrats are short-term winners and long-term losers for the reasons given above.

The rich are losers. Ironically, the majority of them voted Democrat. Let them see the effects of the policies they voted for.

The economy might be a loser.

A final loser is the vacation from reality that we have been living under for the last four years. We have been cutting taxes and increasing spending at an unsustainable rate. This is nothing but a token down payment and it is accompanied by new spending (an increase in unemployment insurance) but at least it is something and it gives the Republicans a stronger position in calling for actual cuts.