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Posted at 6:48 AM ET, 12/ 6/2010

Wonkbook: Likely deal will extend tax cuts and unemployment insurance; South Korea and U.S. finalize trade pact; Romer on uncertainty

By Ezra Klein


Top Stories

Senate Republicans successfully filibustered middle-class tax cuts, reports Shailagh Murray: "The Senate on Saturday rejected two Democratic proposals to let tax cuts for the wealthiest Americans expire, a symbolic but bitter defeat that now forces the Democratic majority to compromise with Republicans or risk allowing tax breaks to lapse for virtually everyone at year's end. Efforts quickly shifted to negotiations that would temporarily extend the Bush-era tax cuts for all Americans, an outcome that seemed increasingly likely. The pair of nearly party-line votes - one to preserve the tax cuts for only the first $250,000 of family income, and the other for the first $1 million of income - also represented a final stand for Democrats."

A likely compromise would extend all of the tax cuts as well as unemployment insurance, report David Brown and Lori Montgomery: "The Senate Republican leadership telegraphed on the Sunday morning talk shows that a compromise to extend unemployment compensation and the George W. Bush-era tax cuts is in the offing. Senate Minority Leader Mitch McConnell (R-Ky.) and Sen. Jon Kyl (Ariz.), the Republican whip, told different interviewers that they expect Congress to vote for the tax cuts, which have been in effect for a decade, to continue unaltered for at least several years in exchange for an agreement to extend jobless benefits that are about to expire for millions of workers."

David Leonhardt names nine other things we could buy with the $60 billion-a-year it'll take to extend the tax cuts for the rich:

The Bush tax cut fight isn't the main source of economic uncertainty, writes Christina Romer: "The biggest question is whether the top tax rate will be 35 or 39.6 percent. That is not the degree or kind of uncertainty that is likely to cause businesses and consumers to put hiring and spending decisions on hold. The more genuine source of tax uncertainty is related to the government’s long-run budget deficits. Congressional Budget Office projections show that the current budget trajectory is grossly unsustainable...The only way to resolve this fundamental uncertainty is to enact a credible long-run deficit reduction plan that shows what spending will be cut and what taxes will be raised, once the economy returns to full employment."

The US and South Korea have finalized a free trade pact, reports Howard Schneider: "U.S. and South Korean negotiators agreed Friday to a free-trade deal that the Obama administration hopes will increase American exports by billions of dollars annually and create momentum for a broader push on free trade in 2011. The pact is the administration's first major foray into the arena of free-trade politics, and officials said it may be followed by efforts to have Congress approve pending deals with Panama and Colombia, and reinvigorate the larger Doha round of global trade talks. The deal marks a victory for President Obama, who was widely criticized after failing to secure the pact during his Asia trip after last month's midterm elections."

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

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'90s flashback interlude: Pavement play "Kennel District" live.

Still to come: Wall Street is issuing bonuses now in case the Bush tax cuts lapse; Republicans plan to make Democrats choose between funding public health and funding a "doc fix"; the Department of Homeland Security is juking the stats on immigration; a Mexican draft proposal is starting off the Cancun climate summit; and dogs using laptops improperly.


Wall Street is moving up bonuses in case the Bush tax cuts do not expire, report Louise Story and Gretchen Morgenson: "Worried that lawmakers will allow taxes to rise for the wealthiest Americans beginning next year, financial firms are discussing whether to move up their bonus payouts from next year to this month...If Congress does not extend the Bush-era tax cuts for the highest income levels, a typical worker who earns a $1 million bonus would pay $40,000 to $50,000 more in taxes next year than this year, depending on base salary. Goldman Sachs is one of the companies discussing how to time bonus season, according to three people who have been briefed on the discussions. Pay consultants who work with major Wall Street companies say that just about every other large bank has also considered such a move in recent weeks."

Fed chair Ben Bernanke hinted more quantitative easing may be coming, reports John Maggs: "Federal Reserve Chairman Ben Bernanke is defending the Fed’s decision to borrow $600 billion to help stimulate the struggling economy, saying it's possible the Fed might spend even more...One reason why more economic stimulus might be needed is that the recovery is weak, said Bernanke. Asked whether the recovery was 'self-sustaining,' he replied 'It may not be. It’s very close to the border -- it takes about two and a half percent growth just to keep unemployment stable. And that’s about what we’re getting. We’re not very far from the level where the economy is not self-sustaining.'"

Elizabeth Warren could end free bank accounts, reports Tom Braithwaite: "Elizabeth Warren, the US administration’s consumer financial protection supremo, is working on a deal with banks that would lead to more transparent products but could spell the end of free bank accounts. Ms Warren is seeking - through transparency rather than prohibition - to wean the industry off 'hidden' fees, such as overdraft charges, which can represent up to a third of core revenues for some banks. She is pushing the industry to adopt a shorter mortgage form and clearer disclosure for credit cards."

Democrats should let the Bush tax cuts expire, writes Paul Krugman: "Think about the logic of the situation. Right now, the Republicans see themselves as successful blackmailers, holding a clear upper hand. President Obama, they believe, wouldn’t dare preside over a broad tax increase while the economy is depressed. And they therefore believe that he will give in to their demands. But while raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils."

European governments could learn from the 2008 American bailouts, writes Alistair Darling:

Adorable, computer-illiterate animals interlude: 31 puppies use laptops incorrectly.

Health Care

Republicans will force Democrats to choose between Medicare or health-care reform's public health initiative, reports Sarah Kliff: "Congressional Republicans are hoping to put Democrats in a no-win new year's jam: defund a big chunk of their health care overhaul or slash Medicare payments instead. Despite rampant repeal rhetoric, Republicans have so far struggled to dismantle any part of health reform. Now, they see a new path forward: pilfer health reform dollars to pay for the next 'doc fix,' the must-pass patch to Medicare doctor payments. Republican Senate aides familiar with the issue told POLITICO they are seriously looking at the new law's $15 billion public health commitment to finance a one-year doc fix in the next session of Congress."

The federal government is compiling a database of federal employees' health records:

Arizona is leading the country in health care cuts, reports Kevin Sack: "The options available to states for cutting Medicaid have been limited because the federal stimulus package and the health care law have required them to maintain eligibility levels. That has left states to cut payments to providers and trim benefits not required by federal regulations. Many states, including Arizona, have done both. A September report by the Kaiser Family Foundation found that 39 states cut provider payments and 20 cut optional benefits in their 2010 fiscal years, with similar numbers planning to do so in 2011. Arizona reduced Medicaid payments to doctors by 5 percent last year and has frozen payments to hospitals and nursing homes for two years. All providers will undergo another 5 percent cut on April 1, Ms. Carusetta said."

Domestic Policy

The Senate will vote Wednesday on the DREAM Act:

The GOP wants to use tax-exempt bonds to force disclosures about pension funding, reports Michael Corkery: "A bill introduced last week by three prominent House Republicans to deny states and localities the ability to sell tax-exempt bonds—the lifeblood for many governments—unless they report their pension-fund liabilities to the Treasury Department...The goal, the congressmen say, is to get a better handle on funding woes of public pensions, which they say are not always forthcoming about the true extent of their financial exposure."

The Obama administration will require cars to have rear-view video cameras and monitors:

SNES interlude: A guy proposes via EarthBound.


The Mexican government has issued a draft climate proposal at the Cancun summit, reports Fiona Harvey: "At the weekend, the Mexican hosts published a draft negotiating text that would require countries to try to prevent global warming of more than 2ºC above pre-industrial levels - viewed by scientists as the safety limit - while giving options for providing funding to developing countries and protecting forests. Jake Schmidt, of the US environmental group Natural Resources Defense Council, said: 'This text sets the stage for an agreement, but only if countries find ways to compromise. Narrowing down the differences that remain will not be easy.'"

Republicans are resisting attempts to regulate "fracking"

Billions in ethanol subsidies could pass in the lame duck session, reports Darren Goode: "Senate Finance Committee Chairman Max Baucus (D-Mont.) undoubtedly gave comfort to backers of the corn-based gasoline additive when he included a sought-after one-year extension of a key expiring ethanol tax credit as part of a much-larger middle class tax cut package he unveiled Thursday...The credit cost taxpayers an estimated $5 billion this year and lowering it to 36 cents would bring the annual cost down to $3.8 billion. Baucus also proposed extending for a year the 54-cent-per-gallon tariff on imported ethanol, as well as extending a small ethanol producer’s tax credit through next year at 8 cents per gallon."

Rep. Joe Barton is gaining conservative support in his bid to chair the Energy and Commerce committe:

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

By Ezra Klein  | December 6, 2010; 6:48 AM ET
Categories:  Wonkbook  
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Next: Don Draper: Scourge of business, hero of information


missing from healthcare news is the below on reform in MA.

This could slow the rate of growth in healthcare costs and provide a future path for the country and tries to attack the expensive fee for service system.

Posted by: visionbrkr | December 6, 2010 7:56 AM | Report abuse

If the tax cut deal extends tax cuts for two years, how long will the unemployment benefits be extended?

Also, did Dems try to add a permanent extension for all tax cuts for the first $250,000, or did they whimp out there too?

It's a shame these Dems are total imposters, wolves in sheep clothing.

Posted by: lauren2010 | December 6, 2010 7:59 AM | Report abuse

I still don't understand that if it is so necessary to extend the tax cuts for those earning over the 250K, who are supposed to be doing all of the hiring and keeping the economy going, then why don't they have to prove that they are hiring?

Seems that there is this assumption that everyone making over 250K is a job creator- and if they are, then where are the jobs?

Posted by: jcam | December 6, 2010 8:52 AM | Report abuse

"Elizabeth Warren could end free bank accounts, reports Tom Braithwaite"

What would we do without Ms. Warren protecting us from free checking accounts?

"I think the thing to remember is that free chequeing [cheque accounts] isn’t free and everything gets paid for one way or the other,” he said. “In the case of free chequeing, primarily that’s driven by overdraft fees and insufficient fund fees . . . Consumers pay no matter what."

So in other words, the people who are responsible will now be paying for people who can't manage their own finances.

Posted by: justin84 | December 6, 2010 9:09 AM | Report abuse

Democrats are idiots. In a story on the radio this morning about a tax deal I heard the phrase "Bush tax cuts" 10 or 12 times. Yet the story managed to find 10 or 12 different ways NOT to say the phrase "Obama tax cuts" -- they were "stimulus tax cuts" or "Administration tax credits" or a bunch of other ways not to give the Administration credit for anything. If you gave the Democrats a GPS they'd use it to find a way to LOSE the news cycle.

Posted by: dollarwatcher | December 6, 2010 9:26 AM | Report abuse

just an honest question but how quickly would California for example go bankrupt if they couldn't sell tax exempt bonds to hide their pension plan's fiscal woes.

Is it truly $535 billion (and growing by up to $250 billion in the next 16 years if no action is taken) as the below suggests?

Why do Democrats (ACCURATELY) think the status quo in healthcare is fiscally unsustainable but yet want us to believe that the status quo in pension over-promising is sustainable? How does that compute in the minds of some?

Posted by: visionbrkr | December 6, 2010 9:35 AM | Report abuse

the two things we need for hiring to start up are expiration of the bush tax cuts and expiration of unemployment extensions,

so the parties compromise by extending both? it's like a reverse prisoner dilemma, and we'll still manage to lose.

Posted by: eggnogfool | December 6, 2010 9:35 AM | Report abuse

"Seems that there is this assumption that everyone making over 250K is a job creator- and if they are, then where are the jobs?"


In additon, economics is a lot like religion. Economics has all sorts of factions and ideologies--and they all come with true believers. What we are seeing is a huge domination of economic thought, which "believes" in supply-side economics. It's a Reaganisque idea which never worked then, and it won't work now. Rich people and small businesses just don't create jobs in response to economic stimulus. They simply do not do it. For proof, just look at economies around the world. There is no successful currently operating supply-side economy out there. The idea simply does not work.

Posted by: stella12 | December 6, 2010 9:36 AM | Report abuse

i do think a neat 'compromise' would be to provide $50,000 worth of bush tax rates to people for each employee they provide health care benefits to. e.g., a small business owner with ten employees would get $500,000 worth of bush rates (on top of an intitial 250K or starting from 0K, for this post's sake it doesn't matter).

Posted by: eggnogfool | December 6, 2010 9:59 AM | Report abuse


"but yet want us to believe that the status quo in pension over-promising is sustainable? How does that compute in the minds of some?"

I'm not sure who is saying the pension situation is universally sustainable. Personally, I think defined benefit plans should be outlawed with the sole exception of the SS program (which should come with asterisk of "subject to change").

Posted by: eggnogfool | December 6, 2010 10:13 AM | Report abuse

"Seems that there is this assumption that everyone making over 250K is a job creator- and if they are, then where are the jobs?"

Shouldn't you be asking that question of stimulus proponents? After all, they expected 6.8% unemployment today with stimulus, and 8.5% without.

Not only the level of unemployment, but also the recent trend (rising) is worse than what stimulus proponents expected WITHOUT stimulus.

In any case, 139 million people are employed per the BLS household survey, with quite a few of that number working for rich people and corporations.

By the way, Bush didn't cut taxes on the rich. He just let them defer payments (and then by increasing spending, he bumped up those eventual payments substantially).

Posted by: justin84 | December 6, 2010 10:25 AM | Report abuse

For those of you who missed it, like Ezra, the fed has quietly proposed to buy stste bonds too in an effort to avoid the inevitable consequences of deficits in states like California, etc.

Posted by: 54465446 | December 6, 2010 11:41 AM | Report abuse

Christian Romer (through Ezra):

"The only way to resolve this fundamental uncertainty is to enact a credible long-run deficit reduction plan that shows what spending will be cut and what taxes will be raised, once the economy returns to full employment."

Sigh, while I sympathasize with your efforts to keep the hapless Romer off the unemployment line by linking her, I wish you weren't running a Facebook page for your former professors. LOL

To things about her statement are ludicrous:

1) return to full employment, is not going to happen for the foreseeable future. Opinions will vary as to the numbers, but my guess is that 7% unempolyment is the limit that we can hit as the new normal. Stop Waiting for Godot please.

2)uncertainty is vastly overblown. Banks aren't lending because they can make secure money in other ways. Businesses aren't hiring because they have learned to do with less and improved their margins. Manufacturing, except for big ticket items, is thriving but overseas not here. the Economy is already recovering, it just doesn't need those unfortunate people who are unemployed to make it go as long as the Fed is pumping away. The Fed isn't going to stop until the deficit has been seriously devalued. Only a middle schooler would think that Congress can enact any spending cuts and tax raises that would sruvive the "long term".

Sooner or later we will HAVE to start divorcing our view of the state of economic recovery from the unemployment rate, no matter how cold that will sound.

Posted by: 54465446 | December 6, 2010 12:02 PM | Report abuse

Update again:

From Paul Krugman's column today:

"A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012."

Powerful numbers. If they are correct, then the economic benefits of extensions for Obama's re-election are very very small. If he can't negotiate a big fiscal stimulus on top, then it looks like it's not worth making a deal. But indications so far are that Obama will agree in return only for a temporary extension of unemployment benefits, which you'd think ho could get anyway.

You wonder if Obama has these numbers, or if he's going off different estimates.

He easily might have them and still wants to give in because he's always scared (often overly) of looking too liberal and of not looking post-partisan fairy-land enough.

You have to ask, is it better for re-election to have unemployment a half or quarter percent higher if in exchange deficit projections are $4 trillion lower? It looks like that is better for preventing a President Palin, with on top that you don't further anger and demoralize the base, and look spineless.

Posted by: RichardHSerlin | December 6, 2010 12:20 PM | Report abuse

On top of that, if the tax cuts are ended, cutting the deficits by $4 trillion over the next decade, you'd have to think this would be a significant incentive for the Bernanke and the Fed to do more. This could take the effect on unemployment from a quarter to a half point up to zero or negative.

You have to wonder what's going on in that always scared of looking too liberal and not post partisan fairyland enough head of Obama.

Posted by: RichardHSerlin | December 6, 2010 12:27 PM | Report abuse

"Shouldn't you be asking that question of stimulus proponents? After all, they expected 6.8% unemployment today with stimulus, and 8.5% without."

The stimulus was a combination of across the board tax cuts (including, but not just, those making over $250,000) and spending designed to create jobs primarily for lower wage people. Hence, your comment above is fatuous.

Posted by: lauren2010 | December 6, 2010 12:30 PM | Report abuse

Ben Bernanke is all the stimulus that you are going to see, so be happy with him. In dollar terms, he's the biggest Santa Claus in the history of the world already.

The Chinese are taking strong efforts to combat inflation in their own country. Further stimulus on our part would hurt their efforts and probably cause them to exit the Treasury market in a serious way as a show of force. This would lead to more Fed buying to cover the shortfall, QE3, or 4.

Exactly where do any of you stimulus people think the money comes from?

Posted by: 54465446 | December 6, 2010 1:09 PM | Report abuse

"The stimulus was a combination of across the board tax cuts (including, but not just, those making over $250,000) and spending designed to create jobs primarily for lower wage people. Hence, your comment above is fatuous."

A good amount of the "tax cuts" were refundable handouts - even those with zero tax liability could benefit. Spending with another name.

$114 billion was the Make Work Pay handout (oops, tax credit) - you could get it if you didn't owe any taxes, but if you earned more than $150,000 it no longer applied.

$15 billion - expansion of child tax credit to people without income tax liability.

$14 billion college tuition credit, phased out if you earn more than $160,000.

$4.7 billion - expanding earned income tax credit, another refundable tax credit targeted at the poor/lower middle class.

$4.7 billion - excluding some unemployment benefits from taxes.

Even the $70 billion AMT fix is more targeted towards the upper middle class rather than the plus $250k crowd - 28% of those who paid it in 2009 made less than $200,000, despite the fix.

By the way, the unemployment rate for people without high school diplomas (a good proxy for "lower wage people") hit 15.7% in November, up from 15.0% a year ago and a cycle high.

Posted by: justin84 | December 6, 2010 3:03 PM | Report abuse

How do you find good refinance rates? I like "123 Mortgage Refinance". They gave me the option of selecting various rates with different problems. I choose the lowest rate of 3.29% BTW Remember to call and verify the loan rate. Search online to find them.

Posted by: lindamckee | December 7, 2010 5:00 AM | Report abuse

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