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Posted at 6:39 AM ET, 12/ 9/2010

Wonkbook: Senate to begin debate on tax cut deal; DREAM passes the House; Republicans block Social Security COLA

By Ezra Klein


Top Stories

Senate debate on the tax cut deal begins tomorrow, report Lori Montgomery and Shailagh Murray: "Senate leaders are planning to begin debate on a far-reaching tax package as soon as Thursday as rank-and-file Democrats warm to an agreement between the White House and Republicans to extend a host of expiring tax cuts and pump fresh cash into the economy...Lawmakers said the magnitude of the concessions Obama won came into sharper focus Wednesday as the White House highlighted independent forecasts predicting that the package could create as many as 2.2 million jobs next year...White House budget director Jacob Lew and senior Treasury adviser Gene Sperling held an afternoon session to field questions from Senate Democrats, who were more accepting of the package than they were a day earlier in a meeting with Biden, participants said."

CHART - How the tax deal will affect you:

Mark Zandi says the deal could increase growth by as much as one percentage point; Macroeconomic Advisers says one-half of one percentage point:

The DREAM Act has passed the House, reports Shankar Vendatam: "The Senate is expected to vote Thursday on a measure to legalize undocumented immigrants who were brought to the country as children. The measure, known as the DREAM Act, passed the House of Representatives by a vote of 216 to 198 Wednesday night. But it faces an uphill climb in the Senate, where advocates need - and do not seem to have - 60 votes to push the measure through Senate procedures. The DREAM Act seeks to confer legalized status on undocumented immigrants brought to the United States by their parents, after they attend two years of college or sign up for the military."

Congressional Republicans have blocked a cost-of-living adjustment to Social Security, reports Jim Abrams: "House and Senate Republicans on Wednesday thwarted Democratic efforts to award $250 checks to Social Security recipients facing a second consecutive year without a cost-of-living increase. President Barack Obama and Democrats have urged approval of the one-time payment, saying seniors barely getting by on their Social Security checks face undue hardships without the COLA increase. But most Republicans contended that the nation couldn't afford the estimated $14 billion cost of the payment, and that the COLA freezes in 2010 and 2011 come after seniors received a significant boost in 2009."

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'60s retro pop interlude: The Like's "He's Not a Boy".

Still to come: The Fed is likely to stay the course on quantitative easing; the Senate passed a Medicare "doc fix"; the Supreme Court is split on an Arizona immigration law; the Cancun climate negotiations are heating up; and two penguins who are really afraid of water.


The Fed is likely to keep monetary policy constant, reports Jon Hilsenrath: "The Federal Reserve is likely to leave monetary policy unchanged next week at its final meeting this year as it assesses the impact of its bond-buying program and the unfolding tax debate in Washington. The central bank has been buffeted by criticism of its plan to buy $600 billion of Treasury bonds since unveiling it in early November. Internal and external critics say the program, aimed at keeping long-term interest rates low, could spur inflation or another asset bubble, stirring doubts about the Fed's commitment to the program and likely muting its impact. But top Fed officials haven't expressed any inclination to veer from their course or to alter significantly their message to the public about the plan."

US and European economic policies are diverging sharply, reports Howard Schneider: "Concerned that a weakened Europe could undermine the health of the world economy, the Obama administration dispatched Lael Brainard, Treasury undersecretary for international affairs, to Europe last week to consult with leaders there. U.S. officials have consistently urged Europe to act more quickly to address the threat of insolvency facing weaker countries...By contrast, even some of those who have been wary of U.S. policies agree that the U.S. recovery is central to the world's economic health and needs to be kept on track, even if it means running larger deficits. As the world's largest economy, there is little short-term risk that the U.S. will be unable to borrow what it needs."

The top House appropriator's pork-filled past worries conservatives:

The stimulus failed, write John Cogan and John Taylor: "Recently released Commerce Department data show that of the $862 billion stimulus package, the change in government purchases at the federal level has, thus far, been extremely small. From the first quarter of 2009 through the third quarter of 2010, government purchases have increased by only 3% of the $862 billion ($24 billion). Infrastructure spending increased by an even smaller amount: $4 billion. In a $14 trillion economy, these amounts are immaterial. The Commerce Department also provides data on ARRA grants to state and local governments and the amount of purchases by these governments. According to these data, state and local government purchases of goods and services did not increase at all."

Tim Fernholz offers four concessions the White House could give liberals on taxes:

The American voter loves stimulus but hates "stimulus", writes Annie Lowrey: "She barely liked the 2009 stimulus when Congress passed it, and she certainly does not like it now. (The financial regulatory reform bill? She's made her peace with that.) Yet, in an enduring example of the polled American's propensity for containing multitudes, she likes virtually all of the elements of stimulus, such as the tax breaks, unemployment insurance, infrastructure investment, and bolstered food stamps--a case of the parts besting the sum, apparently. And she thinks the country needs more of those provisions. She also supports an increase in the minimum wage."

'Tis the season interlude: Holiday songs played on iPads.

Health Care

The Senate passed a Medicare doc fix, reports Jennifer Haberkorn: "The Senate -- helped by a push from the White House -- passed a one-year 'doc-fix' late Wednesday, preventing a 25 percent cut to Medicare payments that would kick in on Jan. 1. The $19.2 billion bill, which passed by unanimous consent as expected, still has to be approved by the House before congress recesses for the holidays. It is paid for by a tweak to the new health reform law... Low- and middle-income consumers will be eligible for tax subsidies to help pay for their coverage. The bill changes how much money they would have to repay if they misreport their income or their income grows mid-year."

Rep. Darrel Issa (R-Ca) wants to cut funding for expensive medical procedures:

The co-author of the Stupak amendment will head a House health panel, reports Patrick O'Connor: "Social conservatives weren’t able to deny Rep. Fred Upton (R., Mich.) the chairmanship of the powerful Energy and Commerce Committee, but they did get a key ally on the subcommittee that oversees health care: Rep. Joe Pitts (R., Pa.). Rep. Pitts was named chairman of the health panel, giving the fervent abortion opponent a key role in any move to repeal the president’s health care bill. Mr. Pitts helped write a controversial ban that prohibited recipients of federal subsidies from purchasing insurance that covered elective abortions. The language was eventually stripped from the final bill and replaced with an executive order from President Barack Obama."

Domestic Policy

The Supreme Court is split on upholding an Arizona immigration law, reports Robert Barnes: "The Supreme Court sounded conflicted Wednesday about whether Arizona's attempt to revoke the licenses of businesses that knowingly employ illegal immigrants intrudes on federal law or complements it. The case pits Arizona against an unusual coalition of challengers that includes the U.S. Chamber of Commerce, civil rights groups, labor unions and the Obama administration. But that high-powered group faced a barrage of skeptical questions from the court's conservatives, which bodes well for Arizona to see its law upheld."

Congressional Republicans who ran against lobbyists are now hiring them:

The tax deal will hurt public workers, reports David Kocieniewski: "The deal would end the Making Work Pay credit, which gave a tax reduction of up to $400 to workers with low and middle incomes. That credit will be replaced by a 2 percent decrease in the payroll tax for Social Security for people of all incomes. But more than six million federal, state and local government employees do not pay into Social Security at all. Instead, they pay into public pension systems. So if the agreed proposal becomes law, such employees will lose the $400 credit and would not reap any benefit from the payroll tax cut."

The House has passed a federal salary freeze:

Funds being spent on tax cuts should be devoted to education, writes Matt Miller: "Math (and science) achievement today predicts technological leadership and economic strength tomorrow. So these results should shock us. And they're related to the tax debate. We'll never attract enough talented young Americans to teach subjects such as math and science when average starting teacher salaries in the United States are $39,000 and rise (over decades) to an average maximum of $67,000. That tax benefit of $120 billion might have endowed a hefty federal effort to remake the teaching profession for the 21st century."

Adorable animals afraid of water interlude: Two penguins who don't want to get their feet wet.


Cancun climate negotiations are underway, report William Booth and Juliet Eilperin: "The developed countries are pushing language for a climate fund that would commit them 'to the goal of mobilizing jointly $100 billion a year by 2020.' There is a lot of wiggle room in such words as 'goal' and 'jointly.' The least-developed countries want the document to read that wealthy countries such as the United States would "commit to provide 1.5 percent of GDP per year by 2020," a global price tag approaching $600 billion a year... The negotiators for China and the United States are brawling over how much transparency the Chinese will allow. Pershing insists that China permit outsiders to look over its shoulder and verify that its carbon cuts are not tricks of creative accounting."

Ethanol and other energy subsidies may make it into the tax compromise bill:

The EPA will delay a rule on reducing smog, reports Robin Bravender: "The Obama administration will delay issuing a new smog reduction plan, the second controversial air pollution rule the Environmental Protection Agency has punted in the past two days. EPA was facing a court deadline to finalize its national air quality rule for ozone, or smog, by Dec. 31, but the agency is now planning to delay the rule until next July, spokesman Brendan Gilfillan confirmed Wednesday. On Tuesday, EPA announced it would delay a major air toxics rule for industrial boilers, such as those used at oil refineries and paper mills, after coming under fire from myriad industry groups and lawmakers claiming it would cripple the economy."

An attempt to transfer energy jurisdiction from the House Energy and Commerce committee to the Natural Resources committee is failing, report Darren Samuelsohn and Darren Goode: "Rep. Doc Hastings appears to be falling short in his bid to snag jurisdiction on energy issues away from the Energy and Commerce Committee. The incoming chairman of the House Natural Resources Committee hasn't been able to motivate GOP leaders to go along with his controversial power grab that pits top Republican lawmakers against one another, according to several lawmakers and aides...Republicans are moving forward Thursday in handing out 'A' committee assignments -- which includes the Energy and Commerce Committee but not the Natural Resources panel -- as if jurisdictions will remain the same as this year."

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

By Ezra Klein  | December 9, 2010; 6:39 AM ET
Categories:  Wonkbook  
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Next: The tax deal in one graph


David Dayen gets it right on the real problems with the Tax Cut Stimulus / "Bush Tax Cuts plus more than he ever dreamed of" deal.

1. The deficit reduction fever will continue to run high in Congress so the stimulus effects (which are already poor due to low multiplier on the tax items -- since the tax cuts given to the really rich are saved or invested overseas) will be eaten up by the little anti-stimulus / contractionary "freezes" and cuts.

2. No tax cut will ever be allowed to expire. Temporarily reducing the Social Security tax (the employee share) will be framed as a tax hike on workers in 2012 when it is due to expire. Changing this to a repeat of the Making Work Pay tax credit with changes to withholding rates would be exactly equivalent for the workers - it would put more money in the takehome pay without the notice that might cause workers to save the amount rather than spend it. This is anathema to the GOP who wants to kill social security. Obama is presenting them a chance to starve the beast and force "social security is running out of money" crisis behavior. The end result will be cuts to Social Security -- which the bottom 50 percent of retirees DEPEND ON for the bulk of their retirement.

So Obama gets a short term -- but still too short to provide an improving economy heading into the 2012 election, and the GOP wins long term because there ain't no way that a tax cut is temporary if hostages can be taken.

And the extra debt taken on for stimulus (and the tax cuts for rich) will be heralded frequently by the right wing. "Deficits are too high, we must cut government spending" will be endlessly repeated. There are plenty more hostage taking events in the pipeline; the debt ceiling, the budget appropriations, etc.

Adding the $700 billion (10 year) tax increase to the federal revenue stream would mute the effectiveness of the deficit fever screams. And letting them all expire would save the federal government as a provider of government services.

Posted by: grooft | December 9, 2010 7:57 AM | Report abuse

I sympathize with many of grooft's comments.

Obama should before 2012 propose a radical overhaul of the US tax system. This overhaul should simplify the tax code, and reduce tax burdens on 98% of Americans while installing new progressive tax brackets for those earning, for example, $500,000, $1 million, $10 million, $50 million, $100 million, $500 million, $1 billion $10 billion, %50 billion, $100 billion

It is absurd we don't have tax brackets similar to the above.

The fact is a civilized country can not exist without a certain amount of tax revenues. Recent history proves that. We either fix our tax code or suffer permanent austerity at some point in the future.

Without such a radical overhaul, we will never escape the destructive political cycles we are witness to today.

Only a radical overhaul proposal can inspire the voters to unify behind the reform needed to save this country from economic servitude to billionaires and transnational corporations that are sucking us dry and turning us into economic slaves.

But will it happen? Not a chance. Democrats don't have the spine for such radical change. And the GOP wants the middle class to die along with its entitlements. And this Obama tax deal proves it because this tax deal is not change, rather it is the status quo. It further transfers wealth to the rich and sucks dry the poor and middle class and erodes SS. And while this deal is the best deal available at this late stage, it is a piece of crap that Obama and Pelosi and Reid should be ashamed of.

I will be voting for a primary challenger to Obama if he does not radicalize himself before 2012.

Posted by: lauren2010 | December 9, 2010 8:32 AM | Report abuse

I'm surprised there's nothing on the DADT drama that's going on. I'm hopeful that we may actually get it repealed this year, despite Susan Collins' bullsh*t procedural requirements.

Posted by: MosBen | December 9, 2010 10:11 AM | Report abuse


I sympathize with your statement "...should simplify the tax code, and reduce tax burdens on 98% of Americans while installing new progressive tax brackets..." but wich to point out that when working with Congress, the committee that they are will not design the Thoroughbreed Racehorse that you want, but will give you a Camel and claim it is Secretariat and that we should be thankful for their "collective" wisdom.

There is a Progressive Tax Structure, but whenever there is a movement to change that to either more Progressive, or more towards the Flat Tax (which is simpler, but not really what we want) the end result always seems to be *more* complexity. I could see a more Progressive Tax Structure with some caveats. If dividends earned and paid were *not* taxed upon the Corporate Level First, and if incentives to INVEST DOMESTICALLY were given the 50% Bonus Depreciation Permantently if those resources were linked to productive economic use (not building a country club or buying a new plane for the Executives) the idea is *not* just empty wealth redistribution. Also get rid of the Estate Tax concept. Those assets were taxed once when earned. Most of the Rich know how to use Trust Funds to get around this, so all the estate tax does is tax the middle class citizens who have actually accumulated something that might eventually propel *some* of them into the reach of being considered "rich" and support the American Dream, closing the gap between the Rich and the not so rich. The Estate Tax is *actually* part of what is making the Rich Richer and the Poor Poorer. Sure, it does not affect the bottom two quintiles of income, but it *really* does not affect the top quintile either -- they can just get around it -- and they do.! It only affects the middle class and upper middle class, and in doing so, kills the dreams and aspirations of those who have made this great country what it is by their efforts to better themselves and the hopes for their children.

The Devil is in the details, I am afraid, and I don't trust Congress to get it right. Do you?


Posted by: Clearbrook | December 9, 2010 11:56 AM | Report abuse

Dream Act - God help us all, if it passes and God help the US Congress for the wrath of 'The People' will be endless. Harry & the BOYS don't understand "The PEOPLE", their voting message sent last month and the simple fact that this is 'Lawlessness' promoted....I have to wonder if they truly understand what this means to America & Americans ? Another clear example of why we need term limits, social 'security' retirements and a 'Flat Tax'all placed upon every member of this Congress and ALL of former Members next year !! May GOD help America for we have NO Leadership.........>

Posted by: cbsiv | December 9, 2010 8:00 PM | Report abuse

Arrogance Personified - The picture at the beginning of this article. Look Closely, sure gets to me !! I hate the man
and I hardly know him....a weak point in my character, but I still hate him !! "Yes, I'm sure of it.....I hate him" !!

Posted by: cbsiv | December 9, 2010 8:10 PM | 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 .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: williamdawson | December 10, 2010 2:36 AM | Report abuse

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