Wonkbook: Welcome to gridlocked America
Welcome to gridlocked America: The GOP is on track to win about 65 seats in the House of Representatives, and 7 or 8 in the Senate. This is a huge victory: the Republican House majority will be the largest since 1928. But it is not a governing majority, even on the congressional level. Democrats still hold the upper chamber. In fact, Harry Reid still leads the upper chamber.
From the perspective of actually getting anything done in the next two years, there was perhaps no worse outcome. Republicans don't fully control Congress, so they don't have enough power to be blamed for legislative outcomes. But Democrats don't control the House and they don't have a near-filibuster proof majority in the Senate, so they can't pass legislation. Republicans, in other words, are not left with the burden of governance, and Democrats are not left with the power to govern. Republicans don't have to be responsible, and Democrats can't do it for them.
For the time being, this means that the gains of Obama's first two years are probably safe. Health-care repeal will not pass the Senate, and if Republicans attempt to defund the program, it will be the House acting on its own -- a less tenable position than the Congress acting against the executive. It is also difficult to see major new stimulus programs -- for instance, a payroll-tax holiday -- finding backers in Congress, as Republicans will not be able to take full credit for them. This will be, instead, a time of implementation for the White House, oversight for the House, and paralysis for the Senate. As for getting the economy back on track, that's now Ben Bernanke's job, whether he wants it or not.
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BALLOT MEASURES: A ballot measure blocking global warming action is going down in California, but one requiring a two-thirds vote for regulations (26), and another eliminating the two-thirds requirement for passing budgets (25), will pass: http://lat.ms/clSH4u A measure cutting sales taxes failed in Massachusetts: http://bit.ly/cnXryq Anti-union measures passed in Arizona: http://bit.ly/bpJ2N9 Utah: http://bit.ly/bWdvbf South Carolina: http://bit.ly/962E6M And South Dakota: http://bit.ly/aAznel Anti-Affordable Care Act measures passed in Arizona: http://bit.ly/bpJ2N9 And Oklahoma: http://bit.ly/dxt8CK But failed in Colorado: http://bit.ly/dbtRSZ
A Republican House will benefit multinationals and sectors facing aggressive regulation, reports Corey Boles: "Multinational corporations, such as International Business Machines Corp., Merck and Company Inc. and Caterpillar Inc., that get a big part of profits from overseas will also breathe easier. Under Democratic control of Congress, these companies faced the prospect of higher taxes on overseas profits and potential penalties levied against them for moving jobs to other countries. Citigroup Inc., J.P. Morgan Chase & Co. and other financial services firms, already reeling from the new Dodd-Frank Wall Street Reform and Consumer Protection Act, likely won't see more meddling legislation."
Jim DeMint issues advice to freshman conservative Senators: "Hire conservative staff. The old saying 'personnel is policy' is true. You don't need Beltway strategists and consultants running your office. Find people who share your values and believe in advancing the same policy reforms. Staff who are driven by conservative instincts can protect you from unwanted, outside influences when the pressure is on...Don't seek titles. The word 'Senator' before your name carries plenty of clout. All senators have the power to object to bad legislation, speak on the floor and offer amendments, regardless of how they are ranked in party hierarchy.
Health-care reform will probably be changed on the margins, but neither repealed nor defunded, writes Ezra Klein: Politicians of both parties are risk-averse, and the likeliest outcome is that this fight is effectively tabled - particularly if, as looks likely, Democrats hold the Senate. Republicans might mount a mostly symbolic vote on repealing the bill, and they could make a show of holding up appropriations in exchange for some smaller compromises on provisions that Democrats won't fight to the death over. But in the end, they are more likely to try to persuade their base to take the longer view and see this battle as one that will really be decided in 2012, when conservative voters will have the opportunity to replace President Obama with a leader who has no intention of protecting -- or implementing -- the bill.
Congress needs to tackle the Bush tax cuts now, writes David Leonhardt: "Right now, the 400,000th dollar earned by a surgeon is taxed at the same 35 percent marginal rate as the four millionth dollar earned by a hedge-fund manager. This makes little sense, and it runs counter to how the tax code worked for much of the 20th century. The top brackets once distinguished between the merely affluent and the truly rich. In 1960, for example, the top marginal rate (of 91 percent) started at $400,000, which is the equivalent of almost $3 million today. Congress could take a small step back in this direction by extending all the Bush tax cuts for households making less than $1 million a year. At the same time, though, a new tax bracket would start at $1 million...It would probably cost something like $30 billion a year, rather than the $60 billion for extending all the upper-income cuts."
Katy Perry cover interlude: Wendy play "Teenage Dream".
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Still to come: Pimco's chief still thinks the economy needs Congress's help; retiring senator Evan Bayh counsels spending restraint; California's newly passed Proposition 26 could make climate change regulation impossible; anti-union education reform groups are showing political strength; and a kitten is confused by his reflection in a mirror.
The economy still needs help from the government, writes Pimco-head Mohamed A. El-Erian: "Today, many large companies and rich households are in a good position to move forward. They have the means to spend and hire. Yet they lack the willingness to do either...This world speaks to a different characterization of private-sector activity - rather than able and willing to move forward unhindered if the government simply gets out of the way, this is a private sector that faces too many headwinds."
"Simply put, these realities make it necessary for Washington to resist two years of gridlock and policy paralysis. Democrats and Republicans must meet in the middle to implement policies to deal with debt overhangs and structural rigidities. The economy needs political courage that transcends expediency in favor of long-term solutions on issues including housing reform, medium-term budget rules, pro-growth tax reforms, investments in physical and technological infrastructure, job retraining, greater support for education and scientific research, and better nets to protect the most vulnerable segments of society."
Quantitative easing is risky and should be limited, writes Martin Feldstein: http://bit.ly/940QEW
Democrats should show spending restraint if they want Americans to trust them again, writes Evan Bayh: "In the near term, every policy must be viewed through a single prism: does it help the economy grow? A good place to start would be tax reform. Get rates down to make American businesses globally competitive. Reward savings and investment. Simplify the code to reduce compliance costs and broaden the base...To regain our political footing, we must prove to moderates that Democrats can make tough choices. Democrats should ban earmarks until the budget is balanced....Democrats should support a freeze on federal hiring and pay increases. Government isn’t a privileged class and cannot be immune to the times....The most important area for spending restraint is entitlement reform.
JP Morgan is being investigated by the SEC over subprime practices, report Joshua Gallu and Dawn Kopecki: "The U.S. Securities and Exchange Commission is probing whether JPMorgan allowed Magnetar to choose assets for a $1.1 billion collateralized debt obligation known as Squared, according to the person, who declined to be identified because the investigation isn’t public. JPMorgan lost about $880 million on the deal, according to ProPublica, which reported the investigation earlier today. The inquiry is part of a broader investigation of how Wall Street firms bundled and sold mortgage-linked investments as the housing market declined in 2007, contributing to more than $1.8 trillion in losses and writedowns worldwide."
Rep. Paul Kanjorski's loss could hurt efforts to overhaul Fannie and Freddie: http://bit.ly/czkCmn
The US will cut its ownership stake in GM by a third when it goes public, report Jia Lynn Yang and Peter Whoriskey: "The Treasury Department is expected to sell about $7 billion of its shares, bringing the government's ownership of the beleaguered auto company down from 61 percent to 35 percent. The Obama administration is eager to begin unwinding the extraordinary rescue of GM that took place after the financial crisis even as doubts remain that the government will ever fully recover the $50 billion of taxpayer money spent on the firm's bailout. The company will go public about Nov. 17, and the stock will probably be priced from $26 to $29 a share - much lower than what some analysts say it should fetch."
GM could be tax free for years: http://bit.ly/aNbbkV
Labor unions are claiming to have tipped the vote to Democrats in certain races: http://bit.ly/9yAJnp
New members of Congress should look to Pat Moynihan for guidance, writes Steven Pearlstein: "Moynihan's great gift was that he could see how emerging political, social and economic trends were likely to play out before almost anyone else. He was among the first to call for the end of welfare as we know it, to warn of the coming political backlash against affirmative action and to sense the growing alienation of the working class from an increasingly liberal and elitist Democratic Party. He also was among the first to sound the alarm on global warming (in 1969!)...Long before it was conventional wisdom, he called attention to the stagnation in working-class wages and the irrepressible inflation in health-care spending."
Cutting government spending should be Obama's "Nixon in China" moment, writes Mitt Romney: http://wapo.st/adzeIA
Adorable animals with identity issues interlude: A cat confuses himself in front of a mirror.
The just-passed Proposition 26 will make environmental regulation tougher in California, reports Margot Roosevelt: "Many of the large oil-producing companies judged the global-warming initiative as too controversial, and unlikely to succeed, they found another way to express their views. In the last two weeks of the campaign, they have poured millions of dollars into promoting Proposition 26, a measure on Tuesday's ballot that would require a two-thirds vote, rather than a simple majority, for the state Legislature and local governments to assess many fees on business...Environmentalists fear that Proposition 26 will make it almost impossible to enforce regulations under AB 32, the state's ambitious climate-change law as well as to enact fees aimed at combating pollution and hazardous waste."
BP-apologizer Rep. Joe Barton will seek the Energy committee chairmanship: http://bit.ly/cPClrJ
BP is again making profits, report Brian Skoloff and Jane Wardell: "BP said that costs related to the April 20 oil spill dragged down its third-quarter profit by more than 60 percent. The London-based company earned $1.79 billion from July through September, compared with $5.3 billion a year earlier. But the fact that BP returned to profits at all, coming after a loss of $17.2 billion in the second quarter, indicated the company's operations remain solid despite the spill. 'That's real good news they're making money because at least we know they have the ability to pay us over a long period of time because we've still got a lot of problems,' said shrimp processor Rudy Lesso, whose Biloxi, Miss. business is down about 25 percent because much of the public is still afraid to eat Gulf seafood."
Senate Environment Committee chair Barbara Boxer won reelection: http://bit.ly/dC37ze
A solar technology manufacturer is cutting jobs in response to Chinese competition, reports Todd Woody: "The cost-cutting move, which will reduce the company’s previously announced production capacity, is a sign of the notable shift in the prospects for cutting-edge American solar companies, which now face intense price competition from Chinese manufacturers that use more established photovoltaic technologies. Just seven weeks ago, Solyndra opened Fab 2, a $733 million factory in Fremont, Calif., to make its high-tech solar panels. The new plant was supposed to be the first phase of a rapid expansion of the company. Instead, Solyndra has decided to shutter the old plant and postpone plans to expand Fab 2, which was built with a $535 million federal loan guarantee."
Nations at a biodiversity conference are considering a ban on geoengineering research: http://bit.ly/9fJfCg
Japan's auto industry is shifting toward electric cars, reports Hiroko Tabuchi: "Sooner or, more likely, later the electric car could render thousands of companies superfluous here in the heart of Japan’s auto parts region. No more engines. No call for exhaust pipes. Spark plugs? Gone with the electric-car wind. Or so, in essence, warns a recent widely circulated study that predicts the eventual demise of much of Hamamatsu’s gasoline engine economy. Spurred by that study and a general sense of foreboding, carmakers, parts factories and local governments in this sprawling industrial town are joining forces to prepare for a future of electric vehicles."
Slowed down cooking interlude: Popcorn popping in slo-mo.
Three major committee chairmen lost reelection, reports Damian Paletta: "Mr. Spratt, who chairs the House Budget Committee, lost to state senator Mick Mulvaney, a development that could have an immediate impact on the near-term budget plans for the Obama administration. Mr. Spratt has been in Congress for 14 terms and is on the White House’s bipartisan deficit reduction commission, which is supposed to issue recommendations on how to balance the budget by Dec. 1...Ms. Lincoln, who chairs the Senate Agriculture Committee, lost to Republican Rep. John Boozman. Ms. Lincoln was in her second term as a senator and played a central role in the Dodd-Frank financial overhaul bill, authoring a provision that limits the ability of banks to trade certain derivatives."
Anti-union education reform groups are showing electoral muscle, reports Stephanie Banchero: "Stand for Children, based in Portland, Ore., has given $1.5 million to candidates who support overhauling teacher-tenure policies. The group has pumped $600,000 into Illinois alone. Democrats for Education Reform, which lobbies for charter schools and tougher teacher evaluations, has spent about $250,000 of its own money and gathered another $1.7 million in fund-raising efforts that went to candidates, mainly in New York and Colorado, said Joe Williams, executive director of the New York-based advocacy group...Although the groups are contributing more money this year, their spending remains significantly smaller than that of teachers unions."
The Supreme Court appears split on the constitutionality of banning violent video games for minors: http://wapo.st/aZDS17
Federal salaries are falling further behind private ones, report Lisa Rein and Eric Yoder: "Official numbers released by the government last week show salaries of federal workers falling slightly further behind their private-sector counterparts in the past year, by an average of 2.1 percent across the country...The new numbers were in Friday's annual report from the Bureau of Labor Statistics to the Federal Salary Council, a presidentially appointed panel tasked with recommending pay for federal workers. The gap cited Friday will help the council recommend government raises to President Obama for 2012. Congress has not approved a raise for 2011."
Native born workers are losing jobs as immigrants are gaining them: http://nyti.ms/c5HaYU
Republicans should focus on allowing bare-bones health policies, writes Holman Jenkins: "Let's permit insurers to design their policies free of ObamaCare's mandated benefit levels and free of state regulation. Let's let these policies be purchasable with pre-tax dollars and allow them to satisfy ObamaCare's mandate requiring individuals to have insurance and employers to provide it. Yes, we know the ObamaCare mandate is objectionable on philosophical and constitutional grounds, but since we're seemingly bent on taxing ourselves to make medical care available to those who can't or won't pay for it themselves, an individual mandate perhaps is the only way to short-circuit a collapse toward government-run, single-payer health care under the burden of free-riding."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: Bill O'Leary-Washington Post.
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