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Wonkbook: CBO thrashes Bush tax cuts; GOP blocks outsourcing bill; gov funding shaky

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Testifying before the Senate Budget Committee yesterday, CBO director Doug Elmendorf destroyed the case for an extension of the Bush tax cuts in general, and President Obama's proposed extension of just the cuts for income under $250,000 in particular. First, he said, the tax cuts will not help the economy in the long-run. In fact, they'll hurt it. The new debt and the spending cuts and tax increases necessary to retire it will reduce future incomes and gross national product. Let the tax cuts expire, and incomes and the economy will be larger down the road.

But as much damage as he did to Republican confidence in tax cuts as an economic cure-all, he did yet more to the Obama plan, which he estimated would hurt the economy more than the Republican proposal, despite the fact that it would rack up less debt. There were technical reasons for this estimate, and Democrats will angrily question the CBO's model, but that's what the man said.

The position that came out looking fairly good, by contrast, was a short-term extension of just the tax cuts for income under $250,000. That would do a bit of damage to the economy, but it would also provide a bit of needed stimulus over the next few years, and so you could argue that it's worth it. It will be very hard, however, to say the same for either of the indefinite extensions being considered by the two parties.

Just so you know, I'd never knowingly reduce your incomes or GNP. Welcome to Wonkbook.

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CBO director Doug Elmendorf testified on the economic impact of letting the Bush tax cuts expire: "The estimates indicate that all four of the options would probably reduce income relative to what would otherwise occur in 2020. Beyond 2020, and again relative to what would occur under current law, the reductions in income from all four of the policy options would become larger. Either a full or a partial extension of the tax cuts through 2012 would reduce income by much less than would a full or partial permanent extension."

Consumer confidence is at its lowest point since February: http://wapo.st/d4msQd

47 Democrats in the House want high-earner Bush tax cuts extended, reports John Maggs: "Forty-seven House Democrats broke with Democratic leaders Tuesday to call for an extension of current capital gains and dividends tax rates for the wealthy... They argued that “our economy is fragile,” and that raising these taxes would discourage saving and investment that the economy needs to grow. President Barack Obama wants to extend the 2001 and 2003 tax cuts for 98 percent of taxpayers but allow them to expire for the highest-earning 2 percent of households. The president has proposed extending capital gains and dividend taxes at the current level of 15 percent for middle and low income families but would effectively allow them to rise to 20 percent for the wealthy."

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The Senate GOP blocked Dems' outsourcing bill, reports Lori Montgomery: "The bill under consideration Tuesday would have ended tax deductions for expenses incurred when companies shutter U.S. operations and shift the work abroad; imposed a new tax on products once made in the United States but now manufactured by foreign workers; and offered employers a two-year payroll tax holiday on jobs repatriated from overseas...Democrats voting to block the bill were Ben Nelson (Neb.), Jon Tester (Mont.), Mark Warner (Va.) and Max Baucus (Mont.). Baucus, chairman of the tax-writing Senate Finance Committee, complained last week that the measure would put the nation 'at a competitive disadvantage.'"

I was not a fan of the outsourcing bill: http://bit.ly/aZrZZM

The resolution to continue funding the everyday operations of the government is making slow progress, reports David Rogers: "Eager to send Congress home, Democrats cleared the first Senate hurdles Tuesday toward enacting a stopgap spending bill that would keep the government operating through Dec. 3 with only modest adjustments for foreign policy appropriations. Senate Minority Leader Mitch McConnell (R-Ky.), who holds most of the cards, is cooperating, but the gaping holes left in the budget process are the worst since Republicans briefly shut down the government in the mid-’90s. With a new fiscal year beginning Friday, Oct. 1, no budget resolution has been approved, none of the 12 annual spending bills is even close to passage in Congress and no budget director is in place because of a hold imposed by one Senate Democrat."

R&B cover interlude: John Legend and The Roots play "Wake Up" by Arcade Fire.

Still to come: The House could still hold a vote on the Bush tax cuts; Obama signals a climate push in 2011; Michelle Obama fights the House on childhood nutrition; and two dolphins collide in midair.

Economy/FinReg

The House may vote on the Bush tax cuts before the midterms, reports Simmi Aujla: "House Majority Leader Steny Hoyer (D-Md.) indicated Tuesday that Democrats are still considering a limited vote on a tax cut package before the House adjourns. The House could vote on keeping current tax rates for those who earn under $250,000 per year under a procedure known as suspension of the rules, which requires two-thirds of the House to vote in favor of it to be successful. The vote would give Democratic leadership the chance to dare Republicans to oppose extending middle-class tax cuts, though it seems unlikely it would get the support of two-thirds of the House."

Housing prices are growing, but are still below peak levels: http://bit.ly/ctyeX4

Neil Irwin explains how new Fed action would work: "The strategy that Fed Chairman Ben Bernanke and company are most likely to pursue to try to strengthen economic growth and get inflation up closer to their 2 percent target is to buy vast quantities of bonds on the open market, essentially increasing the money supply...But how many hundreds of billions of dollars? In its previous efforts to prop up the economy, the Fed expanded the size of its balance sheet from $800 billion to about $2.3 trillion. That may have been a significant factor in ending the recession in June 2009. Still, the government was taking so many audacious steps to try to arrest the economy's free-fall that it's hard to know exactly how much of a role QE1 played."

Even women in management earn 81% of what men make: http://bit.ly/aybxev

Business can't afford Jim DeMint's obstruction, writes Steve Pearlstein: "The good news, of course, is that you won't have to spend a minute over the next two years worrying about tax increases or climate-change legislation or that odious card check idea that would open the doors again to union organizing. The bad news is that you can kiss goodbye tax reform, education reform, infrastructure investment or any new trade treaties. With DeMint cracking the ideological whip in the Senate, and a new crop of young and hungry conservatives beginning to take charge of the Republican caucus in the House, Democrats will be in no mood to strike any deals on these business priorities. Ditto for a Democratic president readily wielding his veto."

A new way of calculating income inequality makes it harder to ignore, writes Tim Noah: http://bit.ly/bZAXTC

Republicans lack specifics on budget cuts, writes David Leonhardt: "Actual fiscal conservatives acknowledge that these steps do not come anywhere close to solving the long-term deficit. By 2035, the deficit (even without counting interest payments on the federal debt) is on course to reach $1.9 trillion, according to the Congressional Budget Office. If you reduced domestic discretionary spending to its share of the economy under Ronald Reagan and then eviscerated it an additional 20 percent, you would shrink the deficit by all of $100 billion. The bulk of the deficit problem instead comes from three popular programs, Medicare, Social Security and the military, and they happen to be the ones the Republican pledge exempts from cuts."

Serious budget cut plans have to put Medicare back on the table, writes Josh Barro: "One such proposal, advanced last year by three scholars at the American Enterprise Institute, is competitive pricing for Medicare Advantage and traditional Medicare Fee-for-Service plans. Currently, about 20% of Medicare participants receive coverage from private insurers through Medicare Advantage and the remainder are on traditional Medicare Part A and B plans. In some parts of the country, the former plans provide richer coverage at a lower premium, and in others choosing the latter is advantageous; seniors may pick which they prefer and they will generally choose the better deal."

Adorable animals with poor coordination interlude: Two dolphins collide in mid-air.

Energy

Obama promises at least incremental action on climate change for the next Congress, reports Darren Samuelsohn: "'One of my top priorities next year is to have an energy policy that begins to address all facets of our overreliance on fossil fuels,' Obama said. 'We may end up having to do it in chunks, as opposed to some sort of comprehensive omnibus legislation. But we're going to stay on this because it is good for our economy, it's good for our national security and, ultimately, it's good for our environment.' Obama didn't elaborate on specific pieces he'd like to see move in the next version of energy and climate legislation, but ideas floating around on Capitol Hill include a nationwide standard for renewables and a limit just on greenhouse gas emissions from power plants."

Amtrak is planning a high-speed corridor between Boston and DC: http://bit.ly/dgphyt

The oil spill panel wants subpoena power, reports Siobhan Hughes and Ryan Dezember: "Investigators for the spill commission 'have said they have encountered resistance to full response to their questions,' Commission Co-Chairman Bob Graham said Tuesday. Co-Chairman William Reilly said resistance to answering questions 'is coming from various of the parties that were involved in and responsible for different aspects of the rig operation.'...Congress's failure to give the panel subpoena power is 'unjustifiable,' Mr. Reilly said."

Obama says Ken Salazar acted too slow in implementing drilling reforms: http://politi.co/9u3zzv

A global warming skeptic will take over the climate change committee if the GOP takes the House, reports Darren Samuelsohn: "Wisconsin Rep. Jim Sensenbrenner wants to keep the Select Committee on Energy Independence and Global Warming alive so it can investigate climate science and police President Barack Obama’s green policies... Sensenbrenner’s remarks foretell a power struggle among top Republicans primed to lead other investigatory committees, namely, Rep. Darrell Issa, the media-hungry Californian who would like to comb through Obama’s policies as chairman of the Oversight and Government Reform Committee."

Renewable power should not be covered in a renewable energy standard, writes David Roberts: http://bit.ly/aCCHr3

Small cars could thrive under new fuel efficiency regulations, writes Joseph B. White: "The new Ford Fiesta is a perky subcompact four-cylinder car that with the right transmission option can get an impressive 40 miles to the gallon on the highway. It also might represent the future of the American car, particularly if California succeeds in its push to make cars two to three times more fuel efficient by 2025 than they were in 2009. The Obama administration is expected to start soon the process of setting the fuel efficiency targets auto makers must meet in the U.S. market for the years 2017 to 2025."

Return of the Jedi interlude: Inside Ole Miss' campaign to get Admiral Ackbar as a mascot.

Domestic Policy

House Democrats are reluctant to pass Michelle Obama's childhood nutrition bill, report Abby Phillip and Carol Lee: "Despite heavy lobbying by the first lady, more than 100 House Democrats have balked at approving the Senate’s $4.5 billion version of the nutrition bill because it is funded in part with $2.2 billion in cuts to SNAP, the federal food stamp program. They want assurances from the Obama administration that the funding cuts the Senate approved will be restored in the near future. 'The White House’s preference is to just pass the bill,' said a congressional staff member who spoke on the condition of anonymity while the negotiations are ongoing. 'So far, our folks ... they’re not willing to do that.'"

What the SNAP cuts would mean to the amount of food a family could buy, in pictures: http://bit.ly/9IML8z

Immigration is a net gain for government in the long-run, reports Sudeep Reddy "Immigrants in California receive more benefits than they pay in taxes due to their relatively lower incomes and the fact that they often have young children in school, Smith said today at a Brookings Institution conference on the economics of immigration. As the younger immigrants get older, they pay more into the tax system. As a result, immigration’s effects on budgets “tend to be more negative in the short term and positive in the long term,” he said. For all states averaged together, the benefits of immigration to the tax system -- from immigrants paying federal taxes -- overwhelm the state costs, Smith says."

The Supreme Court is considering more cases on corporate personhood: http://nyti.ms/bXHSvW

Stem cell funds can be distributed until a Circuit Court rules, reports Brent Kimball: "The one-page order by a three-judge panel of the U.S Court of Appeals for the District of Columbia Circuit said the administration met the legal standard for a stay of the injunction, but didn't discuss the case in detail. The White House welcomed the order, which extends a temporary action by the appeals court on Sept. 9. It noted that President Barack Obama made stem-cell funding by the National Institutes of Health a top priority shortly after taking office. 'We're heartened that the court will allow NIH and their grantees to continue moving forward while the appeal is resolved,' said White House spokesman Robert Gibbs."

Released prisoners face a particularly harsh job market: http://bit.ly/9jljr6

Congress must address child poverty, write Chris Dodd and John Podesta: "The upcoming tax debate provides an opportunity for reforms that would benefit working families and lift millions of kids out of poverty. Last year, Congress made reforms to the Earned Income Tax Credit and Child Tax Credit that rewarded work and helped low-income working parents meet their families’ basic needs. The stakes are high. If Congress allows these reforms to lapse, a full-time minimum wage worker with two children would stand to lose nearly $1,500 of their child tax credit, a loss of income that would force parents to cut back on basic necessities for their kids. Congress must act now to make last year’s improvements to the tax code permanent and give working parents the tools to keep their children out of poverty."

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

By Ezra Klein  | September 29, 2010; 6:46 AM ET
Categories:  Wonkbook  
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Next: Could Obama have done more to change Washington?

Comments

I'm all for schools adopting sci-fi mascots. I'm waiting for the day we can all watch a football game between the UW Romulans and the WSU Cylons.

Posted by: MosBen | September 29, 2010 7:38 AM | Report abuse

1. The CBO model is a tax revenue model -- not an economic model. Completely inappropriate use of the model, but Kent Conrad and Elmendorf are both deficit hawks/peacocks so they align to produce the answer favored by the North Dakota senator.

2. Lori Montgomery reports that the outsourcing bill "failed to clear a key procedural hurdle Tuesday after some Demcrats complained the measure would hamper ..." -- true, but the reason it failed is that the entire GOP senate roster voted against proceding to discussion.

3. David Leonhardt may report that Social Security is leading to budget deficits, but that don't make it true. Social Security has a dedicated stream of tax revenues and cannot pay what isn't on the books. When the trust fund is fully expended (in 2037) then it will only be able to pay what revenues (at that time) can cover. Of course, this is estimated at 78 percent of the current definition of benefits -- which will be considerably higher than 78 percent of the current benefit payment because the entire wage earning pool will get wealthier over the next 20-plus years.

4. Only 8/9 ths of the "Supreme Court is considering more cases on corporate personhood". Elena Kagan the new center-left Justice is sitting out a bunch of cases this term. (The Times report much better than Barnes of the Post since NYTimes reports multiple Kagan recusals.) I wonder how the Roberts, Scalia, Thomas, Alito wing will rule even without Kennedy? What's the rule on tie votes -- lower court upheld but without precedent? This almost certainly means that corporations really are people in the Third District.

Posted by: grooft | September 29, 2010 9:04 AM | Report abuse

"Housing prices are growing, but are still below peak levels: http://bit.ly/ctyeX4"

Um, house prices are starting to shrink again, down 0.13% in July. The reported gain was not seasonally adjusted.

Note that Case Shiller uses a three month moving average (meaning that the May-July average was 0.13% lower after adjusting for seasonal effects than the Apr-June average).

http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf

http://www.cnbc.com/id/39396966

Posted by: justin84 | September 29, 2010 9:22 AM | Report abuse

Am I smelling orchestration? Bernanke throws cold water over the notion that he's going to print money forever. The Democrats punt on a vote until after the elections, when presumably a tough vote will be easier to make. Elmendorf destroys the Obama extensions of the Bush tax cuts. Maybe that's an old gentleman pulling levers behind the curtain instead of a gang of two year olds. One can always hope.

Posted by: bgmma50 | September 29, 2010 9:30 AM | Report abuse

"There were technical reasons for this estimate, and Democrats will angrily question the CBO's model, but that's what the man said."

How soon the worm turns. They adored the CBO's model during the health care debate. Perhaps because they got to rig the assumptions.

Posted by: bgmma50 | September 29, 2010 9:32 AM | Report abuse

"What the SNAP cuts would mean to the amount of food a family could buy, in pictures: http://bit.ly/9IML8z"

Cuts are never fun, but tough luck - the politicians have other spending priorities. But hey, the money will be going to the Healthy Hunger-Free Kids Act. So no worries about the cuts, the replacement bill keeps kids from ever going hungry, right?

http://washingtonindependent.com/98532/house-faced-with-cutting-food-stamps-for-child-nutrition-bill

"Rep. Jim McGovern (D-Mass.), for instance, told the New York Times: “I want to pass a child nutrition bill. I am committed to the first lady’s campaign. I want to be helpful. But I won’t vote for a bill that robs Peter to pay Paul. The White House needs to work with us to find a better way to offset the cost.”

Note to Jim McGovern - ALL of the transfer programs rob Peter to pay Paul. The situation we are dealing with here is we have been robbing Peter to pay Paul, but we now might be allocating part of Paul's loot to John.

Paul doesn't know how to support himself without Peter's wealth, and so it's a huge disaster for Paul when the flow is redirected towards John.

"More than 100 House Democrats have signed a letter opposing the cuts. Unions and hunger groups, such as the Food Research and Action Center, oppose it as well."

Maybe the 100 House Democrats will keep the SNAP program fully funded. Or maybe not.

But hey, if Congress decides to use the SNAP funds for other things well, too bad for the SNAP beneficiaries. And who cares what the little people - the men and women on the ground who see this stuff with their own eyes day in and day out - have to say about the matter. It's all up to Congress.

Only the politicians know how to deploy our limited resources to their highest and best uses (and after all it is the government's money, isn't it), and the extra SNAP benefits just didn't make the cut.

If only there were a way to help the hungry pay for food without first routing the cash through a small army of caprcious politicians...

Posted by: justin84 | September 29, 2010 10:01 AM | Report abuse

I think you meant to write "Nuclear power should not be covered in a Renewable Energy Standard" rather than "Renewable power should not be covered in a Renewable Energy Standard". At least, that's what the article you reference argues.

Posted by: frouglas | September 29, 2010 1:44 PM | Report abuse

south carolina needs to fire that pinhead jim demint. he's objecting to giving the investigatory body for the bp disaster subpoena power -- he must have just been bribed by the oil/national gas industry or bp itself.

Posted by: FranknErnest | September 29, 2010 8:23 PM | Report abuse

south carolina needs to fire that pinhead jim demint. he's objecting to giving the investigatory body for the bp disaster subpoena power -- he must have just been bribed by the oil/national gas industry or bp itself.

Posted by: FranknErnest | September 29, 2010 8:24 PM | Report abuse

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