Network News

X My Profile
View More Activity

Wonkbook: The new deficit politics; Lew to OMB; vote on carbon pricing

Thumbnail image for mcconnellfilibuster.jpg

Comment: The unexpected outbreak of fiscal honesty on the Republican side of the aisle is changing the terms of the deficit conversation, and quick. First, Sen. Jon Kyl told Fox News Sunday that "you should never have to offset cost of a deliberate decision to reduce tax rates on Americans." Then, Senate minority leader Mitch McConnell doubled down: "There's no evidence whatsoever that the Bush tax cuts actually diminished revenue," he told Brian Beutler of TPMDC. "They increased revenue because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject."

In recent weeks, Republicans have gained a lot of traction -- and hung a lot of tough votes -- on their concerns for deficits. Now they're stuck between two untenable positions: That tax cuts needn't be offset as a matter of principle, or that they needn't be offset as a matter of policy. The first suggests they don't really care about deficits. The second suggests they don't understand deficits. Meanwhile, they're filibustering an extension in unemployment insurance based on concerns about deficits. Democrats are ecstatic: Tax cuts for the wealthy versus insurance for the unemployed is, for them, the first hint of solid ground in some time.

This isn't a slam dunk for Democrats. Tax cuts remain popular, and not paying for them has been, in the past, a popular position. But where Democrats were on the defensive on deficits last week, Republicans are going to spend the next week trying to sync positions that will radically increase the deficit with a political message that emphasizes the need for deficit reduction. It'll be quite a trick.

Meanwhile, Obama has officially nominated Deputy Secretary of State -- and former Clinton-era OMB director -- Jacob Lew to replace Peter Orszag; Harry Reid is pushing for a vote on an energy bill with a utilities-only cap-and-trade program before the August recess; the Fed remains divided on whether to pursue more aggressive recovery measures; and the Post has partnered with Bloomberg to launch a new business page.

I always knew it would come down to Wednesday. And sure enough, here we are. Welcome to Wonkbook.

Top Stories

Obama has officially nominated Deputy Secretary of State Jacob Lew to be director of OMB: http://bit.ly/dvYYtk Read Jonathan Cohn on Lew's background: http://bit.ly/azjGht Read Hillary Clinton's goodbye to Lew: http://bit.ly/dk52RJ Read former Bush economic official Keith Hennessey's endorsement of the pick: http://bit.ly/dyjO6a

Harry Reid wants to have a energy bill capping carbon from power plants on the Senate floor in two weeks, reports Darrel Samuelsohn: "Reid confirmed the bill will have four parts: an oil spill response; a clean-energy and job-creation title based on work done in the Senate Energy and Natural Resources Committee; a tax package from the Senate Finance Committee; and a section that deals with greenhouse gas emissions from the electric utility industry."

An earlier version of the Bingaman utilities-only cap proposal has leaked, reports Andrew Restuccia: "The bill, which was sent to TWI by a well-connected industry lobbyist, would require that the power sector reduce its emissions 3 percent below 2005 levels by 2012, 17 percent by 2020 and 42 percent by 2030, according to a PowerPoint presentation laying out an analysis of the bil." See that analysis: http://bit.ly/a3C25z

Want to get Wonkbook in your e-mail inbox or mobile device every morning? Subscribe!

The Fed is split on reviving asset purchases, reports Jon Hilsenrath: "Some policy makers, including Fed governor Kevin Warsh and Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., are reluctant to revive Fed purchases of U.S. government bonds or mortgage-backed securities, the most forceful action the bank could take if it decides the economy needs more help...Other policy makers--among them Boston Fed President Eric Rosengren, New York Fed President Bill Dudley and, to a lesser extent, Atlanta Fed President Dennis Lockhart--see reviving the purchases as an option that needs to be kept alive, particularly if deflation becomes reality."

The Washington Post has partnered with Bloomberg to launch a new business page! http://bit.ly/aTeiee

'80s mope-rock cover interlude: Coheed and Cambria cover the Smiths' "A Rush And A Push And The Land Is Ours".

Still to come: FinReg final passage likely for tomorrow; health-care reform will bring a big fight over birth control four questions about the energy bill; the squid robot that will destroy us all; and can a $1 trillion deficit be good news?

Economy/FinReg

Harry Reid has scheduled final passage of FinReg for Thursday: http://politi.co/c25sY8

We should help states but not make it a habit, writes Ed Glaeser: "Should the federal government send cash to fiscally strapped states? Given the current system, federal stimulus aid for states makes sense. There is no better use for public funds than making sure that schools remain strong and streets remain safe. But a system that uses Texas’s taxes to pay for California spending is badly flawed. Just as the International Monetary Fund has made aid conditional upon political reform, federal aid to states should be tied to reforms that would make future federal interventions less necessary."

The trade data lead economists to cut GDP forecasts: http://bit.ly/ayoniS

Daniel Gross argues that a deficit of only $1 trillion is unexpectedly good news: "Consider how the short-term fiscal picture improved over the course of 2009 as the markets reflated and the economy revived. In February 2009, the government projected (click here for tables) a deficit of $1.7 trillion for fiscal 2009 (October 2008 to September 2009). By mid-2009, the economy had improved a bit. So in the midsession review, issued in August 2009, the OMB pegged the deficit for FY 2009 at $1.58 trillion. Two months later, when the books on fiscal 2009 were closed, the deficit came in at $1.413 trillion. Economic shifts brought about a $300 billion narrowing of the deficit over the course of seven months."

Regulators are already working on implementing FinReg: http://bit.ly/aP1rBs

Barry Eichengreen argues that austerity could boost growth in Southern Europe, but not elsewhere: "Consider the following image: consumers and investors as passengers in a car hurtling directly toward a brick wall. In this case, the driver stepping on the brake will give the passengers more confidence. Here, the plausible passengers are southern European firms...In other G-20 economies, including the United States, Germany, China, and Japan, the car is still cruising down an open road. Fiscal velocity may be considerable - that is, deficits may be large - but there is no sign of a brick wall ahead."

Mark Holloway makes the case for Elizabeth Warren as first Consumer Financial Protection Bureau head: http://bit.ly/djPeJK

Retro gaming interlude: Cities as 8 bit maps.

Domestic Policy

Health-care reform will include a major fight over birth control, reports Dana Goldstein: "Many conservative activists, who spent most of their energies during the health-care reform fight battling to win abortion restrictions and abstinence-education funding, are just waking up to the possibility that the new health care law could require employers and insurance companies to offer contraceptives, along with other commonly prescribed medications, without charging any co-pay. Now the Heritage Foundation and the National Abstinence Education Association say that, like the U.S. Conference of Catholic Bishops, they oppose implementation of the new provisions."

Republicans want Elena Kagan to recuse herself from any cases involving health care reform: http://bit.ly/cnhrno

The Department of Health and Human Services will be spending $27 billion to help usher in electronic medical records, reports Janet Adamy: "The new rules require health-care providers to meet fewer requirements that show 'meaningful use' of electronic records. For instance, health-care providers now have to write 40% of their prescriptions electronically to qualify for funding, instead of 75%. Under the program, health-care providers can receive up to $44,000 through Medicare and $63,750 through Medicaid to cover the cost of converting their records. Health-care providers who treat Medicare patients that don't comply by 2015 face penalties in the form of lower payments."

A new White House-backed plan would auto-enroll workers in IRAs, reports Walter Alarkon: "Top officials in the administration, including White House Budget Director Peter Orszag, Treasury Department senior adviser Mark Iwry and Cass Sunstein, the administrator of the White House Office of Information and Regulatory Affairs, have long championed the opt-out provision. They point to studies that show the arrangement leads to big increases in savings by workers. Like other employer-based retirement accounts, the opt-out accounts proposed by Democrats would have tax benefits."

A new mine safety bill faces a major fight with industry groups: http://bit.ly/cBgF2A

Farms are getting smaller and receiving less government backing, reports Emmeline Zhao: "Government payments to farmers in 2008 totaled $12.2 billion, down about 50% from nearly $24.4 billion in 2005. The decrease in funding results from an approximately 90% drop in payments that depend on market prices, including countercyclical payments, according to data from the U.S. Department of Agriculture. Other payments -- including those from disaster relief programs and peanut and tobacco buyout programs -- decreased about 40%."

Recipe interlude: Live-blogging the making of mango slaw.

Energy

Brad Plumer has four big questions about the Senate's energy push: http://bit.ly/8Xl5L9

The administration won't allow deepwater drilling because they doubt oil companies can clean up spills, reports Mary Pat Flaherty: "Bromwich, the new head of the agency formerly known as the Minerals Management Services, appeared a day after a ban on deep-water drilling was recast by the Department of the Interior. The "pause" in drilling, which could last until Nov. 30, is based not on an operation's drilling depth but on the type of rigs and equipment in place to prevent a blowout like the one preceding the Deepwater Horizon rig explosion, which killed 11."

The BP spill shows that lessons from Exxon-Valdez were ignored, reports Joel Achenbach: "A commission that investigated the Alaska spill found that oil companies cut corners to maximize profits. Systems intended to prevent disaster failed, and no backups were in place. Regulators were too close to the oil industry and approved woefully inadequate accident response and cleanup plans. History is repeating, say officials who investigated the Valdez, because the lessons of two decades ago remain unheeded."

Nina Shen Rastogi weighs the environmental pros and cons of nuclear energy: http://bit.ly/dvKxaJ

Congress voted for the BP disaster, writes David Abraham: "It’s not as if Congress didn’t know the risks. Its own research arm, which issues frequent spill-response readiness assessments, has repeatedly cited a 2004 Coast Guard study finding that its 'oil spill response personnel did not appear to have even a basic knowledge of the equipment required to support salvage or spill clean-up operations.' Nevertheless, lawmakers failed to act aggressively to ensure adequate oversight."

Robotic interlude: A swimming, squid-like robot.

Closing credits: Wonkbook compiled with the help of Dylan Matthews and Mike Shepard.

By Ezra Klein  |  July 14, 2010; 6:50 AM ET
Categories:  Wonkbook  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Reconciliation
Next: Out-of-pocket spending in the last year of life

Comments

I think I can see where the GOP are going. I think they may have realised that a short term stimulus is popular, whatever they think of the economics. If they gain Congress in November, they will:

* say that cutting the deficit is a priority;

* cut taxes (mostly, but not only, on the rich);

* say they're cutting the deficit (if pressed, invoke Laffer, otherwise just rely on the idea that putting more money in working people's pockets means they they must be richer, so obviously the deficit must have been cut);

* increase spending, as they always do;

* say they're cutting the deficit;

* if people point out the deficit (and debt) are going up, say they're cutting the deficit, and blame Barack Obama for vetoing something irrelevant.

* point out that America is a great country, as proven by the bond markets, where low interest rates prove they're cutting the deficit.

Posted by: vagueofgodalming | July 14, 2010 8:11 AM | Report abuse

Why worry! The Obama Stimulus has created or saved 3 million jobs!

At this rate of growth, by simply doing nothing more there will be enough jobs for every unemployed American and every illegal immigrant before the November elections.

Posted by: rmgregory | July 14, 2010 9:09 AM | Report abuse

"Democrats are ecstatic: Tax cuts for the wealthy versus insurance for the unemployed is, for them, the first hint of solid ground in some time."

In early 2009, before stimulus passed, the Senate Republicans were saying the stimulus would explode the deficit while at the same time they voted for a permantent, $3.1 trillion tax cut that primarily went to the well off. Republicans have voted for privatizing Medicare, are blocking unemployment insurance that the majority of Americans support and based on the argument that effectively says Americans are lazy, and abused procedural gimmicks in a far worst fashion than the Dems (does the Cornhusker Kickback even come close to the threats that Grassley received? No).

Yet, the Dems have lost every one of these arguments and keep running scared.

I see nothing about the current Kyl/McConnell Kinsley gaffe that's going to change that. The Dems are just truly, politically inept. There's no way they should be losing these arguments (and many more), but they do.

Posted by: JamesCody | July 14, 2010 9:59 AM | Report abuse

I went to check out the new bloomberg/post business page and found an op-ed by Amity Shlaes. I think I'll continue to get my business news from the FT (and you of course), where they don't try to actively deceive me.

Posted by: Castorp1 | July 14, 2010 10:16 AM | Report abuse

"There's no way they should be losing these arguments (and many more), but they do."

How are they "losing these arguments"? Dems have 3:2 leads in the house and the senate, control the white house, and will almost certainly win a majority of the congressional seats that are up for election this November.

I know the media will pretend that the right has valid points to make, but the voters have been seeing through their BS for 80 years now (obvious exception of 1994). Lose the negativity.

Posted by: eggnogfool | July 14, 2010 10:37 AM | Report abuse

On the Auto-IRA

"The Obama administration sees the auto-enrollment system as a way to increase savings."

Really? I thought we were spending all this stimulus money because people and businesses were saving too much.

Here's another idea - don't have a complicated set of tax laws and special accounts for savings - just don't tax savings.

Maybe savings are "low" (what amount is just right, out of curiosity) because people count on Social Security instead of saving for themselves, because taxes reduce income available for savings, because savings are taxed, because inflation erodes the purchasing power of savings, because it's a hassle to set up things like IRAs, especially if you are worried you'll need the money and you might face a penalty for withdrawal, etc.

This gets filed under 'government fixing a problem government created'.

Posted by: justin84 | July 14, 2010 11:14 AM | Report abuse

"Daniel Gross argues that a deficit of only $1 trillion is unexpectedly good news: "Consider how the short-term fiscal picture improved over the course of 2009 as the markets reflated and the economy revived. In February 2009, the government projected (click here for tables) a deficit of $1.7 trillion for fiscal 2009 (October 2008 to September 2009). By mid-2009, the economy had improved a bit. So in the midsession review, issued in August 2009, the OMB pegged the deficit for FY 2009 at $1.58 trillion. Two months later, when the books on fiscal 2009 were closed, the deficit came in at $1.413 trillion. Economic shifts brought about a $300 billion narrowing of the deficit over the course of seven months."

Daniel Gross is confused.

Of the $300 billion difference between the $1.7 trillion projected 2009 deficit and $1.4 trillion actual deficit, $250 billion of it is due to placeholder for additional bank bailouts, which never occurred. The banks actually paid money back.

I'm also not sure you can spin a $1 trillion deficit over 9 months as a good thing. Gross is excited that the FY2010 deficit might come in at $1.2 trillion rather than $1.556 trillion as expected, and that's all well and good as it goes, but the positive surprise looks to be a spending story, not a revenue story.

So far net federal outlays have been $2,602 trillion vs. the FY2011 budget's expectation of $3,721 trillion for FY2010. Using Dan's 3% lower spending than last year formula for the next three months and we get estimated FY2010 spending of $3,423 billion, and so $298 billion of the ~$350 billion improvement Gross expects in the deficit - and attributes to a good economy - is from lower than expected spending.

This interesting to consider, as reduced spending by 2% of GDP relative to budget somehow coincided with a revenue surprise to the positive, albeit of only ~$50 billion. If we clear $14.7 trillion in nominal GDP for 2010, there will have been a positive surprise in GDP is well.

Posted by: justin84 | July 14, 2010 11:47 AM | Report abuse

The talk of tax cuts in connection with deficit reduction mostly misses the point.

Even assuming Democrats' static analysis of the revenue lost as a result of the Bush tax cuts, the lost revenue only accounts for ~ 14% of the increase in deficits over the last decade, and even less of the projected increase in deficits from now until 2020. The vast majority is the result of new spending.

You can pin 25-35% of all new spending over the last ten years to Bush and the Republican Congress, but two-thirds of the new spending has occurred in the last 2 years under Obama and the Democratic Congress.

The point is this: it doesn't matter if Republicans' arguments on the effect of tax cuts is right or not - even if you raise taxes and/or let the Bush tax cuts expire, it will make a negligible difference in the deficit. Where Republicans are right is that the only way to make meaningful in-roads to reducing the deficit is to dramatically cut spending and prevent new entitlements. And voters are pretty intuitive about this.

To support my point, and as was referenced in a WSJ editorial yesterday, revenues almost inevitably hover around 18% of GDP. Spending must be brought within a couple points of this in order to be sustainable.

Posted by: ChazWeber | July 14, 2010 11:56 AM | Report abuse

Klein: Now they're stuck between two untenable positions: That tax cuts needn't be offset as a matter of principle, or that they needn't be offset as a matter of policy. The first suggests they don't really care about deficits. The second suggests they don't understand deficits. Meanwhile, they're filibustering an extension in unemployment insurance based on concerns about deficits. Democrats are ecstatic: Tax cuts for the wealthy versus insurance for the unemployed is, for them, the first hint of solid ground in some time.
-------------
So much juvenile cheerleading. This is supposed to be journalism...or even commentary?

Can any responsible observor not know that a pro forma tax cut can (and normally has) produced ADDITIONAL net revenue to the Treasury because of the additional activity that is then taxed?

To equate tax cuts with expenditure increases is economic illiteracy. About the only "expenditure" that helped the budget was the TARP purchase of bank stock which was then resold at a profit and with interest too.

And it is Harry Reid who is holding up the UC extension, not the GOP. The extension would have been passed a long time ago had the Democrats been willing to use already appropriated (and not yet expended) stimulus funds. But no, they'd rather keep the stimulus money as a slush fund and take the nation further in debt. And they'd rather have the political issue than get benefits extended.

Posted by: CincinnatiRIck | July 14, 2010 1:23 PM | Report abuse

"Can any responsible observor not know that a pro forma tax cut can (and normally has) produced ADDITIONAL net revenue to the Treasury because of the additional activity that is then taxed?"

No "responsible observor" anywhere on the political spectrum believes that tax cuts produce net revenue. That, obviously, as well as the fact that it has not "normally" happened.

Posted by: eggnogfool | July 14, 2010 4:11 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company