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Wonkbook: Tax cut compromise outline; Fed backlash; earmark battle

By Dylan Matthews
Kent Conrad
Sen. Kent Conrad is behind a proposed Bush tax cut compromise. (Melina Mara/TWP)

Top Stories

Sens. Evan Bayh and Kent Conrad have proposed a Bush tax cut compromise that's garnering GOP interest, reports John McKinnon: "Two top Senate Democrats floated the idea Tuesday of extending the Bush-era income-tax rates for a limited time only, and tying that move to an overhaul of the U.S. tax code or passage of policies to address the budget deficit. ... A spokesman for Rep. Dave Camp (R., Mich.), who is in line to become Ways and Means Committee chairman next year, said Mr. Camp preferred making the current rates permanent but has expressed a willingness to support a two-year extension 'and then use that time to work on fundamental tax reform.'"

The G-20 meeting in Seoul is being hurt by international backlash against the Fed's quantitative easing measures, reports Howard Schneider: "The Fed's decision, in essence, to print $600 billion and pump it into the economy through Treasury bond purchases has drawn fire from foreign leaders, notably German Finance Minister Wolfgang Schaeuble, who say it amounts to currency manipulation. ... Coming into the meeting, hopes have dimmed that the G-20 will go beyond general principles on trade and currency and add what U.S. officials have characterized as 'meat on the bones.'"

Senate Minority Leader Mitch McConnell is resisting Sen. Jim DeMint's attempt to ban earmarks in the Senate, reports J. Taylor Rushing: "DeMint will force a secret ballot vote on his moratorium proposal next week. Spokesman Wesley Denton said DeMint expects the measure to pass the caucus, although it won’t have the force of law. DeMint issued a statement Tuesday that named 10 Republican senators who are publicly backing the earmark suspension. ... 'The earmark debate is really about executive branch versus legislative branch discretion,' McConnell said in an interview with The Hill this summer. 'Are you going to give 100 percent discretion to the president? Are you going to retain some for yourself?'"

Southern rock interlude: Band of Horses play "Is There a Ghost" on the "Late Show with David Letterman."

Still to come: Congress needs to act by Dec. 3 to prevent a government shutdown; offshore drilling reforms will require tough-to-pass federal funding; Mitch McConnell is backing a lawsuit to block health-care reform; and kites that double as fireworks.

Economy/FinReg

Congress will need to act by Dec. 3 to keep the federal government from shutting down, reports Corey Boles: "One option, favored by outgoing House Speaker Nancy Pelosi, is passing a $1.1 trillion spending bill to fund the government through Sept. 30, 2011. ... The other option, favored by House Republicans, is a short-term funding extension, with a roughly $200 billion price tag. That would turn the spending process over to Republicans, who are set take over the House from January. The spending bill also represents the Democrats' last chance to fund their top priorities, including an extension of federal jobless benefits that are set to run out at the end of the year."

Asian banks could be exempted from the G-20's financial reform agreement.

There is bipartisan agreement in Congress on alternative minimum tax (AMT) reform, reports Martin Vaughan: "Democratic and Republican leaders of congressional tax committees said Tuesday they will work to ensure that 'not one additional taxpayer' will pay the alternative minimum tax in 2010. ... About 4.5 million people paid the AMT in 2009, but that number would jump to 28.5 million in 2010 if Congress doesn't enact a temporary fix, said Mr. Williams. ... Signing the letter were Sens. Max Baucus (D., Mont.) and Charles Grassley (R., Iowa), the chairman and ranking Republican on the Senate Finance Committee, and Reps. Sander Levin (D., Mich.) and Dave Camp (R., Mich.), the chairman and ranking Republican on the House Ways and Means Committee."

There were five unemployed workers for every opening in September.

Reports from three debt commissions are due in coming weeks, reports Lori Montgomery: "The 18 members of the president's commission -- which includes a dozen sitting lawmakers -- plan to gather Wednesday for their first post-election session to receive official cost estimates for a range of ideas up for discussion. Those ideas include increasing the retirement age, which is currently set to rise to 67 for people born after 1960; cutting discretionary spending, including at the Pentagon; and trimming some of the most expensive -- and popular -- federal tax breaks, such as deductions for home mortgage interest, employer-provided health care and charitable contributions. The commission is also considering budget-process overhauls, such as annual caps on discretionary spending."

Fed nominee Peter Diamond will get a committee vote next week.

The federal government must support small banks, writes Elizabeth Warren: "The bankers I have talked with are not looking to Washington to solve their problems. But they are looking for a market that allows them to compete. They are looking for a regulatory structure that doesn’t require an army of lawyers, and a level playing field that lets customers see the true cost of a product -- so lenders do not need to compete against a phantom price. ... We want to level the playing field by streamlining regulations and eliminating outdated or ineffective rules. We want to make it easy for banks--large and small--to meet their obligations to their customers and to make the costs and risks of credit clear."

The G-20 meeting shouldn't ignore poor nations, writes Lee Myung-bak.

Rebuilding the Rust Belt is essential to economic recovery, writes Steven Pearlstein: "Start with the basics: world-class airports and cargo ports, state-of-the-art rail lines, free-flowing highways. More public universities with engineering programs and business schools to rival those of MIT and Stanford. Community colleges that pioneer in the use of technology to lower cost and improve educational outcomes. Clean and efficient new electric plants fueled by plentiful supplies of nearby natural gas. Financing could come from federal block grants that replace the hodgepodge of existing programs, plus new tax-free Invest in America Bonds sold with a patriotic fervor at post offices and workplaces."

Stupid human tricks interlude: The William Tell overture performed through face-slapping.

Energy

Offshore drilling reforms will need funding from Congress to work, reports Robin Bravender: "Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, told the commission investigating the spill Tuesday that efforts to ensure the safety of offshore drilling operations -- including hiring new personnel to scrutinize permits and inspect rigs -- could fail without more funding. Industry groups and some lawmakers objected to an administration proposal to pass on increased inspection fees through permits, Bromwich said. Reaction to that proposal on Capitol Hill was 'decidedly mixed, and there was substantial opposition from industry to raised fees,' he said."

The chairmen of the panel investigating the BP blowout blame oil rig culture for the spill.

A report alleges that the White House altered a document to bolster support for the drilling moratorium, reports Dan Berman: "The White House rewrote crucial sections of an Interior Department report to suggest an independent group of scientists and engineers supported a six-month ban on offshore oil drilling, the Interior inspector general says in a new report. In the wee hours of the morning of May 27, a staff member to White House energy adviser Carol Browner sent two edited versions of the department report’s executive summary back to Interior. The language had been changed to insinuate the seven-member panel of outside experts -- who reviewed a draft of various safety recommendations -- endorsed the moratorium, according to the IG report obtained by POLITICO."

Chances for an energy policy compromise this Congress are low, reports Darren Samuelsohn: "Many of the smaller energy measures like electric vehicles, renewable energy tax credits and efficiency incentives that the left refused to relinquish while it was pushing the ill-fated cap-and-trade climate bill could in theory be easy bipartisan victories. But last Tuesday's tidal wave didn't change the hard reality that energy policy historically breaks down more along regional lines than partisan ones. Come January, it will still be the same coal and Rust Belt lawmakers battling Southern oil and nuclear power interests and renewables advocates from the coasts and Great Plains."

Changing daylight savings time didn't increase energy efficiency, writes Barron YoungSmith:

"Clean coal" is more than industry hype, writes James Fallows: "Precisely because coal already plays such a major role in world power supplies, basic math means that it will inescapably do so for a very long time. For instance: through the past decade, the United States has talked about, passed regulations in favor of, and made technological breakthroughs in all fields of renewable energy. Between 1995 and 2008, the amount of electricity coming from solar power rose by two-thirds in the United States, and wind-generated electricity went up more than 15-fold. Yet over those same years, the amount of electricity generated by coal went up much faster, in absolute terms, than electricity generated from any other source."

Explosions in the sky interlude: Fireworks kites.

Domestic Policy

Senate Minority Leader Mitch McConnell has filed a friend-of-court brief arguing health-care reform is unconstitutional, reports Jennifer Haberkorn: "McConnell argues in his brief, obtained by POLITICO, that the requirement that nearly all Americans buy insurance 'dramatically oversteps the bounds of the Commerce [Clause] which has always been understood as a power to regulate, and not to compel, economic activity.' He also argues that if the mandate is deemed constitutional, there will no longer be any real limit on Congress’ power to regulate citizens’ activity. ... The case, now being heard by the U.S. District Court in the Northern District of Florida, is expected to end up before the U.S. Supreme Court."

Due to Citizens United, the White House may encourage outside spending to support Democrats in 2012.

Reformist NYC schools head Joel Klein is stepping down, reports Nick Anderson: "Klein was known as a strong advocate of performance pay and limits on teacher tenure. He recently clashed with the United Federation of Teachers over his decision to publicly release teachers' names and their ratings derived from student test scores. The union sued to block him, and the issue is pending in state court. New York students' scores on the National Assessment of Educational Progress generally climbed during Klein's tenure. Klein worked in the Justice Department before Bloomberg named him chancellor in 2002. The New York Times reported that he will now become an executive vice president at News Corp."

The Supreme Court is considering whether companies can have customers waive their right to class action lawsuits.

The race for House minority whip is heating up, reports Paul Kane: "Seven Democratic committee chairmen issued a letter Tuesday endorsing Hoyer's candidacy for the No. 2 post in the minority leadership, including three leading liberals: Foreign Affairs Committee Chairman Howard L. Berman (Calif.), Financial Services Committee Chairman Barney Frank (Mass.) and Energy and Commerce Committee Chairman Henry A. Waxman (Calif.). ... Hoyer has long been the leader with the most trust from Democrats in the conservative Blue Dog Coalition and the moderate New Democrat Coalition, while Clyburn, the highest-ranking African American in congressional history, is viewed as a staunch liberal."

Rural areas need better mental health resources, writes Sen. Jon Tester.

Nancy Pelosi defends her tenure as Speaker of the House: "Democrats passed Wall Street reform to ensure that never again will the recklessness of some on Wall Street cause joblessness on Main Street. Our small business bill is now extending credit to small business owners so they can grow and hire. ... We made the largest investment in student aid in our nation's history, reducing the cost of loans to families and reducing the deficit. We achieved more progress over the last four years for our veterans and military families than any time since the passage of the original GI Bill in 1944. And we did all of this while restoring fiscal discipline to the Congress by making the pay-as-you-go rules the law of the land."

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

By Dylan Matthews  | November 10, 2010; 8:46 AM ET
Categories:  Wonkbook  
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Comments

When the words: "Conrad," "Bayh," "garnering GOP interest," "overhaul of the U.S. tax code" are mentioned, it's not hard to envision exactly what the contours of the deal would look like.

It would be better from a national interest standpoint though if Bayh simply retired now rather than trying to curry additional favor with his future K Street employers. The man has already done enough damage to America's long-term fiscal health during his two-terms in the Senate.

Posted by: JPRS | November 10, 2010 9:15 AM | Report abuse

"Democrats passed Wall Street reform to ensure that never again will the recklessness of some on Wall Street cause joblessness on Main Street."

Hahaha, that's a funny one. How exactly would FinReg have prevented the last crisis, let alone any future ones? You could have had a single line which said "all mortgages require a 20% downpayment" and it would have been more effective than all of FinReg.

"We made the largest investment in student aid in our nation's history, reducing the cost of loans to families and reducing the deficit."

Or, put another way, we are driving further increases in tuition by funneling ever more dollars into the education sector.

On the margin, we don't need more investment in education. The "return on investment" is another 22 year old with a a piece of paper from some state university saying they earned a 2.0 GPA while studying popular culture. This 22 year old gets to enjoy tens of thousands in student loans that Pelosi is bragging about here. What an investment. Maybe this unlucky fellow can find a spot in the Americorps when he realizes his degree did little for his employment prospects.

"Thus, there appears to be a disconnect between theory and reality. The clue as to what is wrong with the original theory lies in the spending line, which has been increasing. Essentially, what the re-
mainder of this analysis will argue is that viewing costs (spending) as fixed, and designing financial aid programs to address those costs is inappropriate, because we should expect one of the conse-
quences of the financial aid programs to be changes in the level of costs."

http://www.centerforcollegeaffordability.org/uploads/Financial_Aid_in_Theory_and_Practice.pdf

"We achieved more progress over the last four years for our veterans and military families than any time since the passage of the original GI Bill in 1944."

Progress for members of the military and military families? How about not sending off our soldiers to be killed and/or maimed in Iraq or Afghanistan?

"And we did all of this while restoring fiscal discipline to the Congress"

Fiscal discipline has been restored? We've always been at war with Eastasia too, haven't we?

Posted by: justin84 | November 10, 2010 9:23 AM | Report abuse

I have a love/hate relationship with Nancy Pelosi. (no, I'm not that old!)

We are at extreme opposite ends of the Democratic Party, however she is very good at what she does. She really is the leader and politican that others mistakenly believe Hillary Clinton is. She lied like you know what to get the HCR done, BUT she got it done when probably no one else could have. As a good general, she knew that not all her troops were going to make it thorugh the war, so she sacrificed some to achieve her objective. I don't like what she does, but I admire how she does it.

Posted by: 54465446 | November 10, 2010 9:35 AM | Report abuse

justin:

I think we're in the wrong place you and I. Ezra, and many of the people he links to, are twenty something bloggers whose experience of business and finance in general is to study it in school and comment on it. You can't tell them that more schooling isn't a desireable thing. That's how they all got their current positions.

Our friend Karl Smith, who I actually like as a writer, has apparently never even left the state of North Carolina according to his bio.

I can't really blame them. Even though I never played the game myself, I'm SURE that I could do a great job coaching the Philadelphia Eagles because I've been watching games on TV for 40 years. Damn, why won't somebody give me a chance?

Posted by: 54465446 | November 10, 2010 9:47 AM | Report abuse

Speaking of HCR, on the list of things the President promised wouldn't happen at the health care summit last year:

"For years, employees have seen what they pay toward health care go up as companies ask them to contribute more to premiums and deductibles. But now, as people enroll in health plans for the coming year, the sticker shock is more jolting than ever because so many companies are passing on to their workers most, if not all, of the higher costs.

Corporations had absorbed some higher costs in recent years, along with their workers, but have recently passed all, on average, onto employees. In 2010 alone, a worker’s share of the cost of a family policy jumped an average of 14 percent from the previous year, according to a recent survey by the Kaiser Family Foundation. In real money, that is an additional $500 a year deducted from a paycheck."

This is from the rapidly right wing, anti-administration New York Times.

Posted by: 54465446 | November 10, 2010 10:19 AM | Report abuse

The Obama Tax Cuts included in the so called stimulus are the tax cuts that really need to be extended. I have family of five who make about 100k per year with kids in college. The Obama tax cuts which expire in 2011 saved this family about $5,000 which is great for our nation. This family not only spent just about all of their tax savings stimulating the economy but are educating their kids so they can participate in the new economy. We know that people who make more than $350,000 are keeping their money on the side because now is not the time to invest in jobs because no one is buying anything. In employment decisions it does not matter to them if the tax rate is 35% or 40% because the cost of employees is deductable. In my CPA firm if I have $100,000 worth of work I will hire a $50,000 employee to perform it. As long as the tax rate does not go over 100% I will hire the person to do the work. I would rather only pay the $17,500 in tax at the 35% than the $20,000 at 40% but I am not going turn down the work over $2,500. That is foolish. What is keeping me from hiring is all of my small businesses are struggling to find work because guys who make a $100,000 per year are struggling and not consuming goods and services like they were several years ago. Save the Obama tax cuts because they are highly simulative.

Posted by: bradcpa | November 10, 2010 10:58 AM | Report abuse


I have posted this already here before You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price check http://bit.ly/bandYw If you have health insurance and do not care about cost just be happy about it and believe me you are not going to loose anything!

Posted by: kevinmarlo07 | November 10, 2010 11:37 AM | Report abuse

"Corporations had absorbed some higher costs in recent years, along with their workers, but have recently passed all, on average, onto employees. In 2010 alone, a worker’s share of the cost of a family policy jumped an average of 14 percent from the previous year, according to a recent survey by the Kaiser Family Foundation. In real money, that is an additional $500 a year deducted from a paycheck."

54465446,

My premium rose nearly 50% for 2011. This explains it well.

Posted by: justin84 | November 10, 2010 12:26 PM | Report abuse

Justin:


but, but, but, he promised us:


"Tennessee Senator Lamar Alexander, the first Republican speaker at a daylong bipartisan health summit, said millions of people will pay higher premiums under a Senate health-care bill that is the starting point for a White House plan. Obama said Alexander was mistaken, and that premiums would drop.

“It’s not factually accurate,” Obama said. Later, the president said he wanted to resolve the disagreement “before we leave today” because “I’m pretty certain I’m not wrong.

During the televised health-care summit, Obama said the higher costs included in CBO’s total estimate reflected the fact that people “may choose to buy better coverage than they have right now.”

Dammit Justin, stop choosing to buy better coverage than you have right now! LOL

Posted by: 54465446 | November 10, 2010 4:12 PM | Report abuse

"I think we're in the wrong place you and I. Ezra, and many of the people he links to, are twenty something bloggers whose experience of business and finance in general is to study it in school and comment on it. You can't tell them that more schooling isn't a desireable thing. That's how they all got their current positions."

In fairness to Ezra et al, my view is that schooling has its benefits, but the marginal impact of expanding subsidies further is certainly below cost.

What is studied matters quite a bit.

Some fields such as engineering, medicine, most of the hard sciences, etc. really do require a lot of schooling. There isn't really any way around it.

Business degrees, poli-sci degrees, etc. are just credentials. For example, it's hard to see how most business majors wouldn't have been better off had they been able to start as an intern for, say, $10/hr after graduating high school and been promoted to a full time entry level job after a year or two of service. As you suggest, I agree most relevant business concepts are best learnt on the job (or if necessary by private study).

This isn't to say business majors get nothing out of college - they do gain some additional business knowledge on the margin, there are other classes, and heck the college experience is fun.

However, would it be worth $100,000-$200,000 in terms of tuition and foregone wages if the option to start as a low paid intern at age 18 was also available? I doubt that for many that it would be worth the cost.

After the credential majors, you have mostly waste, such as [insert victim group here] studies which most employers don't take very seriously and which often, in my view, peddle nonsense.

To the degree that schooling is beneficial from a human capital perspective, it pairs highly motivated and talented students with other highly motivated and talented people, provides field related knowledge and helps one build a network of contacts. These benefits are far less likely to be captured by the marginal student who wouldn't be attending college without additional subsidies - these marginal students are often ill prepared, unable to perform well in the college environment, not all that interested in classes, etc.

Worse still, tuition itself is influenced by the level of subsidies, so not only does subsidy expansion largely increase enrollment by marginal students, but it also turns these students into debt zombies as the subsidies come in the form of loans.

Posted by: justin84 | November 10, 2010 5:55 PM | Report abuse

"Dammit Justin, stop choosing to buy better coverage than you have right now! LOL"

If only it were a matter of choice too! The lifetime limit is gone, but I'm pretty sure that was an ACA requirement.

Having the $2 million lifetime limit (IIRC) extended to no lifetime limit sure was expensive...

Posted by: justin84 | November 10, 2010 6:03 PM | Report abuse

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