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Wonkbook: Bennet vs. Obama; Fed sees "deceleration"; Boehner accepts two-year tax cut

Shana tova to Wonkbook's Jewish readers and -- you know what? -- to its non-Jewish readers too. May your year be filled with fast growth, contained health-care costs, and lots and lots of charts. Sadly, the Fed's latest beige suggests America is only headed for one of those things: The charts. Economic growth, they say, is showing signs of "deceleration" across the economy.

In Colorado, Sen. Michael Bennet is in an uphill fight for reelection. And so despite his warm relationship with the Obama administration, he's come out with a stinging press release opposing the White House's new infrastructure plan. He's harder on it, in fact, than Republican governor Mitch Daniels, who I interviewed yesterday, and who's also pushing a stimulus plan more ambitious than anything currently making its way around the Hill.

What else? Boehner is saying he'll accept a two-year extension of the Bush tax cuts, which suggests that Republicans see Orszag's op-ed suggesting exactly that as a way to end this debate in their favor -- though they don't mention that Orszag also wanted the cuts to expire in two years. Tyler Cowen and David Leonhardt offer up the two sides of the housing debate. A new study shows that birthright citizenship would increase the number of illegal immigrants. And there's more stuff, besides. But you knew that. This is Wonkbook, after all.

Top Stories

The Federal Reserve predicts slower growth going forward, reports Neil Irwin: The so-called 'Beige Book,' which aggregates different types of consumer data and anecdotal evidence from around the country, found "widespread signs of [economic] deceleration."

John Boehner says he'd accept a two-year extension of the Bush tax cuts: http://bit.ly/9XPmQ3

Michael Bennet is the first Democratic Senator to oppose Obama's infrastructure bank plan, reports Meredith Shiner: "'I will not support additional spending in a second stimulus package. Any new transportation initiatives can be funded through the Recovery Act, which still contains unused funds,' Bennet said in a statement. 'Public-private partnerships that improve our infrastructure are a good idea, but must be paid for, should not add a dime to the deficit and should be covered by unused Recovery Act dollars.' 'We must make hard choices to significantly reduce the deficit.'"

My interview with Indiana governor Mitch Daniels: He'd like a payroll-tax holiday, and is a lot more positive on Obama's infrastructure plan than Bennet is.

Eliminating birthright citizenship would increase the number of illegal immigrants, reports Miriam Jordan: "The analysis by the nonpartisan Migration Policy Institute predicted illegal U.S.-born individuals would number about five million by 2050, if birthright citizenship were repealed in the near future. Currently, the U.S. is home to a total of 11 million illegal immigrants...Jennifer Van Hook, a demographer and the report's principal author, said such a change would instead increase the size of the illegal population, a commonsense result of illegal immigrants having children after a birthright repeal.

HOUSING DEBATE: Tyler Cowen believes housing prices need to fall, but can't see how we can let them: "For how long can the government prop them up? Are we never to have a private market in mortgages again? Yet what happens if we let them fall? Arguably many banks would once again be 'under water.' Enthusiasm for another set of bailouts is weak, to say the least. Our government would end up nationalizing these banks and it still would be on the hook for their debts. The blow to confidence would be a major one, especially if along the way we saw a recreation of a Lehman or Bear Stearns or A.I.G. episode. I increasingly believe there is no easy way out of this dilemma and it is a major reason why the U.S. economy remains stuck. Housing prices must fall, yet...housing prices must not fall."

David Leonhardt believes they've pretty much fallen already: "The ratio of median house price to income is about 3.4, compared with a prebubble average of about 3.2. Given the economy’s weak condition and the still high number of foreclosures, prices may well fall more in the next year or two. They look especially high in places where rents are comparatively cheap, like San Diego and San Francisco. And maybe income growth will remain weak for years, holding down home-price growth. But if you can imagine staying much longer than a few years, you should take some comfort in the fact that the bubble seems mostly deflated."

Rosh Hashanah interlude: Shana tova from the Muppets.

Still to come: Matt Miller argues for a payroll-tax cut; the deficit totaled $1.3 trillion in FY2010; a major climate lobbying group is shuttering; Michelle Obama pushes an anti-obesity bill before Congress;; and David Byrne does his thing.

Economy/FinReg

Speaking of the payroll tax, Matt Miller argues for cutting it: "When Social Security began, payroll taxes were just 1 percent. Today, between the employer and employee contributions, and including the smaller sums that help fund Medicare, they're 15.3 percent. The payroll tax has quietly soared from 2 percent to 33 percent of federal revenue since World War II -- meaning it now brings in nearly as much as the individual income tax, which accounts for 43 percent. When you include the employer's matching payments, which effectively come out of wages, most families pay more in the regressive, job-killing payroll tax than in income tax."

The budget deficit fell by $100 billion this year, reports Jeff Bater: "'Relative to the size of the economy, this year's deficit is expected to be the second-largest shortfall in the past 65 years: At 9.1% of gross domestic product, that deficit will be exceeded only by last year's deficit of 9.9% of GDP,' the CBO said. Corporate income taxes rose by $32 billion, partly reflecting improved economic conditions. Yet spending on unemployment benefits rose as the sluggishness of the recovery keep Americans out of work. Interest payments also increased on the public debt, which has mounted because of years of deficit spending."

Elizabeth Warren spoke with President Obama this week about leading the Bureau of Consumer Financial Protection: http://bit.ly/a2mTgo

Small lenders are still struggling with bad loans from the crisis, reports Robin Sidel: "The community-banking industry's troubles were evident in the Federal Deposit Insurance Corp.'s latest quarterly report, issued last week. The FDIC said the pace of declines in loan charge-offs is slower at community banks than at banks that have more than $1 billion in assets. Smaller banks also released fewer reserves in the second quarter than did large banks, meaning they still think they need to keep extra money stashed away to cover loans that go sour. The amount of loan balances that are 90 days past due rose 0.3% at community banks, while the larger banks reported a 5.3% decline."

US economic competitiveness has fallen, according to the World Economic Forum: http://bit.ly/93lyG7

There are almost five jobless workers for every opening, reports Catherine Rampell: "The job openings rate -- that is, the number of job openings, relative to the sum of openings and occupied jobs -- was highest for professional and business services and lowest for construction and for state and local government work. The hiring rate, however, was nonetheless quite high for construction, even if the number of advertised openings were few."

Mike Konczal reads Austan Goolsbee's dissertation and finds a strong case against the the R&D tax credit: http://bit.ly/d4PhGI

Joe Stiglitz explains how to fix the housing market: "Corporations have learned how to take bad news in stride, write down losses, and move on, but our governments have not. For one out of four US mortgages, the debt exceeds the home’s value. Evictions merely create more homeless people and more vacant homes. What is needed is a quick write-down of the value of the mortgages. Banks will have to recognize the losses and, if necessary, find the additional capital to meet reserve requirements. This, of course, will be painful for banks, but their pain will be nothing in comparison to the suffering they have inflicted on people throughout the rest of the global economy."

A group of conservative economists debate the Fed's next move: http://bit.ly/avjDjK

The roots of the unemployment problem may harder to combat than we think, writes Tim Fernholz: "The most worrying theory, though, is that before the financial crisis, our unemployment level was unnaturally low. By this measure, our unsustainable economic practices drove unemployment below its 'natural' -- non-inflationary -- state. The natural resting point of unemployment is probably not 9.6 percent -- demand is still weak -- but by this telling, it's higher than the traditionally accepted 5 percent. Call this the 'old normal' theory -- we've never really had the strong labor market we thought was there."

Talking Heads interlude: David Byrne et al play "Thank You for Sending Me An Angel".

Energy

Clean Energy Works, a leading climate change lobbying coalition is shutting down, reports Darren Samuelsohn: "At its peak, the coalition had 200 field organizers in key states and more than 45 staffers based out of a 'war room' in downtown Washington. It is led by Paul Tewes, who ran President Barack Obama’s 2008 campaign operations in Iowa and other battleground states...In the short term, leaders tied to the group say they will focus on fighting to defend the Environmental Protection Agency’s authority to regulate carbon dioxide from power plants and other industrial sources under the Clean Air Act."

The FTC is suing manufacturers of LED light bulbs: http://bit.ly/a3xVhx

BP is denying its well design had any role in the Gulf spill, report Steven Mufson and David Hilzenrath: "'Transocean was solely responsible for operation of the drilling rig and for operations safety,' the report says in an appendix. 'It was required to maintain well control equipment and use all reasonable means to control and prevent fire and blowouts.' The report also said Transocean and BP rig leaders jointly 'reached the incorrect view' on well tests in the crucial hours before the explosion. And Bly said BP needs to reexamine the way it oversees work by its contractors."

House energy chair Ed Markey is slamming the BP report: http://politi.co/cMFKAP

Some are blaming DDT bans for an increase in bedbugs, writes Jerry Adler: "Long before the United States banned most uses of it in 1972, DDT had lost its effectiveness against bedbugs--which, like many fast-breeding insects, are extremely adept at evolving resistance to pesticides... according to Jody Gangloff-Kaufmann, an urban entomologist at Cornell, among a wide variety of pesticides tested against bedbugs within the last two years, DDT performed the worst. In the 1960s and 1970s, most of the bedbugs that had survived the onslaught of DDT were wiped out by malathion, until it, too, stopped working, and the same thing happened with a class of chemicals called pyrethroids."

Business groups are resisting administration efforts to raise energy prices to pay for economic stimulus: http://bit.ly/bsAY0X

An Interior Department study suggests that oil regulators are overworked, reports John Broder: "The Outer Continental Shelf Safety Oversight Board noted in a report (PDF) on Wednesday that oil and gas leasing off the nation’s coastlines had nearly tripled since 1982, while the size of the regulatory staff had declined by a third. Off the West Coast, there are five inspectors for 23 offshore production platforms. In the Gulf of Mexico, there are 55 inspectors for 3,000 facilities, the report states."

Great moments in sportsmanship interlude: Dwayne Wade blocks a small child's shot.

Domestic Policy

Michelle Obama is urging Congress to pass a bill fighting childhood obesity, reports Campbell Robertson: "Under the act, food sold in schools would have to meet new nutrition guidelines, but schools would get an increased amount of federal reimbursement money for meals. It would also expand the number of poorer students who are eligible for free and reduced-price school meals. In early August, on the eve of the act’s passage in the Senate, Mrs. Obama wrote an op-ed article in The Washington Post encouraging lawmakers to vote yes, which they did, unanimously. The bill is now expected to be on the agenda this month in the House of Representatives, where lawmakers have been working on a version that would add new elements, and more financing, to the $4.5 billion version that passed in the Senate."

A Pentagon advisor is urging military personnel benefit cuts as a deficit reduction measure: http://bit.ly/cqsRIT

Thirteen new senators have signed on to a push for a line item veto, reports Meredith Shiner: "The measure, introduced by Sens. Russ Feingold (D-Wis.), Tom Carper (D-Del.) and John McCain (R-Ariz.), has nearly 20 co-sponsors -- and some Republicans are pushing to see the idea included in the GOP's political blueprint for winning back Congress...President Barack Obama indicated his support of the modified line-item veto earlier this spring, and all three chief sponsors cited the call for action from the White House as significant in getting the bill through the Senate."

More districts are experimenting with letting teachers run schools: http://nyti.ms/9LKyD5

Cigarette tax hikes don't lead to increased evasion, writes James Ledbetter: "More and more people, then, have a theoretical incentive to hit the road for cheaper smokes. In reality, though, not many do. According to one Kennedy School study published in 2008, 40 percent of smokers live within 40 miles of another state, yet only 2 percent travel 40 miles or more to buy cigarettes. The authors conclude that the average smoker 'is willing to travel 2.7 miles to save one dollar on a pack of cigarettes.' For most people, the savings aren't worth more than a few minutes in the car."

Richard Florida explains the economic value of population density: http://bit.ly/caucMW

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

By Ezra Klein  |  September 9, 2010; 6:29 AM ET
Categories:  Wonkbook  
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Next: The Keynesian experiment

Comments

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Posted by: bettyhadley9 | September 9, 2010 6:52 AM | Report abuse

l'shana tova
http://www.youtube.com/watch?v=0jR20-0sy1Y&feature=related

shalom simcha chesed rachamim
peace joy lovingkindness compassion

Posted by: jkaren | September 9, 2010 7:54 AM | Report abuse

"When Social Security began, payroll taxes were just 1 percent. Today, between the employer and employee contributions, and including the smaller sums that help fund Medicare, they're 15.3 percent. The payroll tax has quietly soared from 2 percent to 33 percent of federal revenue since World War II -- meaning it now brings in nearly as much as the individual income tax, which accounts for 43 percent. When you include the employer's matching payments, which effectively come out of wages, most families pay more in the regressive, job-killing payroll tax than in income tax."

Questions for Matt Miller:

- What percentage of the budget did Social Security account for in World War II compared to today for Social Security and Medicare? How does that compare to what we expect for 2030? Does the proportion of revenue raised by the payroll tax make sense once it is compared with the associated expenditures?
- If the regressive payroll tax is so unfair to working familiese as compared to CEOs, why not propose eliminating both the tax and spending portions of the program? Or is the regressive payroll tax a red herring because Social Security pays benefits in a highly progressive manner?

I'll take his proposed swap for cutting taxes on corporations and labor and shifting them to consumption and carbon instead, but please, Social Security isn't unfair to low income families. The highest earners get the worst returns on their contributions.

Posted by: justin84 | September 9, 2010 9:21 AM | Report abuse

Re Senator Bennet
What can one say. It seems to me that a major problem for Obama on stimulus all along has been not the GOP, but the apparent failure of Dem senators to understand the concept of government spending(stimulus) making up for deficient private demand during a recession, especially a Great Recession. Senator Bennett appears to not understand that if you use money already designated for stimulus to pay for this then it provides no new net stimulus. He also appears not to have noted that Obama intends to pay for this out of future revenues so it will NOT increase the net debt over time(there also appears to be an inability to understand the difference between cumulative debt over time and the deficit in any one year.) If we had Dem senators who understood the problem the stimulus is designed to deal with, then they could have used the budget resolution process for more stimulus requiring only 50 votes, but, alas, they just dont get it. Note also the $1.3T deficit accounting for 9.1% of GDP. That is also anti-recessionary stimulus without which the economy would be in complete collapse right now, but my oh my we just cant add another $50B that would be paid for in future years.
Re Matt Miller:
Im a liberal and support social security but I agree with justin84 that calling the payroll tax "regressive" is a red herring. A "regressive" tax used to fund the general budget is a bad idea, but a "regressive" tax funding a "progressive" benefit that results in a net positive for low-income wage earners in their social security benefits is fine. Having said that, my own preference would still be to replace the payroll tax with a VAT and carbon tax equivalent, at least on the employer share. I think that on the employee share, it is probably not politically possible because of the connection in the public mind between that tax and the benefit it pays for. As far as the idea of a payroll tax holiday for the upcoming year, I think Miller is correct on the idiocy of Dem thinking that depriving the tax fund of that $335B next year is a bad idea. All that means is that the trust fund next year would have to sell some of its Treasuries to the Federal Reserve to fund benefits next year. And if the concern is to replenish the trust fund, then take some of the money realized by not extending the Bush tax cuts on the wealthiest 2% and use it to repay the trust fund over time. Again, there seems to be a real problem with Dem lawmakers understanding the idea of borrowing with a funded repayment mechanism.

Posted by: gregspolitics | September 9, 2010 10:06 AM | Report abuse

The Repub Minority leaders strat is sound. Either Obama will have to accept or be branded as the President of NO who won't even listen to people he chose as a top econ advisor.

Obama backed himself into a corner by refusing to take ANYTHING substantial out of his proposed leg in order to bring in other party. He now has to take a poison pill of his own making.

Posted by: illogicbuster | September 9, 2010 10:22 AM | Report abuse

Someone please make sure Rahm is locked in a closet or he will make Obama accept Beohner's deal without additional conditions. Boehner's word isn't worth the ink that the media has already wasted on it, and you can be sure that all he wants, and all the rest of the republicans want is an extension until they get back into power so they can then make the Bush Tax cuts permanent.

Obama needs to tell Johnny to go back to the tanning salon and shut up!

Posted by: pblotto | September 9, 2010 11:16 AM | Report abuse

The Repub Minority leaders strat is sound. Either Obama will have to accept or be branded as the President of NO who won't even listen to people he chose as a top econ advisor.

Obama backed himself into a corner by refusing to take ANYTHING substantial out of his proposed leg in order to bring in other party. He now has to take a poison pill of his own making.

Posted by: illogicbuster |
\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\

I swear I can smell the fear all the way over here coming from the WE ARE GOING TO TAKE THE HOUSE BACK...GOP'ers

OBAMA WILL REJECT BOEHNER AND ALL HIS ORANGE DRUNKEN IDEALS

BUSH HAD AN GOP CONGRESS...WHY IS RACHEAL AND THE MEDIA SAYING LIKE IT NEVER HAPPEN IN THE HISTORY OF OUR COUNTRY

WAS THE BUSH YEARS SOOOOO TERRIBLE THAT WE AS AMERICANS HAS ERASE 2000 - 2008 HISTORY OUT OF OUR MINDS

Posted by: danders5000 | September 9, 2010 11:22 AM | Report abuse

Boehner playing the typical GOP I win, you lose game of UNILATERAL CONCESSION by the other side, as COMPREMISE.

Posted by: laurelphoto | September 9, 2010 11:23 AM | Report abuse

"....When you include the employer's matching payments, which effectively come out of wages,"


The republican argument for privatizing/eliminating SS and Medicare is really a tax cut for corporations. Eliminate both and republicans believe employers will give employees a 7.5% raise to invest (bailout) in wall street banks for their retirement. Won't happen!

Privatizing/eliminating SS and medicare would basically defund the treasury which currently uses excess SS funds to fund government.

Another attempt to starve the beast. Republicans are fast approaching the point where they will have to reduce subsidies to their large welfare clients in agriculture, oil and the military industrial complex.

Posted by: knjincvc | September 9, 2010 11:29 AM | Report abuse

I swear I can smell the fear all the way over here coming from the WE ARE GOING TO TAKE THE HOUSE BACK...GOP'ers
Posted by: danders5000

Really? I haven't sensed that at all from Repubs. What makes you say that?

Posted by: illogicbuster | September 9, 2010 11:53 AM | Report abuse

I just want to reiterate: Why the hell aren't we talking about Obama tax cuts? There's no reason to just extend the Bush tax cuts for two year. It's equally as hard as passing new tax cuts rebranded as Obama's. This also allows them to make changes to the way the tax cuts are implemented to make them more stimulative. Seriously, use this as a chance to reiterate that the Bush tax cuts were bad policy and it doesn't make sense to let bad policy continue just because it's too expensive to undo it. Let them expire and offset it with tax cuts that make more sense to our economic climate.

Posted by: MosBen | September 9, 2010 11:54 AM | Report abuse

"Privatizing/eliminating SS and medicare would basically defund the treasury which currently uses excess SS funds to fund government"

-------------------------------------

This statement is ridiculous and shows the mindset in washington. Excess SS funds?

Posted by: Holla26 | September 9, 2010 2:45 PM | Report abuse

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