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Wonkbook: EPA limits face veto; deficit tops $1.4 trillion; deportations surge

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Following the apparent death of cap and trade, a White House aide says that President Barack Obama will veto any bill limiting the EPA's ability to regulate greenhouse gas emissions. That means that for now, the response to climate change will be located in the executive branch, where 60 votes aren't needed to act, but where action comes in the form of blunt regulations rather than a price on carbon.

Meanwhile, revised estimates show the budget deficit topping $1.4 trillion this year. The reason? The economy is still bad, and when the economy is bad, tax revenues fall. Which is why it's very difficult to see the deficit substantially shrinking until the economy has recovered, or at least is doing a faster job of recovering. This year's deficit was projected to be lower because the Obama administration -- and many others -- thought the recovery would have taken more of a hold by now.

Oh, and trivia question: Which administration deported more illegal immigrants? The Obama administration or the Bush administration? Answer below.

It's Monday, bloody Monday. Welcome to Wonkbook.

Top Stories

The White House will likely veto a bill stripping the the EPA of its power to regulate greenhouse gases, reports Darren Samuelsohn: "EPA already has promulgated climate rules for motor vehicles, the result of closed-door negotiations with the auto industry, environmentalists and California officials. Next up are rules due early next year dealing with coal-fired power plants. A number of other petitions from states and environmentalists are on EPA’s doorstep that press for climate-focused limits on petroleum refiners and other major industrial sources."

Obama has pushed deportations to record highs since taking office, reports Peter Slevin: "The Immigration and Customs Enforcement agency expects to deport about 400,000 people this fiscal year, nearly 10 percent above the Bush administration's 2008 total and 25 percent more than were deported in 2007. The pace of company audits has roughly quadrupled since President George W. Bush's final year in office."

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Lower than expected tax revenues put the budget deficit over $1.4 trillion in 2010 and 2011, reports Lori Montgomery: "The latest forecast from the White House budget office shows the deficit rising to $1.47 trillion this year, forcing the government to borrow 41 cents of every dollar it spends. Contrary to official projections, the budget gap will not begin to narrow much in 2011, because of an unexpectedly big drop in tax receipts. White House budget director Peter Orszag said in a conference call with reporters that Obama is still on track to cut the deficit in half by the end of his first term."

Fuzz-pop interlude: The Fresh and Onlys play "Peacock and Wing".

Still to come: Geithner defends the principle behind Fannie and Freddie; BP CEO Tony Hayward is set to resign; Arizona's immigration law is about to take effect; a robot learns to flip pancakes; and the blame game over cap-and-trade.

Economy/FinReg

Treasury Secretary Tim Geithner defended the idea of Fannie Mae/Freddie Mac-style housing guarantees Sunday, report Nick Timiraos and Damian Paletta: Mr. Geithner promised the administration would "bring fundamental change" and said it wouldn't "preserve Fannie and Freddie in anything like their current form" during a Sunday appearance on NBC's "Meet the Press." But, he added, "there's going to be a good case for taking a look at preserving or putting in place a carefully designed guarantee so, again, homeowners have the ability to borrow to finance a home even in a very difficult recession."

A new study suggests European labor laws hurt profits relative to the US: http://bit.ly/czqYMU

Economics hasn't caught up to the realities of deflation, reports Jon Hilsenrath: "Economists don't have good answers. 'We don't know how deflation works,' says Adam Posen, a member of the Bank of England's monetary policy committee who has been studying Japan since 1997. 'We don't have a way of rationalizing steady, several-year flat deflation,' he says. This is a pressing issue for the U.S. Federal Reserve and other central banks. Ireland is already experiencing deflation. Spain has flirted with it. The Fed's preferred inflation gauge was up 1.3% in June from a year earlier, below its informal target of 1.5% to 2%. Some officials worry prices could go negative if the recovery falters."

Bailouts have resulted in a dramatic gap in pay between new and old workers at auto plants: http://bit.ly/aWdksP

Senate Democrats will be as happy to run on a partial Bush tax cuts extension as to pass it, reports John McKinnon: "'The Senate will move first, and it will be a test to see whether Republicans filibuster' to block the bill in a bid to also win tax cuts for higher earners, said Rep. Chris Van Hollen of Maryland, head of the House Democrats' re-election effort. 'If you can't get it out of the Senate, then you take it to the election," Mr. Van Hollen said in a recent interview. 'You say to the American people that Republicans want to continue to hold middle-class tax relief hostage for an extension of tax breaks for [the well-to-do]. That will be the debate.'"

Tim Geithner has become the administration spokesperson on tax cut extension: http://bit.ly/ciUHZl

A bill that cleared the Senate would provide $30 billion for small businesses, reports Naftali Bendavid: "The program would authorize the Treasury Department to lend money to banks with less than $10 billion in assets at 5% interest. That interest rate would go down to 1% if a bank significantly increased its loans to small firms...In addition to the lending program, it would allow certain small businesses to apply tax credits to the previous five years, instead of the current one year, and let investors avoid capital gains taxes on certain small business stocks. The legislation also would increase the limits on a variety of Small Business Administration loans."

Robert Samuelson wonders why corporate profits have rebounded so much quicker than jobs: "The most obvious explanation is that the relationship between labor and capital (to borrow Marxist vocabulary) has changed. Capital has gotten stronger; labor has weakened. Economist Robert J. Gordon of Northwestern University argues that the "shift of executive compensation towards much greater use of stock options" has made corporate managers more zealous cost-cutters in recessions and more reluctant hirers early in recoveries. Lowering the head count is the quickest way to restore profits and, from there, a company's stock price."

A Fed insider in charge of consumer protection could be a disaster, writes Mike Konczal: http://bit.ly/cVDEwe

Robotics interlude: A robotic arm learns to flip pancakes.

Energy

Paul Krugman blames greed and cowardice for the climate bill's fate: "There was a time when Mr. McCain was considered a friend of the environment. Back in 2003 he burnished his maverick image by co-sponsoring legislation that would have created a cap-and-trade system for greenhouse gas emissions. He reaffirmed support for such a system during his presidential campaign, and things might look very different now if he had continued to back climate action once his opponent was in the White House. But he didn’t -- and it’s hard to see his switch as anything other than the act of a man willing to sacrifice his principles, and humanity’s future, for the sake of a few years added to his political career."

Ross Douthat laments the conservative movement's role in denying climate change: http://nyti.ms/cMhkXV

An unwillingness of advocates to talk about climate change helped kill cap and trade, writes Lee Wasserman: "The urge to avoid the topic of climate change is not new. While Bill Clinton and Al Gore have done noble work on climate since leaving office, when they had the presidential megaphone they did little to educate the public about the wolf at our door. President Obama has followed suit, and our national comprehension of climate change continues to stagnate. Virtually the only public officials working to shape opinion on this over the past two years have been those committed to misrepresenting the science."

BP CEO Tony Hayward will resign, reports Steven Mufson: "Hayward reshuffled the middle management ranks. And he vowed to focus "like a laser beam" on safety, a phrase that members of the House Energy and Commerce Committee threw in his face during a June 17 hearing. Yet interviews with consultants and with former and current BP employees suggest that Hayward failed. The firm stressed, often to a comic extent, personal safety while not paying enough attention to safe processes."

A stimulus "smart grid" project is stalling, reports Melanie Trottman: "The government's Smart Grid program is supposed to create tens of thousands of jobs nationwide as the projects move forward. So far, only $107.5 million of the $3.4 billion has been spent, as measured by the Energy Department's reimbursements to recipients for their work. An Energy Department spokeswoman said the agency expected to see big increases in spending over the summer and into the fall. More than half of the 100 groups awarded grants have either cleared regulatory hurdles or didn't require approval from a public utility commission, she said."

An absence of public chargers is causing problems for electric car manufacturers: http://bit.ly/bHteWn

The fate of marsh grasses will determine how fast the Gulf recovers from the BP spill, reports David Fahrenthold: "They are cordgrass and wiregrass, common species that wave in the winds in south Louisiana's coastal marshes. Except, in some places, they aren't waving anymore: Where oil has sloshed into the marshes, their stalks are matted and gooey and on their way to death. What happens next -- whether these two grasses rebound or vanish -- will be a very important piece of the gulf's larger environmental story. "

Toy nostalgia interlude: The latest Nerf guns are fully automatic, have replaceable magazines, and come with tripods.

Domestic Policy

The Arizona immigration law takes effect Thursday and is already having an impact, reports Miriam Jordan: "Thousands of illegal-immigrant families have left for other states. Boarded-up houses, shuttered stores and vacated used-car lots are ubiquitous in Hispanic enclaves. St. Margaret's has lost about 20% of its parishioners in recent months. At Park Village Apartments in Mesa, 30 of 120 units have been vacated since the law passed in late April."

The DC school district is firing hundreds of teachers over poor test scores, reports Bill Turque: "The dismissals also represent the second game-changing development this year in Rhee's efforts to assert more control over how D.C. teachers are managed, compensated and removed from their jobs. They also place the school system at the head of a national movement -- fostered in part by the Obama administration's $4.3 billion 'Race to the Top' grant competition -- to more rigorously assess teachers' effectiveness."

The Roberts Court is the most conservative in decades: http://nyti.ms/b5Rm41

Health care reform is reversing the direction of transfers between young and old, reports Janet Adamy: "Since the creation of Social Security and Medicare, younger workers have funded programs for the elderly. It's a compact in which workers paid for retirees with the understanding that they'd be looked after by the generation behind them. The health overhaul diverges by tapping a program for the elderly to help provide insurance to 32 million Americans of younger generations. Nearly half the funding for the law is supposed to come from paying lower fees to hospitals, insurers and other health-care providers that participate in Medicare, the federal insurance program for Americans age 65 and older, as well as younger disabled people."

The Department of Education has issued new for-profit college regulations: http://bit.ly/8XwkFh

Government agencies should be placed around the country, not in DC, argues Alec MacGillis: "With Washington burgeoning in a time of general economic gloom, why not address the imbalance by dispersing the government more broadly? Such a move would spread more evenly the benefits of federal employment (and its contractor hangers-on). It would make the federal bureaucracy more attuned to regional issues. And it just might help dissipate some of the anti-Washington venom that's coursing through the country."

Harry Reid reiterated his support for filibuster reform: http://bit.ly/db9nTW

Closing credits: Wonkbook compiled with the help of Dylan Matthews and Mike Shepard. Photo credit: Pete Souza/White House

By Ezra Klein  |  July 26, 2010; 6:37 AM ET
Categories:  Wonkbook  
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Next: What went wrong with stimulus

Comments


Hey everyone!
Watch out what lies the JournoList ring leader and young prodigy of deception Ezra Klein will promote today? I beg: let Washington Post keep him He is a Path Buchannen of his ideological camp. But he is also much more boring. Path is a talented writer and can be entertaining. Ezra is not.

So I will never visit his blog again.

Posted by: BarbaraLeese | July 26, 2010 8:14 AM | Report abuse

No BarbaraLeese! Don't go! We hunger for your inciteful commentary and opinions!

Ezra, I read a post about Daniel Schorr this weekend. It talked about the fact that Schorr wrote a column for the Christian Science Monitor for decades, saying "Schorr was part of that breed of commentators who dug up information before they pontificated about it." That sounds a lot like you description of "analysis" reporting to me. So I guess you're in pretty good company.

Posted by: MosBen | July 26, 2010 8:40 AM | Report abuse

Hey, good to see you again BarbaraLeese . . . oh, wait, I don't think I've ever seen you here before. And, you may disagree with Ezra's politics (I do, for the most part), but he's actually a heckuva good writer, and he's actually open to discussion between folks who disagree on things. Which is nice.

That being said: "Ross Douthat laments the conservative movement's role in denying climate change"

I was ready to dismiss that particular article as just preaching-to-the-choir finger pointing, but it was actually pretty good.

But, rather than do nothing (as the end suggests is the only option), I still suggest focusing on the positive--new technologies, energy efficiencies, energy storage and a power grid, developing superior electric and solar technologies for space exploration. Rather than trying to price carbon (and much of the left's environmental agenda, which amounts to a dour, humorless, you-must-accept-your-new-tedious-life-in-a-gray-box sort of punitive approach, focus on the Morning in America, beat-the-Ruskies-into-space narrative. All I'm sayin'.

Posted by: Kevin_Willis | July 26, 2010 9:12 AM | Report abuse

loved the pancake flipping robot.
the creation and nurturing of teachable intelligence is very startling, and leads to so many different, interesting, philosophical considerations.

in folklore and fairytales, there were good elves that would come and repair shoes for the shoemaker, and do magical and helpful things for humans.
when i was watching the pancake flipping robot, or the amazing robotic hands working deftly underwater, on the well cap, it makes me think that stories of good and helpful spirits, that intercede to help us, now have real-life counterparts, in robots.

Posted by: jkaren | July 26, 2010 9:22 AM | Report abuse

this should be a profitable year for corporations; if tax rates are expected to go up (cap gains), they will try to get as much money through to their stockholders as possible before the hike.

makes very little sense to try to interpret the broader economic state by corporate profits right now.

Posted by: eggnogfool | July 26, 2010 9:26 AM | Report abuse

Also, if capital gains taxes go up, looking for a new round of corporate downsizing. It's a good way to boost the numbers by cutting labor costs (for publicly held companies) when tax increases make capital gains transactions a poor way to game the system, as it were.

Which is not necessarily going to have an impact on the unemployment rate (overall unemployment under Reagan mostly went down, even as white collar workers were being given their walking papers). But, under Reagan, it sure had an impact on the news cycle--I think we were treated to, like, four straight years of corporate downsizing and middle-management layoffs dominating the news cycle.

Posted by: Kevin_Willis | July 26, 2010 9:35 AM | Report abuse

kevin willis

did you happen to notice, on the economic "blogs and columns page," they used your quotation, with your name?
http://www.washingtonpost.com/wp-srv/sectionfronts/business/columns-blogs/index.html?nid=roll_columnsblogs

Posted by: jkaren | July 26, 2010 9:37 AM | Report abuse

JKaren: No, I'll have too look at that. Wow, they did. Not my favorite quote of mine, but . . . cool. Thanks, Jkaren. I would have missed that--since Weigel is gone, I just go straight to Ezra, and that's about all I see of the WaPo. ;)

A little OT, on Journolist. The DC is now making a big deal of one posters explicit call for "message coordination" between journalists in different publications. For Barbara Leese and the rest, I quote Ezra (from the DC piece) responding to this request for explicit coordination: "Nope, no message coordination. I’m not even sure that would be legal. This is a discussion list, though, and I want it to retain that character".

Even the DC, which seems to be saying the Journolist was filled with scheming liberal hacks, has to admit Ezra was 100% above board and generally awesome.

Posted by: Kevin_Willis | July 26, 2010 10:18 AM | Report abuse

"Also, if capital gains taxes go up, looking for a new round of corporate downsizing. It's a good way to boost the numbers by cutting labor costs (for publicly held companies) when tax increases make capital gains transactions a poor way to game the system, as it were."

I don't if you noticed, but we recently had a fairly significant 'round of downsizing'. any rounds that start from here on won't help much before the end of the year, and obviously afterwards they'll be bringing people back.

Posted by: eggnogfool | July 26, 2010 10:39 AM | Report abuse

@eggnogfool: "I don't if you noticed, but we recently had a fairly significant 'round of downsizing'."

Oh, there's always room for more. ;)

That being said, most of the news I was watching involved some kind of oil leak somewhere. If there were lots of stories about corporate downsizing to match the thousands of hours of coverage (while unemployment went from the 7% range to the 5% range) under Reagan, I must have missed it.

Posted by: Kevin_Willis | July 26, 2010 11:52 AM | Report abuse

Congress call Obama's bluff and pass an EPA Limit bill so that Obama would have to man up and veto if he wants to retain the power to tank the economy through dumb radical sanctions on carbon emissions.

Posted by: FastEddieO007 | July 26, 2010 12:00 PM | Report abuse

@Kevin:

So your storyline in this thread is that the lack of coverage of the economy these days compared to the heavy negative economic coverage during the Reagan administration smacks of clear bias (of indeterminate source, though assumptively of the liberal variety) in the media?

Posted by: eggnogfool | July 26, 2010 1:36 PM | Report abuse

@eggnogfool:

Or a bias of the no-longer-enamored-of-what-was-then-a-buzzword variety. That's a possibility, too.

I'm just speculating that letting the capital gains tax cuts expire (or otherwise raising the tax) will result in more downsizing for the short-term bottom line benefits that can be reported as a net benefit, which is all about gaming the system--i.e., using temporary and sometimes destructive efforts to show a short-term profit, in order that this quarter, the company looks good, and can tout themselves as being "lean and mean". Thus the euphemistic "right-sizing" that became so common in the 90s.

Posted by: Kevin_Willis | July 26, 2010 2:30 PM | Report abuse

@Kevin -

"I'm just speculating that letting the capital gains tax cuts expire (or otherwise raising the tax) will result in more downsizing...to show a short-term profit, in order that this quarter, the company looks good, and can tout themselves as being "lean and mean"."

Rational selfish corporate behavior would be to show profits in low-tax years, and do R&D and other growth spending in high-tax years (to avoid the taxes).

I understand that you believe the current executive incentive structure results in irrational corporate behavior; and while I agree with that statement in general, recent history strongly suggests that businesses operate very rationally when it comes to avoiding taxes.

Posted by: eggnogfool | July 26, 2010 3:17 PM | Report abuse

I don't know Ezra - looks like nothing is going your way. Are you now saying the Stimulus was a mistake?

Posted by: jimkearney19761 | July 26, 2010 3:19 PM | Report abuse

"Meanwhile, revised estimates show the budget deficit topping $1.4 trillion this year. The reason?"

Elementary, my dear Ezra.

Take one part totally botching revenue forecasts.

Toss in a pinch of almost a trillion in failed stimulus.

Utterly fail to control any costs, anywhere. Even defense.

Top off with frittering away the TARP funds left over from the previous administration.


Voila. Increase Bush's deficit by a cool trillion.

Stay tuned and we'll show you how to shoot for $1.5 trillion in 2010!

Posted by: bgmma50 | July 27, 2010 12:04 AM | Report abuse

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