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Wonkbook: Obama proposes $50B for infrastructure, $100B for R&D tax credit; Orszag's first NYT op-ed

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The Obama administration's next round of stimulus proposals are coming into focus, though the administration would rather prefer that we call them something other than "stimulus proposals." The much-rumored payroll-tax holiday is off the table -- at least for now. But there's a $50 billion infrastructure investment program, a $100 billion proposal to make the R&D tax credit permanent, and a $200 billion idea to allow companies to deduct the full cost of the capital investment in 2011. Add in the small business bill that's sitting still in the Senate, and the anti-business White House has thrown its muscle behind hundreds of billions of dollars in tax cuts and credits for, well, business.

Speaking of tax cuts and credits, former OMB director Peter Orszag makes his debut in the New York Times this morning with a column arguing that the Bush tax cuts should be extended until 2013 -- and then allowed to lapse altogether. Yes, even the middle-class ones. That might be more important than you think: Though it's true that money can't buy you happiness (at least not after $75,000 a year), it can buy you a feeling of deep satisfaction.

All that and more -- including a William Shatner profile -- in Wonkbook.

Top Stories

Obama wants $50 billion for infrastructure investment, reports Peter Slevin: "White House officials said the $50 billion in new government spending would be the first installment of a six-year transportation strategy that would include investments in high-speed rail and air traffic control. To pay for it, the administration would raise taxes on oil and gas companies...If approved by Congress, the infrastructure money would be used to build or repair 150,000 miles of road, 4,000 miles of railroad track and 150 miles of runways, the officials said. The proposal includes creating an 'infrastructure bank' to prioritize projects and attract private funds."

Obama will also propose a $100 billion business tax credit this week -- but no payroll-tax holiday. Anne Kornblut and Lori Montgomery report : "The business proposal - what one aide called a key part of a limited economic package - would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs. It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled."

"The White House has decided to forgo a broad-based payroll-tax holiday at this point, officials have said. That proposal, which had been part of earlier discussions with key congressional officials, would have been an expensive measure, potentially costing hundreds of billions of dollars. It also could have deprived Social Security of needed cash even as Democrats are accusing the GOP of plotting the program's demise on the campaign trail."

And don't forget tax write-off for capital investments, reports Jackie Calmes: "It would cost an estimated $200 billion in revenues, though the ultimate net loss would be $30 billion over 10 years, administration officials say, since businesses would eventually deduct the depreciated value of the equipment in any case....A draft paper on the proposal permitting businesses to write off the full costs of capital spending in 2010 and 2011 said it 'would be the largest temporary investment incentive in American history.'"

Can money buy you happiness? Above $75,000, the answer is no -- but it can buy you a "deeper satisfaction you feel about the way your life is going."

Peter Orszag first New York Times column calls for a two-year extension of the Bush tax cuts: "Extend the tax cuts for two years and then end them altogether. Ideally only the middle-class tax cuts would be continued for now. Getting a deal in Congress, though, may require keeping the high-income tax cuts, too. And that would still be worth it."

"Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem -- take a look at the remarkably low 10-year Treasury bond yield -- there is little reason not to extend the tax cuts temporarily. A benign bond market, however, is a luxury we won’t enjoy forever if we fail to tackle our long-term fiscal problem. What’s more, losing the confidence of the bond market could prove painful, since it is widely known that our fiscal trajectory is unsustainable and market sentiment may therefore shift quickly and unpredictably."

Long-form interlude: Frank Bruni profiles William Shatner. It's as good as you think it's going to be.

Still to come: FinReg's systemic risk regulator is set to convene soon -- and will have "the CIA of financial regulators" to aid it; the United States still lags on high-speed rail; Race to the Top's state-level education overhauls are beginning to take effect; and a 1960s sci-fi writer succeeds in predicting the future.

Economy/FinReg

The FinReg-created Financial Stability Oversight Board is set to convene for the first time, reports Brady Dennis: "The council will have the authority to direct regulators to issue new rules regarding capital, liquidity and leverage levels and to impose more onerous rules on firms that it deems to be systemically important. As a last resort, the council can agree by a two-thirds vote to break up large, complex firms if members agree that they pose a grave threat to the country's financial stability."

Departing Federal Reserve deputy Donald Kohn wants the body to consider more stimulative measures: http://nyti.ms/b6RKs8

Robert Schmidt profiles the Office of Financial Research: "The research office is only now beginning to attract attention for the unusually strong powers Congress granted it to force financial companies to turn over confidential information and help spot potential market blowups. In a nod to its abilities to peer into the uncharted depths of the financial system, lobbyists are calling it the CIA of financial regulators. The analogy may not be far off."

Tech companies are making big profits but are slow to hire: http://nyti.ms/cNPIl0

Small business groups are lobbying Congress in favor of Obama's lending proposal, reports Abby Phillip: "'Putting money in the pockets of both consumers and small-business people so they can take advantage of the opportunities when they come along is crucial,' said Todd McCracken, president of the National Small Business Association, in an interview on CNN’s 'State of the Union' on Sunday. 'For instance, there is a jobs bill sitting in the Senate that they are going to be taking here in just a week and a half that will free up a lot of credit for small companies at a very low cost of capital for the government.'"

Austerity measures in Europe are hurting scientific research: http://bit.ly/aslvEL

Don't cut Social Security, writes Ezra Klein: "Lurking beneath this conversation is an unquestioned assumption: We live longer, so we should work longer. That's pretty intuitive to members of Congress, who seem to like their jobs and don't seem to like the idea of retiring. It's also pretty intuitive to blogger/columnists, who spend their time in air-conditioned rooms opining about pension programs. But most people don't work in Congress or in the media. They work on their feet. They strain their backs. They're bored silly at the end of the day. By the time they're in their 60s, they want to retire."

"You see that reflected in Social Security. Age 66 is when you get full benefits. But most people begin taking Social Security at age 62. They get less, but they can retire earlier. To them, the trade-off is worth it. And remember, the country is much richer than it was in 1935. Adjusting for inflation, our gross domestic product in 1935 was $865 billion. In 2009, it was more than $12 trillion. We have more than enough money to buy ourselves some leisure time at the end of our lives. At least if that's one of our priorities."

Political factors deterred the Fed and Treasury from rescuing Lehman Bros, writes Andrew Ross Sorkin: http://nyti.ms/a2LvsZ

Futurist interlude: Arthur C. Clarke predicts the Internet, Skype, and telecommuting in 1964.

Energy

The US is still playing catchup on high speed rail, writes Kate Galbraith: "Right now, the only nominally high-speed option in the United States is the Acela line...trains are capable of traveling 150 miles, or 240 kilometers, per hour. But their average speeds are far lower, because of the need to share the track with other trains and because of the large, busy metropolises along the route. The major plans for new rail lines in the United States center on California and Florida. Both are contemplating fast trains with dedicated tracks...About 95 percent of the right of way has been acquired between Orlando and Tampa Bay, Mr. Gertler said. California wants to run a line from San Francisco to Los Angeles, hitting the major cities along the way, with speeds as high as 220 miles per hour."

California's energy-saving "smart meters" are working: http://bit.ly/cbrAJn

BP has spent $8 billion cleaning up the oil spill, reports Alex Macdonald: "BP said no spilt oil had been recovered since July 21 and the last controlled-burn operation was on July 20. BP is continuing to conduct aerial surveys and other reconnaissance to search for oil on the surface. The company said about 28,400 personnel, more than 4,050 vessels and dozens of aircraft were still engaged in the response effort."

Advances in battery technology are slow coming: http://bit.ly/ck0uTG

Questionable moments in children's television interlude: Disney BLAM!

Domestic Policy

Dozens of states have education overhauls taking effect this school year, reports Stephanie Banchero: "Race to the Top, the $4.35 billion competitive grant program at the heart of Mr. Duncan's effort, prodded 11 states to tie teacher pay to student performance, nearly 40 to adopt rigorous common standards in reading and math, and at least another dozen to vow to fix failing schools. Only 11 states and the District of Columbia were awarded money, but new laws in many other states are, nevertheless, taking effect."

The departing head of the Change to Win labor coalition worries the labor movement is losing the American people: http://nyti.ms/bOC47L

The FDA may approve the first genetically modified animal for human consumption soon, reports Lyndsey Layton: "FDA scientists gave a boost last week to the Massachusetts company that wants federal approval to market a genetically engineered salmon, declaring that the altered salmon is safe to eat and does not pose a threat to the environment. 'Food from AquAdvantage Salmon . . . is as safe to eat as food from other Atlantic salmon,' the FDA staff wrote in a briefing document."

Current Supreme Court justices are more likely to pick like-minded clerks than in the past: http://nyti.ms/aSxYrq

The egg industry is fighting efforts to set minimum cage sizes for chickens, reports Dan Eggen: "The 550 million eggs recalled in connection with the salmonella contamination came from hens housed in industrial-style 'battery cages,' in which birds are crammed against one another in a long battery of wire enclosures. The cages are common throughout the industry but have been increasingly targeted by animal welfare groups as inhumane and unsanitary. But major egg producers say switching to cage-free methods would do little to improve safety and would add to the price of eggs."

Globalization has weakened investment in American education, writes James Kwak: http://bit.ly/cagLuc

EJ Dionne details the role of unions in building America's middle class: "Between 1966 and 1970, as Gerald Seib pointed out last week in the Wall Street Journal, the United States enjoyed an astonishing 48 straight months in which the unemployment rate was at or below 4 percent. No, the unions didn't do all this by themselves. But they were important co-authors of a social contract that made our country fairer, richer and more productive. There are many complicated reasons why these arrangements broke down, but I do not see things getting substantially better unless we find ways of increasing the bargaining power of wage-earners -- precisely what Reuther and his fellowship dedicated their lives to doing."

Music video interlude: Zola Jesus' "Sea Talk".

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

By Ezra Klein  |  September 7, 2010; 2:27 AM ET
Categories:  Wonkbook  
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Comments

Why don't the Dems simply offer and vote on a bill RIGHT BOW to give the middle- and lower-classes a tax cut that is made effective on the day the corresponding Bush tax cuts expire? Hence, tax cuts on those earning over $250,000 would effectively stay in place after the Bush tax cuts expire while everyone else's taxes would go down, as per Obama's so-called desire.

Dems could control and solve this issue BEFORE the election.

If the GOP doesn't support this bill, Dems could say taxes would go up because of GOP obstructionism. Dems would have the moral highground and leverage on this issue.

The fact Dems don't attempt such maneuvers NOW indicates they are either lacking in imagination or earnestness.

Posted by: Lomillialor | September 7, 2010 2:55 AM | Report abuse

Oops

RIGHT NOW (not BOW) :-)

Posted by: Lomillialor | September 7, 2010 2:57 AM | Report abuse

You know, I frequently disagree with Lom, but he's dead on on this one. I don't understand why we're even talking about extending the Bush tax cuts. Let them expire as scheduled and then pass something new with its own contours, priorities and timeline. If we think there's a good reason to temporarily keep taxes low because of the bad economy, then let's pass some Obama tax cuts to do that. Think the rates need to be adjusted? Think it'd be better if this was a payroll tax cut rather than an income tax cut? Whatever! There's no policy reason to be hemmed in by what they did ten years ago. They weren't addressing our specific policy and economic problems and there's no reason to think they managed to divine the perfect solution in 2001 to our problems now.

Beyond that, it's a stupid political move. The Bush tax cuts were bad policy. I'm even hesitant to call it policy because cutting taxes is such a ubiquitously used solution by Republican law makers that I don't think it really was meant to address or help any specific problem. "Extending" the Bush tax cuts just makes it look like they were a good idea to begin with when the reality is that they were a bad idea that we maybe can't afford to get out of just right now. It also looks like the Republicans won the debate on the tax cuts even if it actually plays out that all (or nearly all) of the Dems vote for an extension with just a few Republicans signing on.

Posted by: MosBen | September 7, 2010 9:55 AM | Report abuse

Allowing the tax cuts to expire also gives the President a good opportunity to talk to the populace (though a speech) about how government works like we're adults.

"My fellow Americans, in January of 2011 the Bush tax cuts will expire. The reason they're expiring is because they were passed using a procedure in the Senate to get around the usual rules and a consequence of that is that they had to end in ten years. While their method of passing the tax cuts was novel, they didn't break any rules. But the tax cuts will expire and that's a good thing. I know nobody likes to pay taxes; I know I don't. But we have taxes because we have to pay for the things that our government buys. Maintaining the Bush tax cuts lowered the amount of money the government was taking in without making any tough choices about cutting our spending. They added a huge amount to our national debt and in the long run they just aren't sustainable. Now, letting them expire doesn't solve our long term deficit problems. We're going to have to make some of those same tough choices that Congress didn't make ten years ago when they passed these tax cuts if we're going to have long term stability. I'm open to talking about those choices with Congressional leadership and with you, the American people. We're going to have to solve this problem together, but it's going to take us years to work it all out.

But we don't have years to work our way out of the current economy. We've got too many people out of work and too many businesses afraid of investing their money. So while I think it's good that the Bush tax cuts are expiring, I am proposing a new bill which will help us get through this rough patch until the economy picks back up."

Then he can get into the policy. If they did a payrol tax holiday, great, whatever, but couch this as his own policy specifically targeted at our current situation, not just an extension of some reckless and irresponsible thing they did 10 years ago.

Posted by: MosBen | September 7, 2010 10:15 AM | Report abuse

Mr. Orszag tells us that “Medicare, Medicaid and Social Security will account for almost half of spending by 2015.”

His proposal for a temporary extension of the Bush tax cuts of 2001 and 2003 until 2012 simply results in two more years of additional unfunded deficits of $300 Billion a year and moves the discussion to the 2012 election. Mr. Orszag’s call for the expiration of all the Bush tax cuts in 2012 is untenable and impossible in a Presidential election year.

He neglects to tell us that the Social Security outlays are matched by incoming Social Security payroll taxes. The current $2.5 Trillion Dollars of U.S. Treasury securities and the payroll taxes can sustain full benefits until 2037, at which point it will reduce payments by approximately 22% - 25%. Of course, increasing the payroll base of $106K/year would eliminate ever running out of sufficient funding.

Medicare outlays are matched substantially by Medicare payroll taxes. President Reagan and the Congress set up Medicare to have part of the expenses paid by Medicare payroll taxes and the rest out of the general revenues coming into the government.

Medicaid was originally created as a welfare program with 50% - 90% coming from the Federal government and the rest coming from the states. Congress gave it to Health and Human Services because of its historically low 3% cost of administration rather than set up a new federal agency.

Ever since its creation, Congress loves to include the Medicaid program funded annually by Congress by general revenues with Social Security and Medicare programs funded by employer and employee payroll taxes as a “whipping boy” even though Medicaid has nothing to do with either program.

While bemoaning the cost of Social Security and Medicare, the U.S. Congress, including the Republicans, gleefully take the surplus revenues of Social Security and Medicare to fund non-Social Security and non-Medicare programs.

We live in a quixotic world. The Republicans hate Social Security which runs a surplus; i.e. it collects more than it pays out, and demand the extension of the unfunded Bush tax cuts of 2001 and 2003 which will increase the deficit approximately $3.1 Trillion Dollars for the next ten years.

The Republicans, along with some Democrats, want to introduce means testing of Social Security and extending the retirement age to 70, while continuing to collect and spend the payroll tax surpluses.

The Republicans, conservatives, and tea party are no more interested in fiscal prudence than Willy Sutton; they simply want to rob the Social Security and Medicare trust funds because that’s where the money is (to once more pay for tax cuts they want, but do not want to fund).

In short, the Bush tax cuts of 2001 and 2003 should be allowed to expire (just the way the Republicans deliberately set them up) and start addressing the Federal deficit now.

Posted by: ThoseWhoServe | September 7, 2010 11:48 AM | Report abuse

Correction needed: the profile of William Shatner isn't by Frank Bruni, it is by Pat Jordan, "a contributing writer for the [NYT] magazine".

Posted by: meander510 | September 7, 2010 1:05 PM | Report abuse

Yeah, Lom's idea is good--if nothing else, "Obama's tax cuts" would be a phrase it would be nice to have floating through the media aether right about now.

Posted by: heresiarch | September 7, 2010 1:35 PM | Report abuse

Don't call it Stimulus, call it what it is, PORKULUS. Need some lipstick?

Posted by: illogicbuster | September 7, 2010 3:18 PM | Report abuse

Why are Democratic political leaders so concerned about the cost of a payroll tax holiday when they seem so willing to compromise on extending Bush tax cuts for the wealthy. Conservative Republicans have mastered the ability to maintain a political line that is as consistent as it is absurd. Democrats clearly lack the nerve for leadership in difficult times.

Posted by: murphbil | September 7, 2010 4:25 PM | Report abuse

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