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Wonkbook: WH pushes for state aid; middle-class stagnates, BP endgame?

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The White House is pushing for the Senate to pass $26.1 billion in state and local aid before it goes on recess for August. This is something of a last-chance: The package has been whittled down substantially after Ben Nelson and the Senate Republicans blocked previous stimulus attempts, and it's now largely offset. Controversially, it even includes about $7 billion in cuts to the food stamp (or, as it's now called, the SNAP) program. In some ways, the normal language we use for this -- "the Senate is trying to pass x and y" -- is misleading. Most all Democrats -- which is to say, a majority of the chamber -- supports the bill, while most Republicans are going to oppose it. The question is where Ben Nelson and three or four Republicans come down.

But all the temporary programs in the world won't change the bigger picture: The recession has hammered the middle class and reduced the country's income mobility. We may get through the recession and downturn here only to find we're left with an economy with some very sticky problems. Luckily, it's not all doom and gloom today: BP is trying to kill the leak once and for all; and if that doesn't cheer you up, how about some rum in your French toast?

Welcome to Wonkbook.

Top Stories

The Senate will vote tonight on a White House-backed plan for aiding states, reports David Rogers: "Cash-strapped governors are promised $16.1 billion to pay Medicaid bills next year and ease their budget situation; another $10 billion in education assistance would go to school boards to help with teacher hiring--a top priority for Education Secy. Arne Duncan... Reid offset the full cost through a combination of foreign tax credit provisions and $17.1 billion in savings chiefly from cuts to food stamps and prior appropriations. The Medicaid assistance, which extends a program begun under the Recovery Act, is designed now to phase out in the first six months of 2011--something recommended by Sen. Susan Collins (R-Maine.)"

More and more states are considering their own versions of the Arizona immigration bill: http://politi.co/94KKNc

The recession is exacerbating income immobility and wage stagnation among the American middle-class, reports Edward Luce: "Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: 'America is the best country in the world to be poor.' That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy - even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe."

David Stockman, who served as Ronald Reagan's OMB director, argues the GOP's tax-cutting fervor has cost them their once-sound economic theory: http://nyti.ms/9OGl9p

BP could try a "kill shot" meant to plug the oil leak for good as early as tonight, reports Joel Achenbach: "The positive turn of events has led to a change in the endgame. The static kill has emerged as a potential fix that could take the pressure off the relief-well job. With hurricane season about to hit its busiest stretch, officials have feared that a tropical storm could force the rig drilling the relief well to disengage and sail away temporarily, delaying the termination of Macondo."

Recipe interlude: Ever feel like your French toast is missing a sufficient quantity of rum?

Still to come: A new crop of academics is radically rethinking how we look at financial crises; the House okays an oil spill reaction bill; HHS is facing state concerns on health care reform implementation; and Kanye West gets on Twitter.

Economy/FinReg

Damian Paletta profiles Michael Barr, the non-Elizabeth Warren contender for head of consumer financial protection: "Mr. Barr has called for rules that would force banks to offer 'plain vanilla' financial products to consumers. He has pushed for the creation of a public trust to provide 'financial education and assistance to troubled borrowers,' funded by the penalty fees banks charge to their customers. He has said regulators should take into account the psychology of borrowers when setting rules. In short, he has called for dramatic changes to how banks interact with consumers, often in a way that would make it harder for companies to lean on consumer financial products for profits."

Obama's export growth goals face numerous hurdles: http://nyti.ms/9qzQxy

Econophysicists are proposing a radically different method of determining the causes of economic crises, reports Eric Dash: "'If you analyze them, this earthquake law is obeyed perfectly,' notes H. Eugene Stanley, a Boston University physics professor who published a pioneering study of financial markets in the scientific journal Nature. 'A big shock causes smaller aftershocks, and then ones smaller and even smaller.' Indeed, financial crises come in clusters. The currency crisis in Thailand during the late 1990s was followed by similar problems in Indonesia and South Korea. After Lehman Brothers faltered, Washington Mutual, the Wachovia Corporation and scores of smaller banks toppled over like dominoes." Chris Dodd asked FDIC head Sheila Bair about her interest in the consumer financial protection post: http://bit.ly/a9ySXG

States are increasing retirement ages for government workers, report Jeannette Neumann, Michael Corkery, and Marcus Walker: "Lawmakers in at least 10 states have voted this year to require many new government employees to work longer before retiring with a full pension, or have increased penalties for early retirement. A similar proposal is pending in California. Mississippi, already among the states requiring more years of service for a pension, is weighing the additional step of increasing its retirement age."

William Gale takes on five myths about the Bush tax cuts: http://bit.ly/93QFvY

Job retraining isn't working as planned, writes James Ledbetter: "Our training is really lousy. This seems like an obvious culprit, except that all the way down the line, the incentives appear intact. Governments and business leaders want unemployment to go down; community colleges want federal grants to provide workplace training; companies want skilled employees; and unemployed workers want jobs that pay well. So the problem shouldn't be an inability to teach skills."

Overbuilding has made landlords seek out government-subsidized renters: http://bit.ly/aHiE9r

Clive Crook urges Obama to break his promise to not raise middle-class taxes: "So broken is the US tax system - especially the federal income tax - that raising more revenue without increasing rates of tax is technically, though not politically, easy. The income tax base has been whittled away since the last big reform in 1986. Rates are not low by international standards, and their structure is already quite progressive; yet because they are applied to a slender base, the US income tax raises barely 8 per cent of gross domestic product. A broader base with lower, flatter rates could easily raise more revenue."

Fareed Zakaria wants the Bush tax cuts to expire in full: http://bit.ly/bvrKhh

Robert Shiller makes the case for a direct jobs program: "From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous. (This is an example of an 'externality,' which the market economy, left to its own devices, will neglect.)"

Celebrity stream of consciousness interlude: Kanye West gets a Twitter feed.

Energy

An oil spill response bill has passed the House but is stalling in the Senate, reports Matthew Daly: "The House bill includes a provision sponsored by Rep. Charlie Melancon, D-La., that would modify a six-month moratorium on deepwater drilling, so that some drilling permits could be approved on a rig-by-rig basis if the Interior Department determines a rig meets new safety requirements. The drilling moratorium imposed by Interior Secretary Ken Salazar would remain in effect, and Salazar would retain power over whether to approve a permit."

Wind turbine operators are solving complaints from neighbors by simply paying them: http://nyti.ms/ccS8Sn

Louisiana residents are concerned BP is pulling back from the gulf too soon, reports Angel Gonzalez: "More than 32,000 people and 4,400 vessels are part of the response effort all over the Gulf Coast, including thousands of commercial fishermen hired by BP to collect oil and lay boom. Some have already begun to be phased out, according to shrimper Acy Cooper, who said Sunday that his team has been reduced from 21 boats to about nine. 'This is too soon to be cutting back because there's too much oil out there,' he said."

BP used dangerous dispersants despite explicit orders from the White House not to: http://bit.ly/dqILMf

Trevor Houser argues high oil prices can combat climate change: "The fact that high oil prices survived the crisis excises the ghosts of the 1980s, and gives entrepreneurs and investors confidence to support cleaner vehicles and develop alternative fuels. Nearly all of the world’s largest vehicle manufacturers now plan plug-in hybrid or fully electric vehicles within two years, with General Motors rolling out the Chevy Volt last week. At $20 per barrel, powering the Volt with electricity costs more than filling a comparable car with gasoline. But at $80, Volt drivers save enough on fuel to offset the vehicle’s high prices."

Josh Freed and Matt Bennett draw lessons for energy reform from the health care reform fight: http://bit.ly/aLygLN

BP should be held fully liable for all economic damages emanating from the spill, writes Paul Rubin: "Drivers and pedestrians can't bargain in advance over standards of care, or prices and damages, so arguments for reducing damages are less powerful and tort reform is less appropriate. (There are arguments for no-fault insurance, but these are based on reducing transactions costs.) The Gulf spill is exactly this second class of accident--one with no pre-accident relationship. Hotel and restaurant owners and fishermen had no contractual relationship with BP before the oil spill, so arguments generally made by tort reformers have little weight in this case."

Kitsch painting interlude: Celestial Soul Portraits.

Domestic Policy

HHS secretary Kathleen Sebelius is working with state governments as they struggle to set up health care exchanges, reports Janet Adamy: "State officials say they are struggling to meet the law's deadline for getting the exchanges running by 2014. Strapped budgets have left states without the staff to handle basics such as writing grants to apply for implementation funding, officials say...Another contentious issue is Medicaid funding. Budget-challenged states want more flexibility to pare back spending on the federal-state program for the poor, but the law effectively prevents them from doing that."

Missouri will vote tomorrow on whether to nullify health care reform: http://nyti.ms/a2Z93m

The Obama administration is seeking to ease immigration for military families, reports Julia Preston: "According to the memo, one of those changes has been quietly put into practice since May. The new policy allows illegal immigrants who are spouses, parents and children of American citizens serving in the military to complete the process of becoming legal residents without having to leave the United States -- a procedure that is known in immigration law terms as granting parole. The memo says agency officials approved the new parole approach 'to preserve family unity and address Department of Defense concerns regarding soldier safety and readiness for duty.'"

Jon Kyl has joined Lindsey Graham in opposing birthright citizenship:: http://bit.ly/9vC2Dp

Power is concentrating in boards and the executive because Congress wants it to, writes Matthew Dickinson: "The idea that members of Congress would prefer to incur the political costs involved in balancing the budget or cutting Medicare themselves rather than farming these decisions out to an independent commission is, in my view, dubious...Indeed, rather than a power grab, the creation of independent commissions or boards to tackle tough issues is a time-honored method by both Congress and presidents to avoid having to tackle those issues themselves."

Roberto Suro argues the Arizona immigration bill ignores economic factors: "Immigration policy needs to be about a lot of things, including national identity and security, but right now it needs to be about getting the economy's pulse up and improving our global economic competitiveness. These challenges are macro. The Arizona law offers micro solutions. It argues that immigration can be a law enforcement matter and pushes the decision-making down to the state and local level."

80s cover interlude: Superchunk play "In Between Days" by The Cure.

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

By Ezra Klein  |  August 2, 2010; 6:32 AM ET
Categories:  Wonkbook  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Reconciliation
Next: Why the recession (mostly) didn't mess with Texas

Comments


Health care (transformation) is one of the best issues this current administration has done thus far. With this change individuals will have the opportunity to seek professional and quality health care services. Who would want to return to the days of the horse and buggy, b/w tv sets, manual typewriters, pac man, you get the point? That's about how old the health care system was in the USA. Each day the news is filled with social tragedies in which lives are taken at the hands of known acquaintences and/or family members. Our society is stricken with the institutions of white collar crime permeating throughout this great nation and greed which tends to strike at the very fabric of our country. If you are looking for affordable health insurance check out http://bit.ly/chE6zp . I hope everyone will soon recognize and use the resources made by this transformation to seek professional medical attention as the need arises rather than turning to illegal and criminal activities to resolve their issues.

Posted by: jeffronald | August 2, 2010 7:19 AM | Report abuse

Jane, If you've been injured due to the negligence of another, you may be compensated for certain losses. We're here to protect your rights and see that you receive a just settlement, contact at http://bit.ly/aK73S0 lets pray for him


Posted by: jeffronald | August 2, 2010 7:22 AM | Report abuse

Find some time for you, Get an education online, Get a job http://bit.ly/a45y6d

Posted by: fiorejames31 | August 2, 2010 7:33 AM | Report abuse

technically Missouri isn't nullifying HCR. They're nullifying the individual mandate which if they had half a brain they'd realize would crush the costs of healthcare in Missouri.

You want the example of what would happen to healthcare costs in MO if that happened? Look at NY, NJ, MA.

Posted by: visionbrkr | August 2, 2010 8:55 AM | Report abuse

Journolist journalism.

Posted by: gfafblifr | August 2, 2010 9:59 AM | Report abuse

In today's column by Howard Kurtz "Unfriendly fire: The angry media", he states that "journalism [is now a] blood sport, performed for the masses", and urges journalists to return to a time when facts would once again really matter.

In the above column, Mr. Klien states that "Clive Crook urges Obama to break his promise to not raise middle-class taxes".

Since recently discovering that Mr. Klien ran his own liberal hit squad, i looked up what Crook actually said:

"Meanwhile I’m still hoping that Martin Feldstein’s proposal — extend all the tax cuts for 2011 and 2012, then reverse all of them the following year — might catch on. This would not supply all of the needed short-term stimulus or all of the needed long-term tightening, but the sign is right in both cases.

"To agree to this, Obama would have to break his promise not to raise taxes on the middle class (sooner or later he will have to break it anyway). Congressional Democrats would have to let high earners off the hook for two more years (they could concentrate on the idea that if the Bush tax cuts were so reckless and irresponsible, there is much to be said for cancelling them all). Republicans would have to drop their idiotic opposition to any and all tax increases under any and all circumstances."
http://blogs.ft.com/crookblog/2010/07/reversing-all-the-bush-tax-cuts/

It would be nice if we returned to a time when the reader did not have engage in fact checking, while reading a column or news story, because the journalist or columnist had done the job properly.

Posted by: snmir1 | August 2, 2010 10:11 AM | Report abuse

Ezra, you are truly a but kissing Obamaphile and fully deserve the worst. Your readers deserve better, at a minimum the truth with respect to BP's end game. THEY HAVE ALREADY WON IT AND BO HAS COST THE US TAXPAYERS BILLIONS. Read the following tax and cash flow analysis circulating on the net my fellow readers and remember in November first and when you're reading Ezra always.

"For those of you who think BP got their ass kicked

SHORT & SWEET... BUT, IT IS A GREAT EXAMPLE OF Obama's SKILL...

It seems like a miracle that our beloved leader was able to convince BP to
establish a $20 billion slush (oops, escrow) fund to compensate those hurt
by the ongoing oil plume in the Gulf of Mexico. After all, he had no
constitutional power to force them to do so; so had to resort to
Chicago-style negotiating.

But, let us take a closer look at the effect on BP's finances:

1. BP will establish a $20 billion fund, but will pay only $7 billion into
it during 2010.

2. BP is a British corporation, but has a very large operating entity in the
US but only about 30% of it's income is derived from the US.

3. By Gen erally Accepted Accounting Principles (GAP), BP must book the
entire $20 billion expense in the year accrued. Therefore, they will book a
$20 billion expense in 2010, reducing their US tax liability by $7 billion.

4. Our dear leader also convinced this massive corporation to show their
concern for the "small people" by withholding dividends to their
shareholders for the last 3 quarters of 2010. This reduces their outward
cash flow by about $7.5 billion, including approximately 40% of that amount
to US citizens. Assuming that the Bush tax cuts will survive through 2010,
the US Treasury will lose another $450 million in taxes on that amount. We
won't even discuss the effect on the US economy.

Let us put the results into a table easily understood by the small people
(including me):

BP Cash Flow:

o Escrow funding ($7 billion)

o Dividend saving $7.5 billion

o Tax savings $7 billion

o Net favorable cash flow : $7.5 billion


US Treasury Tax Receipts:

o BP Corporate income tax .... minus $7.5 billion

o BP Shareholders ..... minus $0.45 billion

o Net unfavorable tax receipts ..... minus $7.95 billion

I guess we really should expect this. After all, our dear leader is the
most inexperienced man in ANY room he enters.

Now tell me ..Did the enlightened one "Kick Ass", or did he get "Sucker
Punched"?

This is just one more reason why a 'community organizer" should NOT be
negotiating anything dealing with money and finances!

Bottom line: The $20 Billion BP is putting up will create a $7.5 Billion
positive cash for BP flow this year. But, Obama actuall y "thinks" he really
did something special and "kicked ass' (in his own words).

In reality, BP executives are laughing at him and 'kicked his ass". Oh well..what's new with this President anyway"

Posted by: PRRWRITER | August 2, 2010 4:43 PM | Report abuse

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