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Wonkbook: Volcker's tax plan; Europe fights U.S. on FinReg; 10 years till recovery?


Did you know lawmakers have made more than 15,000 tweaks to the tax code since the 1986 reform? That, and more, in the report Paul Volcker's presidential advisory committee just released on tax simplification. Did you know advanced economies usually take about 10 years to recover from financial crises? That, and more, in Carmen and Vincent Reinhart's depressing new paper. Plus: Europe and the United States are fighting over capital requirements, which sounds dull but is arguably more important than anything in the FinReg bill. And what's going on with DC's schools?

It's Monday and I'm back from vacation. Welcome to Wonkbook.

Top Stories

Paul Volcker's Economic Recovery Advisory Board has released its suggestions for simplifying the tax code, reports Lori Montgomery: "In an exhaustive 18-month review, the President's Economic Recovery Advisory Board found that the complexity of the nation's tax laws has increased dramatically in recent years. Lawmakers have changed the code more than 15,000 times since the last major overhaul in 1986. Meanwhile, instruction booklets for the standard Form 1040 have swelled from 14 pages to 44 pages last year.

The board also found that the profusion of credits, deductions, phaseouts and conflicting eligibility requirements frays the sanity of ordinary taxpayers just as surely as it complicates the calculations of wealthy families and business owners. Tax provisions affecting families and children were among the most frequently cited sources of confusion."

Read the full report (pdf):

It typically takes advanced economies almost 10 years to recover from financial crises, write Carmen and VIncent Reinhart. "Their paper "examines the behavior of real GDP (levels and growth rates), unemployment, inflation, bank credit, and real estate prices in a twenty one-year window surrounding...the 1929 stock market crash, the 1973 oil shock, the 2007 U.S. subprime collapse and fifteen severe post-World War II financial crises."

Climate change activists are entering soul-searching mode after seeing cap and trade defeated despite the Democratic Congress and president, reports David Fahrenthold: "Environmentalists say their problem was timing; once the economy perks up, their logic goes, prospects will improve..But some activists from smaller groups say the problem is within environmentalism itself. To them, the Senate defeat showed that green groups don't have enough of Washington's two currencies of power: money and angry voters. To them, it's significant that no senator seems in danger of being voted out of office this November for denying the environmentalists the climate bill they wanted."

STORY THAT SHOULD -- BUT WON'T -- DRIVE THE DAY: Europe and the United States are fighting over the amount of safety capital the Basel III accord will demand that banks have to hold, reports Damian Paletta: "Regulators will have to agree on the precise level of capital needed to buffer against risk. Basel officials have suggested this should be 5%, or $5 in capital for every $100 in assets like loans and investments. They also want to add a 2.5% buffer on top of that, which banks would be able to dip below during tough times....The negotiations seem headed for a deal, people involved in the process say, where banks are required to hold a capital level of 7% or 8% after factoring in the buffer. Reaching that level could be more problematic for European banks, which tend to hold less capital than their U.S. counterparts."

Under Michelle Rhee, DC's public schools are diversifying, reports Jonetta Rose Barras. How does that make you feel? How should that make you feel? "Between 2007 and 2010, white enrollment in DCPS increased from 6 percent to 9 percent and Hispanic enrollment increased from 11 percent to 13 percent. During that same period, African-American enrollment dropped from 80 percent to 76 percent, according to the Office of the State Superintendent of Education. A lot of people might be uncomfortable with the experiment and its results. But the statistically complicated, politically toxic, and morally vexing question is: should they be?"

Indie pop interlude: MGMT play "Song for Dan Treacy" on Letterman.

Still to come: Why Washington is annoyed at Berlin, the HUD Secretary throws cold water on a renewal of the new homebuyer's tax credit; conservative intellectuals begin to organize against a value-added tax;; New Orleans politicians demand more federal help; and cannibalism is hot right now.


Noticing a lot of articles with a Germany vs. the United States bent? Noam Scheiber gives the background: "For years, the Germans could be relied upon to play a stabilizing role in Europe, subsuming their national self-interest to lofty visions of continental solidarity. But, over the last decade, as German leadership has passed from the postwar generation of Konrad Adenauer and Helmut Kohl to a younger generation less compelled by the war’s memory and unbothered by the Soviet menace, the Germans have ceased to view Europe’s safekeeping as their historical responsibility. 'It’s no longer Europe at any price,' says Ulrike Guérot, a fellow at the European Council on Foreign Relations in Berlin. 'It has a price now, and they want to see the price tag.'"

Daniel Gross doesn't see a bubble in US bonds:

HUD Secretary Donovan does not want to revive the housing tax credit just yet, reports Brent Kendall: "Donovan, speaking Sunday on CNN’s 'State of the Union,' said the administration had expected a drop in the July housing numbers because of the recent expiration of the tax credit, 'but they were clearly worse than we expected.'..Donovan said the administration would be rolling out two tools in the coming weeks to help homeowners: a Federal Housing Administration refinancing effort to help borrowers who are underwater, and an emergency loan program for unemployed borrowers."

A new study suggest asset-buying by central banks speeds recovery:

Gretchen Morgensen previews the FinReg rules-making process for the CFTC and SEC: "Because the most potentially nuclear forms of derivatives are privately arranged and loosely monitored, two clear goals of the legislation are greater price transparency and the opening of transactions to more market participants. But not everyone wants these aims to be met. And early signs indicate that the big firms currently in control of the derivatives market view the rules-writing process as an opportunity to maintain the status quo in one of their most lucrative lines of business -- or win back what they feel they lost amid the legislative wrangling earlier this year."

State tax revenue rose last quarter:

TOMORROW'S ARGUMENTS TODAY: Douglas Holtz-Eakin and Cameron Smith preview the conservative rejection of a Value-Added Tax: "There is a well-established correlation between having a VAT -- or having a larger VAT -- and having a larger government. In 'Leviathan Unbound: The VAT?' we used sophisticated statistical techniques and data from the Organization for Economic Co-operation and Development to discern whether this means that countries that have installed a VAT did so to smooth the path to a larger public sector. Or whether the VAT fueled a growth in government that people did not anticipate or want. The result: Adopting a VAT caused a growth in government."

The White House is easing export controls for military tech to boost manufacturing:

Clive Crook calls on the Fed to take action: "As the monetary economist Scott Sumner has pointed out, Milton Friedman - name me a less reconstructed monetarist - talked of 'the fallacy of identifying tight money with high interest rates and easy money with low interest rates'. When long-term nominal interest rates are very low, and inflation expectations are therefore also very low, money is tight in the sense that matters. When money is loose, inflation expectations rise, and so do long-term interest rates. Unreconstructed monetarists ought therefore to agree with Mr Magnus’s main point: under current circumstances, better to print money and be damned."

Laura Tyson argues for a second stimulus:

Great achievements in sports interlude: The 2010 blind soccer world championship.


Chief oil regulator Michael Bromwich is under fire for new restrictions on drilling, report Stephen Power and Naureen Malik: "The bureau has issued only three new permits to start wells in shallow water since the April 20 explosion of the Deepwater Horizon rig, according to the agency's website. The agency issued three to six permits a week prior to the accident, industry officials say. Louisiana's lieutenant governor, Scott Angelle, who has participated in talks with Mr. Bromwich's agency, said the government was effectively shutting down shallow-water drilling."

The legal tactics of oil companies involved in the BP spill started to emerge last week:

Major oil companies plan on resuming deepwater drilling as soon as the moratorium is lifted, reports Clifford Krauss: "Chevron, the second-largest American oil company after Exxon Mobil, is one of the largest deepwater explorers in the Gulf of Mexico, and also has major deepwater projects in Europe, Asia and West Africa. The six-month drilling moratorium instituted by the Obama administration following the April 20 explosion of the Deepwater Horizon has suspended work on five Chevron deepwater wells. 'Our plans are, the day that the moratorium is lifted, to go right back to the prospects we were drilling at the time work was suspended, as well as the other prospects that are in our queue,' he said."

Hot spells in the Pacific line up with climate change predictions:

Europe's cap and trade system is running into problems with offsets, writes James Kanter: "Manufacturing a gas commonly used for cooling and air-conditioning turns out to produce another unwanted gas that can contribute inordinately to the warming of the planet..As climate regulation spreads, destroying the gas, known as HFC-23, has become a lucrative business, and over the past five years, financiers and industrial companies have begun turning those streams of waste into hefty returns..Critics have warned for years that this form of offsetting would encourage profiteering, with little or no value in efforts to curb climate change."

Behnam Taebi explains the benefits of a new breed of nuclear reactor:

Adorable animals getting exercise interlude: Two corgis on a treadmill.

Domestic Policy

New Orleans mayor Mitch Landrieu and Senator Mary Landrieu are demanding more federal spending on Katrina reconstruction, reports Norm Gomlack: "Obama was not expected to announce any new initiatives during this visit. The secretaries of Education and Homeland Security on Saturday announced $1.8 billion to rebuild schools in New Orleans. Sen. Mary Landrieu, the mayor’s sister, complained that the federal government has a long history of failing to invest in the region while taking in billions in oil and gas tax revenues."

ICE is paring back unnecessary deportations, reports Julia Preston: "The courts have reported at least 17,000 cases that could be eliminated from their docket if ICE dismissed deportations of immigrants, like those married to United States citizens, who were very likely to win legal status, the memo says."

James Suroweicki bemoans the death of customer service: "The real problem may be that companies have a roving eye: they’re always more interested in the customers they don’t have. So they pour money into sales and marketing to lure new customers while giving their existing ones short shrift, in an effort to minimize costs and maximize revenue. The consultant Lior Arussy calls this the 'efficient relationship paradox': it’s only once you’ve actually become a customer that companies put efficiency ahead of attention, with the result that a company’s current customers are often the ones who experience its worst service."

Leslie Jacobs praises New Orleans' school overhaul:

Norman Ornstein proposes changes to the filibuster: "For starters, the Senate could replace the majority’s responsibility to end debate with the minority’s responsibility to keep it going. It would work like this: for the first four weeks of debate, the Senate would operate under the old rules, in which the majority has to find enough senators to vote for cloture. Once that time has elapsed, the debate would automatically end unless the minority could assemble 40 senators to continue it. An even better step would be to return to the old 'Mr. Smith Goes to Washington' allowing a motion requiring 40 votes to continue debate every three hours while the chamber is in continuous session."

Soylent green interlude: When did cannibalism get so trendy?

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

By Ezra Klein  |  August 30, 2010; 2:44 AM ET
Categories:  Wonkbook  
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Next: What I read on my summer vacation


"The real problem may be that companies have a roving eye: they’re always more interested in the customers they don’t have.

In some cases that may be true but not always. Get ready for the next 5-10 years healthcare customer service is going to go way down-hill due to MLR requirements. Its already happening. At a time when consumers need to know more about what's going on with their healthcare they'll get to know less. It was not long ago that insurance companies touted 97% of calls answered in "X" time frame. That's gone. The cutbacks have already begun. Get ready for the new normal.

Posted by: visionbrkr | August 30, 2010 8:18 AM | Report abuse

"It's Monday and I'm back from vacation."

Don't sound so excited. ;)

@visionbrkr: " Its already happening."

It's already happened. The (perhaps necessary) separation between payer and patient created a system that is designed around filing insurance, not serving the patient. We might be exacerbating that with HCR (the "might" is a polite courtesy) , but I've already experienced some horrendous healthcare customer service, well before HCR. ;)

Posted by: Kevin_Willis | August 30, 2010 8:24 AM | Report abuse

"The White House is easing export controls for military tech to boost manufacturing"

That sort of think always makes me queasy (see: Clinton approving the sale of missile guidance technology to the Chinese), but is there any actual evidence it's a bad idea? I guess there must be, but . . . if they don't buy it from us, they'll probably eventually get it somewhere, somehow.

Posted by: Kevin_Willis | August 30, 2010 8:26 AM | Report abuse

Frank Rich's most recent article should have been part of today's wonkbook.....
This is hardly true of the Kochs. When David Koch ran to the right of Reagan as vice president on the 1980 Libertarian ticket (it polled 1 percent), his campaign called for the abolition not just of Social Security, federal regulatory agencies and welfare but also of the F.B.I., the C.I.A., and public schools — in other words, any government enterprise that would either inhibit his business profits or increase his taxes. He hasn’t changed. As Mayer details, Koch-supported lobbyists, foundations and political operatives are at the center of climate-science denial — a cause that forestalls threats to Koch Industries’ vast fossil fuel business. While Koch foundations donate to cancer hospitals like Memorial Sloan-Kettering in New York, Koch Industries has been lobbying to stop the Environmental Protection Agency from classifying another product important to its bottom line, formaldehyde, as a “known carcinogen” in humans (which it is).

Posted by: lauren2010 | August 30, 2010 8:37 AM | Report abuse


well sure. poor customer service was around before and will be in the future. Its just a question of the level and intensity of it. Just wait until Bob answers the phones for you at United Healthcare. Oh did I say Bob, I meant Bhupati. That's already happening too. Don't get me wrong I don't have any problems with other cultures but when costs are attempted to be contained just on the insurer side they'll do whatever they have to do to survive.

Not to mention the fact that insurance companies are already scrimping on training their customer service people to the levels they were 10-20 years ago.

Maybe they should have tried to control costs in other ways too. (sigh)

Posted by: visionbrkr | August 30, 2010 8:50 AM | Report abuse


Bush Sr exported US rocket tech to China long before Clinton did.

I was an engineer on the Iridium project. BushSr and his admin helped Motorola negotiate frequencies with many countries. China was given rocket tech in exchange for frequency so they could ostensibly help launch Iridium sattellites.

Wake up.

Both Dems and Repubs cow-tow to the demands of their corporate masters and have helped export high technology and weapons to anyone who has the money or a valuable resource to trade.

Posted by: lauren2010 | August 30, 2010 9:41 AM | Report abuse

Everyone, please boycott all Japanese products until they stop mass murdering whales and dolphins.

Even better, call a local Japanese product retail location (e.g. Japanese auto dealer) and tell them you won't buy their products and why.

Posted by: lauren2010 | August 30, 2010 9:44 AM | Report abuse

Jeez. How tall is Paul Volcker? He makes President Obama look short.

Posted by: DKOSullivan | August 30, 2010 10:04 AM | Report abuse

"Paul Volcker's Economic Recovery Advisory Board has released its suggestions for simplifying the tax code, reports Lori Montgomery: "In an exhaustive 18-month review, the President's Economic Recovery Advisory Board found that the complexity of the nation's tax laws has increased dramatically in recent years. Lawmakers have changed the code more than 15,000 times since the last major overhaul in 1986. Meanwhile, instruction booklets for the standard Form 1040 have swelled from 14 pages to 44 pages last year."

Give every adult citizen $12,000/yr and tax all other income at the lowest rate possible consistent with long fun fiscal stability. That tax should be withheld from most forms of income - dividends, interest, wages, etc. Don't tax corporate income - instead have corporations withhold 28% prior to paying dividends.

Taxes for most people should be like FICA. Also throw in a carbon tax which phases in overtime.

Use the basic income instead of the various income transfer programs. We don't need to haggle over the one size fits all retirement age. Everyone knows they get $12,000/yr now and forever - if they can retire at 59, great, if they work until 73, also great. If they retire at 64 but then pick up a $25,000/yr job at 67, that's fine too. A married couple are both 99ers? Well they can still count on $2,000/mo.

Posted by: justin84 | August 30, 2010 10:51 AM | Report abuse

@Lauren2010: "Wake up."

Apparently, you just like assuming you're smarter than everybody else. I have no disagreement with what you said, generally, but telling people to "wake up", especially when you're making fairly broad assumptions regarding what they said, is just snotty.

And the above is an objectively true statement.

Posted by: Kevin_Willis | August 30, 2010 11:51 AM | Report abuse

Prince, most of us can save money on our car insurance by making few simple changes find how much you can save

Posted by: martincruz31 | August 31, 2010 2:27 AM | Report abuse

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