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Wonkbook: TARP firms favoring GOP; fiscal commissions hits tax deductions; Christina Romer warns against deficit reduction


On Sunday, I rewatched an old episode of the West Wing. "Enemies Foreign and Domestic," it was called, and one of the subplots involved a computer-chip manufacturer who'd just discovered a serious defect. The company was doing the right thing and recalling the product, but that left it, and its 90,000 workers, in jeopardy. Leo wants a bailout. President Bartlett doesn't. And though, for awhile, the arguments gets made in economic terms, eventually Bartlett rounds on Leo. "They were huge contributors!" He yells. "Huge!"

The company gets some government help, but it comes at a cost. You can never donate to me, or any other candidate, again, Bartlett tells the CEO. "You can vote, but that's it."

The Obama White House is probably wishing it had added a similar clause to TARP. Not only are the bailed-out companies giving significant amounts of money -- more than $1.4 million, at last count -- but they're giving most of it to Republicans. That leaves Democrats in an unhappy position: The voters blame them for the bailout (most Americans don't know TARP was conceived and signed by the Bush administration), and the bailed-out companies are funding the other guys. They've managed to end up on the wrong side of both the people and the powerful. What would Bartlett have done?

It's Monday. Welcome to Wonkbook.

Top Stories

Bailed out companies are giving considerable sums to midterm campaigns -- and mostly to Republicans, reports T.W. Farnham: "Senate Minority Leader Mitch McConnell (Ky.) was a fierce critic of the federal bailout of General Motors and Chrysler last year, saying he could not 'ask the American taxpayer to subsidize failure.' But GM doesn't seem to hold a grudge. The political action committee formed by the company, which is now largely owned by taxpayers, cut McConnell a $5,000 campaign check in September, a small piece of the $190,000 it donated to campaigns in the past month... Among companies with PACs, the 23 that received $1 billion or more in federal money through the Troubled Assets Relief Program gave a total of $1.4 million to candidates in September, up from $466,000 the month before. Most of those donations are going to Republican candidates."

The deficit commission will likely focus on tax deductions, reports Damian Paletta: "Sacrosanct tax breaks, including deductions on mortgage interest, remain on the table just weeks before the deficit commission issues recommendations on policies to pare back with the aim of balancing the budget by 2015...At stake, in addition to the mortgage-interest deductions, are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter. The officials are also looking at potential cuts to defense spending and a freeze on domestic discretionary spending."

Obama is being too hard on pomegranate juice?

Now is not the time for deficit cuts, writes Christina Romer: "The best thing would be for Congress to pass a plan now that will reduce deficits when the economy is back to normal. France’s recent plan to gradually raise its retirement age to 62 from 60 is a classic example of such 'backloaded' reduction. President Obama’s proposal to eliminate the Bush tax cuts on high incomes is another: it would raise revenue by only $30 billion in 2011, but by more than $600 billion over the next decade. History shows that well-designed backloaded plans are credible. For example, changes to Social Security eligibility and taxes have been passed years, if not decades, before they took effect."

Got tips, additions, or comments? E-mail me.

The G-20 -- China included -- has agreed to try and even out currency imbalances, reports Howard Schneider: "The statement from the finance leaders of the Group of 20 nations was a carefully worded bargain across a range of issues. It put China on the record as seeking to bring down its massive trade surplus and let its exchange rate fluctuate more. It also hinted that any move by the U.S. Federal Reserve to further ease monetary policy would be measured so as not to disrupt currency values or capital flows in emerging market nations... The plan envisions a greater role for the International Monetary Fund in overseeing whether exchange rates and trade balances are moving as intended."

'90s power pop interlude: Matthew Sweet and John Hiatt play "Girlfriend".

Still to come: The top Republican on the House Financial Services Committee is chiding financial lobbyists for donating to Democrats; Business Week walks you through the foreclosure crisis; Britain imposes a carbon tax; some states moving towards unicameral legislatures; state health exchanges could vary wildly; and Sears caters to a new, undead clientele.


The top Republican on the House Financial Services committee is attacking financial lobbyists for being too soft on financial regulation -- and donating too much to Democrats: "When Republican Rep. Spencer Bachus of Alabama stepped in front of 100 financial services lobbyists at the Capitol Hill Club last month, he asked for an equal chunk of their campaign cash — and made clear he was watching closely. It is hard to believe, he told the crowd, that some in their industry were still giving more to Democrats than Republicans after, he said, Democrats hammered them with over-reaching Wall Street reform legislation, people familiar with the presentation said."

Alice Rivlin's deficit group, however, is likely to go further:

Confused by the foreclosure crisis? Business Week's cover story is the most comprehensive overview I've seen: "Wall Street's unspoken strategy has been to kick mortgage losses down the road until an economic recovery reinflates the housing market. The faulty-foreclosure crisis has forced the issue back into the present tense, triggering a fight over who will bear the brunt of those losses. The combatants—all of whom are trying to minimize their share of the damage—include homeowners, lenders and mortgage brokers, loan servicers and the underwriters of mortgage-backed securities, the buyers of those securities, title insurers, rating firms, and the federally controlled mortgage buyers Fannie Mae (FNM) and Freddie Mac (FRD). J.P. Morgan predicts that bondholders will absorb most of the estimated $1.1 trillion loss—but may succeed in foisting about $55 billion on banks."

Thrifty homeowners are seeing generous refinancing packages:

Rick Wagoner did more to save GM than Steve Rattner, writes Malcolm Gladwell: "What Wagoner meant in his testimony before the Senate, in other words, was something like this: “At G.M., we are finally producing world-class cars. We have brought our costs, quality, and productivity into line with those of our competitors. We have finally disposed of the crippling burden of our legacy retiree costs. We have expanded into the world’s fastest-growing markets more effectively than any other company in the United States. But the effort required to bring about that transformation has left our balance sheet thin—and, at the very moment that we need a couple of years of normal economic activity to refill our coffers, auto sales have fallen off a cliff. Do you mind giving us a hand until things get back to normal?” This is not arrogance. It happens to be something very close to the truth. "

Obama's caution has discredited fiscal stimulus with voters, writes Paul Krugman: "What we do know is that the inadequacy of the stimulus has been a political catastrophe. Yes, things are better than they would have been without the American Recovery and Reinvestment Act: the unemployment rate would probably be close to 12 percent right now if the administration hadn’t passed its plan. But voters respond to facts, not counterfactuals, and the perception is that the administration’s policies have failed. The tragedy here is that if voters do turn on Democrats, they will in effect be voting to make things even worse."

We should privatize the mortgage market, writes Dwight Jaffee:

We need a fiscal policy to match the Fed's monetary easing, writes Alan Blinder: "The two main thoughts that are probably going through Mr. Bernanke's head today are, first, 'I sure wish I could get some help from fiscal policy,' and second, 'I probably can't, so I'd better do whatever I can.' He's right on both counts. In a more rational world, it wouldn't be this way. Fiscal policy, which packs the power, would be doing the heavy lifting--by combining tax cuts and spending today with credible deficit reduction for the future. Monetary policy would take the back seat by keeping interest rates low. But we don't live in a rational world. And as Donald Rumsfeld might have said, you go to war against recession with the army you have. Right now, that's the Federal Reserve. The fiscal army is AWOL."

Adorable animals acting like children interlude: Two cats play patty-cake.

Domestic Policy

How states set up health exchanges will have a major effect on coverage, reports Robert Pear: "Massachusetts and Utah provide a glimpse of the future, and they offer radically different models for other states. The battle over health care is shifting to the states, and the design of insurance exchanges will be one of the most pressing issues for state legislators when they convene early next year...The Utah Health Exchange organizes the market, allowing consumers to compare a wide variety of health plans sold by any insurers that want to participate. In the Massachusetts exchange, known as the Connector, the state serves as an active purchaser, soliciting bids from insurance companies and negotiating prices and benefits in an effort to secure the best value for state residents."

Health insurers have switched their campaign donations from Democrats to Republicans:

Some employers are adjusting health plans as health care reform takes effect, reports Ricardo Alonso-Zaldivar: "Two provisions in the new law are leading companies to look at their plans in a different light. One is a hefty tax on high-cost health insurance aimed at the most generous coverage. Although the 'Cadillac tax' doesn't hit until 2018, companies may have to disclose their exposure to investors well before that. Karen Forte, a Boeing spokeswoman, said concerns about the tax were partly behind a 50 percent increase in insurance deductibles the company just announced...Bigger questions loom over the new insurance markets that will be set up under the law."

Health care reform has failed to fix American health care's provider-pricing problem -- and thus its cost problem, writes Alec MacGillis: "Health-care providers in the United States have tremendous power to set prices. There is no government 'single payer' on the other side of the table, and consolidation by hospitals and doctors has left insurers and employers in weak negotiating positions. 'We spend fewer per capita days in the hospital compared with other advanced countries, we see the doctor less frequently, and we swallow fewer pills,' said Jon Kingsdale, who oversaw the implementation of Massachusetts's 2006 health-care law. 'We just pay a lot more for each of those units than other countries.' The 2010 law does little to address this. Its many cost-control provisions are geared toward reducing the amount of care we consume, not the price we pay."

A few states are considering moving to unicameral legislatures, reports Keith Johnson: "In Maine, members of the state's House of Representatives passed a bill last year that would shrink the legislature to one chamber from two. A Pennsylvania legislator introduced a bill this year to do the same. The speaker of the House in Kentucky also floated the idea. Over the past year, officials in half a dozen other states have discussed attacking the size of government by cutting the size of the legislature. The current election campaigns across the country have further fired the debate...At the height of the Depression, Nebraska decided to save money by getting rid of its second legislative chamber. It worked."

Secret campaign spending is incompatible with democracy, writes E.J. Dionne:

James Fallows worries that the Juan WIlliams imbroglio will harm NPR: "I have known and frequently worked a variety of people at National Public Radio, and I do want to say something about them. The worst aspect of the Williams-NPR imbroglio is that it has allowed Fox and its political allies to position NPR as something it is not, and in the process to jeopardize a part of American journalism we can't afford to lose...[NPR] has reporters at state houses and in war zones. At last count, it has something like 17 foreign bureaus and 16 domestic. In much of the country, especially away from the coasts, it's a major source of local information and news. It claims that its total audience is some 27 million people a week; with all allowances for counting differences, it reaches a lot more people than Fox does."

Niche marketing interlude: Sears' store for zombies.


The British government has quietly enacted a carbon tax: "The government today quietly imposed a £1B-per-year (US$1.58B) carbon tax on around 4,000 of the largest businesses and public sector bodies in the UK as part of its spending review. The move was not announced as part of chancellor George Osborne's (pictured at left) speech to parliament. Instead, it was left to a statement by the Department of Energy and Climate Change in which it detailed its spending review settlement and confirmed the Carbon Reduction Commitment (CRC) would be reformed so that the Treasury keeps revenue raised through the carbon pricing scheme."

New EPA regulations will force efficiency improvements for trucks, reports Ken Thomas: "The plan is expected to seek about a 20 percent reduction in greenhouse gas emissions and fuel consumption from longhaul trucks, according to people familiar with the plan. They spoke on condition of anonymity because they did not want to speak publicly before the official announcement, expected Monday. Overall, the proposal is expected to seek reductions of 10 percent to 20 percent in fuel consumption and emissions based on the vehicle's size. Large tractor-trailers tend to be driven up to 150,000 miles a year, making them ripe for improved miles per gallon."

Research funding and a carbon price are both effective emissions-reduction tools, writes David Leonhardt: "The debate between these two camps -- pro-research and pro-carbon price -- can often sound hostile. But there is actually a lot of agreement. Finding more money for clean-energy research is a crucial part of dealing with climate change. So is raising the cost of emitting carbon. My guess is that the policy that seems more like a free lunch -- research funds -- will need to come first and the harder stuff will, unfortunately, have to wait."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: NBC.

By Ezra Klein  | October 25, 2010; 5:54 AM ET
Categories:  Wonkbook  
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Next: Orszag's malpractice proposal, cont'd



Banks donate to Republicans, unions and lawyers donate to Democrats.

Great article from Alec McGillins and the most important part is this:

The public hates the insurance industry and trusts doctors and hospitals," said Richard Kirsch, head of the liberal coalition Health Care for America Now. "But what killed the public option was the hospitals, not the insurance industry."

Nice that HCAN is starting to be a bit honest now.

Posted by: visionbrkr | October 25, 2010 6:58 AM | Report abuse

O'Neil founded the newspaper IBD in 1984 to "offer information not available in The Wall Street Journal and other publications" for "investors and business executives who did not have time for two and three section papers each day."

Posted by: alvindrew25 | October 25, 2010 6:59 AM | Report abuse

Mortgage refinancing means re-funding the mortgage loan with better terms as well as conditions, most likely from a different lender. It is one way to save money. Search online for "123 Mortgage Refinance" they found me 3.1% refinance rate and also gave free analysis of my mortgage.

Posted by: ericken25 | October 25, 2010 7:01 AM | Report abuse

Forgot how good of an episode "Enemies Foreign and Domestic" is.

Posted by: olemiss10 | October 25, 2010 7:25 AM | Report abuse

Leo: "He's a friend of ours. But there's a reason he's a friend of ours."

The bottom line is that this wouldn't happen to Bartlett, or it might look like this would happen, but at the last minute it'd get turned on its head. The West Wing was a great show. To my mind it may be the greatest show of all time. But while it was truly great, it does have as a central conceit that honest, well-intentioned decisions are almost always rewarded. Stepping down and handing the Presidency to the opposition party during a crisis doesn't result in any political negatives. Explaining the truth really well beats hard-nosed and manipulative political ads every day. Republican elected officials hold deeply held beliefs about how to address policies, and are willing to compromise/come across the aisle to get things done.

I truly wish we lived in that universe.

Posted by: MosBen | October 25, 2010 7:42 AM | Report abuse


Obama could not have added provisions to TARP to restrict them from making campaign donations because, as you said just a few sentences later, it was the BUSH ADMIN that created TARP.

And of course the TARP companies would support Republicans; after all, Republicans gave them $100s billions of dollars.

Posted by: lauren2010 | October 25, 2010 7:59 AM | Report abuse

Eliminating home mortgage interest deductions is a direct attack on the middle class.

The media falsely portrays this instead as an attempt to hurt wealthy people.

In reality it is an attempt to shift the tax burden to the middle-class.

I am disappointed in Democrats for even allowing such ideas to fester. Once again they are out of touch with ordinary people.

Posted by: lauren2010 | October 25, 2010 8:04 AM | Report abuse

You made a mistake. It wasn't "HUGE"; President Bartlett would have said "YUUUUGE!" I never understood that -- it must be a regional thing.

Posted by: Klug | October 25, 2010 8:06 AM | Report abuse

"History shows that well-designed backloaded plans are credible."

Unfortunately, any statement made by Romer is not!

Posted by: 54465446 | October 25, 2010 8:33 AM | Report abuse

The "West Wing" was as close to the real White House, as old TV westerns like Gunsmoke were to the real west.

Posted by: 54465446 | October 25, 2010 8:37 AM | Report abuse

There is no doubt that the main thought going through Mr. Bernanke's head is great, the Republicans are going to win the mid terms next week therefore Fed has done it's job very well. If after that, he has some idea that fiscal stimulus would be a good idea but is politically impossible, he could, you know, say that fiscal stimulus would be a good idea and that the last one worked. More stimulus is not tenable since no one that's not a Democrat will defend the concept itself.

Posted by: windshouter | October 25, 2010 9:00 AM | Report abuse

"Eliminating home mortgage interest deductions is a direct attack on the middle class.

The media falsely portrays this instead as an attempt to hurt wealthy people.

In reality it is an attempt to shift the tax burden to the middle-class.

I am disappointed in Democrats for even allowing such ideas to fester. Once again they are out of touch with ordinary people."

They are looking at preserving the breaks, but at a lower level.

"At stake, in addition to the mortgage-interest deductions, are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter."

A married couple currently gets a standard deduction of $11,400. A $250,000 mortgage at 5.0% interest will have $12,394.60 of interest during the first year (declining thereafter). If there are no other deductions, that married couple has to pay $248.66 in extra taxes at the 25% bracket without the mortgage interest deduction. Where I live, if you have a $250,000 home you're doing pretty well.

Again, policy makers aren't planning on getting rid of the deduction entirely.

While I'm against additional taxes on principle, perhaps it wouldn't hurt to transfer some to the middle class. Federal spending has doubled since 2000. Total AGI for the bottom 75% rose 30% from 2000-2008, but total taxes paid fell 10%.

Perhaps if the middle class saw a bill for all that extra spending they'd be less inclined to tolerate it.

Posted by: justin84 | October 25, 2010 10:03 AM | Report abuse

Haven't I been saying this for years? Here it is. Klein's real source of understanding of the American political system is the West Wing. He has been obviously so influenced by it -- forget the Federalist Papers, or any study whatsoever of limited constitutional government. No, it all comes from tv, with its worship of the presidency.

Posted by: truck1 | October 25, 2010 11:59 AM | Report abuse

truck1, the West Wing taught nothing so much as we should aspire to having a government run by smart people who really want to see good policy get enacted, even if it's bad politics. Also, that we, the public, should reward such noble behavior rather than falling for cynical talking points developed purely for political gain. We'd be a lot better off if people tried to make reality more like the West Wing.

That doesn't mean, however, that fans of the West Wing aren't aware of the many ways reality falls far short of the show's vision. Also, like a TV show doesn't mean you don't understand real documents from reality. You might as well say the same things for fans of 24. While it may be accurate for some fans, it's kind of an irrelevant cheap shot.

Posted by: MosBen | October 25, 2010 12:42 PM | Report abuse

In addition to moving to unicameral legislatures, states ought to look at the Texas model. We only allow our legislature to meet every other year, which means that not only are they not able to get up to as much mischief, it also insures that they have their feet firmly planted in the real world, as they must actually earn their livings there.

Posted by: bgmma50 | October 25, 2010 3:13 PM | Report abuse

But Ezra, before you begin dreaming of a future without the US Senate, just remember that it could be the House of Representatives that we abolish. :)

Posted by: bgmma50 | October 25, 2010 3:14 PM | Report abuse

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