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Wonkbook: Boehner buckles on Bush tax cuts; Surowiecki on why the stimulus is unpopular; Happy Basel III day!


For journalists, today marks the hardest day of financial reform: How do we get people to care about a bunch of international regulators calling themselves Basel III? But their agreement is, arguably, more consequential then the financial regulation bill we just passed: Where the bill itself left capital requirements -- the amount of cash and other safe assets banks have to hold to protect themselves (and us) from disasters -- blank, the international agreement fills them in. And they look, well, pretty good. That's a huge coup for Timothy Geithner, as Europe wanted a much weaker agreement.

The easier story to cover will be John Boehner's concession on the Bush tax cuts: "If the only option I have is to vote for those at [$250,000] and below, of course I'm going to do that," he said. That is to say, the Bush tax cuts for the wealthy could expire this year -- though to Peter Orszag's chagrin, the middle-class tax cuts, which cost the bulk of the money, will likely be extended indefinitely, rather than temporarily. That means that when the time comes to raise tax, the Senate will need 60 votes to do so, rather than 34 votes to let the Bush cuts expire and protect the president's veto of their extension.

Last night's Mad Men was probably the weakest of the season, but today's Wonkbook is at least a middling effort. Let's get to it.

Top Stories

Felix Salmon explains how the new Basel III agreement works: "Possibly the most important thing here is the existence of the first column, setting minimum standards for common equity -- which is also known as core Tier 1 capital. Such standards did exist in the past, but they were set extremely low, at just 2%, and so were generally ignored. As of now, common equity is the main thing that matters. No more throwing any old garbage into the Tier 1 bucket and calling it capital: the new standards for common equity are significantly tougher than the old standards for Tier 1 capital in total. The absolute bare minimum for core Tier 1 capital is 4.5%, and the new minimum for Tier 1 capital in general has now been raised to 6%. The minimum for Tier 2 remains at 8%. But that’s just the beginning."

Ezra Klein looks at a Republican stimulus proposal that just might work:

John Boehner is wiling to buckle on extending the Bush tax cuts for the wealthy, report Shailagh Murray and Lori Montgomery: "The leader's assertion also makes the Republican position on the issue all the murkier. Numerous GOP lawmakers, including Senate Minority Leader Mitch McConnell (Ky.), have been unyielding in their demand that all cuts be extended. 'If the only option I have is to vote for those at [$250,000] and below, of course I'm going to do that,' Boehner said. 'But I'm going to do everything I can to fight to make sure that we extend the current tax rates for all Americans.'"

Poverty rates are nearing pre-War on Poverty levels, report Hope Yen and Liza Sidoti:

Obama and Congress are pursuing a more moderate approach to crime, reports Josh Gerstein: "The Obama White House has taken the first steps in decades to move away from a strict lock-‘em-up mentality on crime -- easing sentences for crack cocaine possession, launching a top-to-bottom review of sentencing policies and even sounding open to reviewing guidelines that call for lengthy prison terms for people convicted of child pornography offenses...At the urging of a conservative Democrat, Sen. Jim Webb of Virginia, the House passed a bill in July to create a federal commission to study criminal sentences. The measure cleared the Senate Judiciary Committee earlier in the year with little resistance from Republicans."

Dana Milbank examines the unexpected polarization of John Maynard Keynes:

James Suroweicki considers the stimulus' image problems: "Paradoxically, the very things that made the stimulus more effective economically may have made it less popular politically. For instance, because research has shown that lump-sum tax refunds get hoarded rather than spent, the government decided not to give individuals their tax cuts all at once, instead refunding a little on each paycheck. The tactic was successful at increasing consumer demand, but it had a big political cost: many voters never noticed that they were getting a tax cut. Similarly, a key part of the stimulus was the billions of dollars that went to state governments. This was crucial in helping the states avoid layoffs and spending cuts, but politically it didn’t get much notice, because it was the dog that didn’t bark—saving jobs just isn’t as conspicuous as creating them. Extending unemployment benefits was also an excellent use of stimulus funds, since that money tends to get spent immediately. But unless you were unemployed this wasn’t something you’d pay attention to."

Music video interlude: Think About Life's "Havin' My Baby".

Still to come: Economists are predicting slow growth across all developed countries; the Obama administration and the Senate have left a lot of important vacancies in economic policymaking; China makes strides on emissions; how to improve teacher quality; "the Mayo Clinic of education"; and police explode a toy pony.


Belt tightening will slow growth across the developed world, report Mark Whitehouse, Marcus Walker, and Joann Lublin: "Economists at Goldman Sachs Group Inc. estimate that, in the U.S., the declining flow of government money will subtract about one-half percentage point from annualized growth in the three quarters to come, and more later. In Europe, governments from Greece to the United Kingdom have begun cutting spending and raising taxes to reduce budget deficits. Even fiscally stronger Germany plans to trim spending next year. The belt tightening is likely to slow growth in the 16-nation euro zone economy."

High earners are cutting spending in anticipation of tax increases:

Uncertainty about tax policy is affecting business behavior, report John McKinnon, Ben Levinsohn, and Justin Lahart: "There are signs that tax concerns have been affecting a range of transactions on the ground. Analysts say spreads between utility-stock dividend yields and yields on some other securities recently have reflected expectations of a top dividend tax rate in the low-30% range. 'The stocks could initially fall if dividend tax rates reset to marginal rates, but we don't think it will be permanent,' said Dan Eggers, a utility equity research analyst at Credit Suisse Group in New York. Some companies are squeezing in big dividends before year's end."

The number of families living in shelters is rising:

Vacancies are hampering the administration's economic policymaking, reports Sewell Chan: "For example, the Federal Reserve’s board of governors, which is considering additional steps to prop up the flagging recovery, has just four of its full complement of seven members. The Senate has yet to confirm three candidates Mr. Obama nominated in April to fill the vacancies...Other jobs already exist but have not been permanently filled. They include director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac and will be pivotal in shaping the future of homeownership policy, and comptroller of the currency."

Bank capital liquidity requirements will spur deflation, writes Richard X. Bove:

Stan Collender explains what a government shutdown would entail: "Shutdowns actually cost the government more money ($800 million last time according to Time) than it would otherwise spend and, therefore, increase the deficit compared to what it otherwise would be. Departments and agencies have to begin to implement shutdown plans within a few days of the possibility that their appropriations might expire. At a minimum, this involves additional communications security, building maintenance needs."

Paul Krugman worries about Chinese bond ownership:

Robert H. Frank argues for more infrastructure spending: "Europe spends about 5 percent of its annual gross domestic product on infrastructure, while China spends about 9 percent, according to the “Report Card for America’s Infrastructure” by the American Society of Civil Engineers. In the United States, which spends less than 2.5 percent, chronically deferred maintenance has left the infrastructure in dangerously substandard condition. More than 25 percent of the nation’s bridges, for example, were structurally deficient or obsolete in 2007, according to the Federal Highway Administration. Many problems have grown worse. The Association of State Dam Safety Officials estimated that 4,404 dams were unsafe or deficient in 2008. That was up from 4,095 in 2007 and 3,500 in 2005."

Advertising interlude: A polar bear thanks a driver for using an electric car.


Chinese bureaucrats who cut emissions get a career bump, reports Juliet Eilperin: "When it comes to climbing China's bureaucratic ladder, closing factories to cut greenhouse gas emissions can be a career booster. Huang Huikang, as vice mayor of Tangshan in northeastern China, made energy efficiency one of his top priorities, taking aggressive steps to curb greenhouse gases from the city's many factories. Today he is China's special representative on climate change, negotiating with officials from countries worldwide."

Corporations could do a lot to cut emissions even without Congressional action:

Bryan Walsh explains the current state of the BP spill plugging effort: "The worry is that pumping drilling mud and concrete through the relief well into the bottom of the original well, which will finally and completely kill the spill, might put too much pressure on the annulus and cause further damage and instability. For the past few weeks BP, at the request of Washington scientists, has been working to ascertain the condition of the annulus before the company can go ahead with the relief well. The fact that they haven't been able to do that yet, or at least not to Allen's standards, is the reason work on the well, which began in the early spring and continued through summer, is still going on."

Governors Chet Culver and Don Carcieri argue for a Renewable Energy Standard:

Fossil fuels do more harm to ocean life than the BP spill ever could, writes Alanna Mitchell: "It turns out that the carbon dioxide gas reacts with seawater to make carbonic acid. And there’s been so much gas that we’ve made surface water across the whole ocean 30 percent more acidic that it was before we started fueling our economy on crude and coal in the 1800s. It’s more acidic than it’s been in 55 million years, a shift in fundamental chemistry that runs right across the global ocean. The more carbon dioxide we put into the air, the more acidic the ocean will become."

Great moments in counterterrorism interlude: A bomb squad detonates a toy pony.

Domestic Policy

John Heilemann's big feature on schools previews McKinsey's striking report about improving teacher quality: "Whereas the best public-school systems in the world--Finland, Singapore, South Korea--recruit all of their teachers from the top third or better of their college graduates, in America the majority come from the bottom two-thirds, with just 14 percent of those entering teaching each year in high-needs schools coming from the upper third. And the numbers may be getting worse. According to a recent survey conducted by McKinsey, a meager 9 percent of top-third graduates have any interest in teaching whatsoever."

"The McKinsey survey is part of an important study that the consultancy will publish later this month, based on its work in school systems in more than 50 countries. For a long time, there has been debate about what, if any, kinds of financial incentives would help create a better talent pool for K-12 teaching in America...According to the study, a Rhee-style compensation package--starting salaries of $65,000, top salaries of $150,000--plus funding for teacher training could raise the percentage of top-third grads among new teacher hires in the one-in-six neediest schools from 14 percent to a whopping 68 percent. The cost at current teacher-student ratios: just $30 billion a year, or about 5 percent of total K-12 education spending."

Democratic and Republican campaign committee are sparring over FCC ad rules:

Kevin Carey profiles the University of Minnesota at Richmond, the "Mayo Clinic of higher ed": "The effort begins by breaking each course into two- to three-week segments called “learning objects,” which are electronically tagged in a way that allows them to be matched in a database to student records, course materials, group assignments, draft papers, and exams. (The UMR campus was designed as a paperless environment, and students are issued identical Lenovo ThinkPad laptops, which they seem to keep two feet in front of their faces at all times.) This information will be stored in an electronic database that professors will analyze in conducting the learning research they need to get tenure. That research, in turn, will improve their ability to refine new teaching strategies."

A key GOP Congressman says the party will try to defund health care reform if it takes the House:

Two DC lawyers are leading state attorneys general's suit against health care reform, reports Ashby Jones: "Walter Dellinger, who served as acting solicitor general under President Bill Clinton and now works in private practice in Washington, D.C., said the case should be dismissed for lack of standing. 'David and Lee are very well-regarded lawyers, but they've brought better lawsuits.' Such criticism doesn't faze Messrs. Rivkin and Casey, both of whom work at Baker & Hostetler LLP in Washington, D.C. Mr. Rivkin said his clients have the right to challenge the law now for several reasons. For starters, said Mr. Rivkin, states have already had to spend money and commit resources to comply with the law."

Legislators of both parties want a tax provision in health care reform changed:

EJ Dionne wants GOP senators to do the right thing on campaign finance reform: "A disclosure bill has already passed the House and the Senate version, sponsored by Sen. Charles Schumer (D-N.Y.) got 58 votes, with 60 needed for passage. The key to its defeat were three Republican senators -- Olympia Snowe and Susan Collins of Maine, and Scott Brown of Massachusetts -- who say they support reform and disclosure in principle but objected to particular aspects of the bill...Schumer has signaled he would be happy to negotiate...This, however, presumes the three would-be GOP reformers are willing to put their votes where their public declarations are, in the face of enormous pressure to side with the Consolidated Megacorps of the world."

Closing credits: Wonkbook is compiled with help from Dylan Matthews and Mike Shepard. Photo credit: White House.

By Ezra Klein  |  September 13, 2010; 7:06 AM ET
Categories:  Wonkbook  
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Next: The midterm election in one graph


At this point I don't know why anybody thinks this Boehner comment is really significant. Even if it was a brief moment of candor, he almost immediately walked it back. This is yet another instance where I expect that taking him at his word will get us 90% of the way to passing a bad bill before Republicans pull support and start demagoguing the Dems for it.

Draft a new bill of Obama tax cuts that are targeted and temporary, but which keep the overall tax burden the same for people making less that $250k/year.

Lowing the tax rates on the rich will always be easier for Congress to do down the road than raising tax rates on the middle class and below.

Posted by: MosBen | September 13, 2010 7:23 AM | Report abuse

Yes, it is a mystery why Dems dont simply draft a new bill for middle class tax cuts to coincide when the Bush tax cuts expire. That would be a political winner and an easy way to short-circuit GOP messaging. I suspect the reason Dems won't do this is that the Dem leadership and many other Dems secretly want to extend all the Bush tax cuts, including those for the wealthy. I.e. once again Dems are lying to us about who they are and what they want.

Posted by: lauren2010 | September 13, 2010 8:17 AM | Report abuse

Boehner is a notorious liar wholly owned and operated by Big Corporate Everything and the Very Upper Class.

He's also dumb as a rock. (My apologies to rocks.)

Anyone who believes anything he says has chosen willful ignorance over reality.

Posted by: frank1569 | September 13, 2010 8:35 AM | Report abuse

You left out a headline. Michael Barone coins the term "gangster government" to describe Sibelius' statement in which she proclaimed a policy of zero tolerance for the speaking of "disinformation" about Obamacare, and threatened the use of government power to harm businesses that dissented, complained, or failed to shut up about Obamacare.

Posted by: truck1 | September 13, 2010 8:51 AM | Report abuse

"Europe spends about 5 percent of its annual gross domestic product on infrastructure, while China spends about 9 percent, according to the “Report Card for America’s Infrastructure” by the American Society of Civil Engineers. In the United States, which spends less than 2.5 percent, chronically deferred maintenance has left the infrastructure in dangerously substandard condition. More than 25 percent of the nation’s bridges, for example, were structurally deficient or obsolete in 2007, according to the Federal Highway Administration. Many problems have grown worse. The Association of State Dam Safety Officials estimated that 4,404 dams were unsafe or deficient in 2008. That was up from 4,095 in 2007 and 3,500 in 2005."

Repeal Davis Bacon. More jobs and more work done, same cost to the taxpayer. We don't need to spend the same proportion of GDP as a developing country or union-plagued Europe. If after repealing Davis Bacon additional funds are still needed for worthwhile projects, then we can talk.

By the way, didn't we just drop $800 billion on stimulus? Why didn't we take care of these types of problems with ARRA? Why did perfectly fine roads in my area get repaved (and why on Earth did we put windows on an unused building per one of Ezra's posts) when there was real work to be done?

Posted by: justin84 | September 13, 2010 9:14 AM | Report abuse


Citing a few wasteful examples of stimulus is entirely useless without a broader understanding of what the stimulus actually has done.

I can cite a few examples of surgeons amputating the wrong body part. But does that mean we should consider all surgery as wasteful? Of course not.

You imply there was no real work done with the stimulus, but obviously that is just demagoguery.

Posted by: lauren2010 | September 13, 2010 10:05 AM | Report abuse

Boehner’s face turns red when he lies, which is to say, all the time. So let’s see where this goes before we decide he surrendered. Tax cuts for the wealthy may not have a much appeal with voters, but they have a lot of appeal to the Political Donor Class. Boehner knows if he curries enough favor with the donor class, he can buy the voters.

Posted by: gVOR08 | September 13, 2010 10:07 AM | Report abuse

Ok, there is a lot to read in the Wonkbook today, but in a brief survey of the content I saw that Ezra thinks "last night's Mad Men was probably the weakest of the season." It may be the weakest of the season, but only if the following episodes are all as good as last week's episode where Don hit his bottom. I liked last night's episode mostly because the tone was different.

At first, when I heard Don's voice over of his journal I thought "What is this?" It was really out of character for him, and for the show. I know they're trying to show that he is doing some "self work", but where did his interest in writing a journal come from? I wish they had made his choice more apparent, like it was a suggestion from someone, but it seemed to come out of thin air. That was the only thing that bothered me about the journal, but seeing him make some changes in his personal life and reflecting, at all, on his life were really interesting.

Posted by: ania8 | September 13, 2010 10:46 AM | Report abuse

Suroweicki is very right but vastly understates his case when he writes "many voters never noticed that they were getting a tax cut." In fact 88% of adults in a CBS/[WaPo rival news source which is not to be named here] poll did not know that taxes had been cut for most Americans.

A simple question of fact on an issue which people care a whole whole lot about was answered correctly by 12% of the sample.

Even when stressing the fact that the unpolularity of the stimulus is based partly on ignorance, Suroweicki is embarrassed to report just how ignorant the US public is.

By the way, I am willing to bet that if this comment is noticed by other commenters (unlikely) someone will contest the claim that taxes for most Americans have been cut under the Obama administration.

Posted by: rjw88 | September 13, 2010 11:11 AM | Report abuse

oops I left out the link

Posted by: rjw88 | September 13, 2010 11:13 AM | Report abuse

oops I left out the link

Posted by: rjw88 | September 13, 2010 11:22 AM | Report abuse


The Democrats had $800 billion to play with in stimulus - 5.5% of GDP for those keeping score, more than a year's worth of European levels of infrastructure investment. Per the article:

"More than 25 percent of the nation’s bridges, for example, were structurally deficient or obsolete in 2007, according to the Federal Highway Administration.

Many problems have grown worse."

A week ago, Ezra was defending putting windows on an abandoned building because hey, at least we spent money.

Now, people are coming out of the woodwork and claiming that not only do we need to spend more money on infrastructure, but that since 2007 the infrastructure problem has actually managed to get worse, after an $800 billion stimulus of which ~$100 billion went directly to infrastructure?

If ARRA infrastructure spending wasn't largely wasteful, how did we manage to end up in worse shape now than we were in back in 2007?

I'm sorry if much of the $800 billion (and the $100 billion dedicated to infrastructure) was simply spent for spending's sake and now we have all sorts of real projects in need of funding. If the government couldn't figure out how to properly spend hundreds of billions of taxpayers dollars in their first time at bat, on what grounds should we trust them to do better in round two? Shouldn't we expect the politicians to return to us in a year, cap in hand, asking for billions more because even more bridges and roads are falling apart?

At the end of the day, we dropped $800 billion, often on wasteful projects, in a vain attempt to stimulate spending. All we have to show for it is real final sales growing at a 1% pace (even weaker than the Bush recovery) with 9.6% of the labor force unemployed, and $800 billion in debt which we will be paying interest on forever.

Posted by: justin84 | September 13, 2010 11:23 AM | Report abuse


Nice long post there. But it doesn't excuse you for your useless nitpicking.

First of all, a large chunk of the stimulus was tax breaks.

A lot of the actual spending wasn't necessarily for infrastructure but to save existing jobs. I have a brother and sister and a sisterinlaw who owe their state level jobs because of that stimulus.

Instead of meandering as you do, to try and pretend that no program can be a good program if you can find something wasteful in it, how about some actual, third-party, objective statistics about how much of the stimulus was actually spent on various things. There is no way YOU can prove one particular spending item is wasteful (and no, quoting John McCain or some other ignorant republican) is not proof.

Just report the total facts, the projects, the costs, etc, and let people decide if most or all of it was wasteful.

And again, if I can prove a given surgeon amputated the wrong limb, does that prove to you al surgery is wasteful or bad?

Posted by: lauren2010 | September 13, 2010 12:32 PM | Report abuse

Glad you family is doing well Lauren. Never mind the people in the private sector who lost their jobs because dollars were redirected away from the businesses in which they worked. The stimulus money wasn't being kept under a mattress. This isn't 1930.

"First of all, a large chunk of the stimulus was tax breaks."

But spending still was on the order of $500 billion, was it not?

When have I ever tried to say the stimulus was wasteful because of one project? The existence of obviously wasteful projects, combined with necessary projects going unfunded simply suggests skepticism regarding the ability of government to direct dollars to their highest and best use.

So you want the facts? Here they are:

- Congress spend $800Bn on stimulus, $100Bn on infrastructure
- Somehow infrastructure problems managed to get worse over intervening time, per liberal NY Times columnist who is pushing for more infrastructure spending

Thus we can ask:

- If we underinvested in critical infrastructure, why did ANY funding go towards things like putting windows on an unused building?
- Why should we expect anything better from the next round of infrastructure spending?

"There is no way YOU can prove one particular spending item is wasteful"

That you think putting windows on an unused building can ever be a defensible use of limited resources when thousands of bridges and dams are 'structurally deficient' is laughable, and in and of itself reason to keep as much money as possible out of the hands of like minded politicians, to whom no spending project can ever be proven wasteful. Indeed, pointing out that a project just blew half a million bucks on something worthless is declared to be useless nitpicking. This is exactly what conservatives are thinking of when they decry "government inefficiency". In the private sector, someone would be fired over this. In the public sector, high fives all around for successfully spending money no matter the merit of the project.

"And again, if I can prove a given surgeon amputated the wrong limb, does that prove to you al surgery is wasteful or bad?"

If a given surgeon amputates the wrong limb (wastes money on a stupid project), and there are reports that an increase in surgeries results in more patients dying (a surge in infrastructure spending leaves us with worse infrastructure than before), then you have good reason to believe that there is a widespread problem with surgery in general (there was a lot of wasteful infrastructure spending).

The individual incorrect amputation is but an anecdote which is consistent with our macrodata (more surgies, worse results).

Posted by: justin84 | September 13, 2010 2:04 PM | Report abuse

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