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Posted at 6:53 AM ET, 12/16/2010

Wonkbook: Tax deal advances; Obama pushes CEOs on jobs; China talks trade

By Ezra Klein

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The House will vote on an amendment to the estate tax language in the tax deal today. Whether the amendment passes or not -- and even whether the tax deal passes or not -- it shows how totally Democrats have lost control of the tax issue.

The amendment would ratchet back the exemption on estates to $3.5 million from $5 million, and bring up the tax rate from 35 percent to 45 percent. That would raise about $10 billion more over the next two years, and affect about one percent of estates rather than 0.25 percent. It's much, much weaker than the estate tax that would lock into place if Congress simply does nothing. That version has a mere $1 million exemption, and a 55 percent tax rate.

But it's not just the estate tax. In the campaign, President Obama promised that taxes wouldn't rise for anyone making less than $250,000. That is to say, he conceded that the Clinton-era tax rates on 98 percent of Americans were too high, and the revenue the tax code is raising right now is about right. Democrats don't believe either thing, in large part because the economy and the budget have made it impossible to argue either thing. But they're too afraid of being accused of raising taxes to say otherwise, and so they've let their approach to taxes curdle into little more than an attack on the unpopular rich, totally losing hold of Clinton's efforts to make taxes a normal piece of responsible, pro-growth fiscal policy.

Top Stories

The Senate overwhelmingly passed the tax compromise, report Lori Montgomery and Shailagh Murray: "A far-reaching $858 billion tax plan negotiated by the White House and Republican leaders sailed through the Senate on Wednesday and was headed for a vote Thursday in the House, as lawmakers rushed to prevent a New Year's tax hike from striking virtually every American household. After a decade of partisan sniping over tax breaks enacted at the dawn of the George W. Bush administration, the Senate overwhelmingly approved a plan to extend them beyond Dec. 31, voting 81 to 19 to keep the cuts in place for families at all income levels for another two years. Prospects for House passage also appeared to be brightening, as lawmakers acknowledged the need to avoid expiration of the Bush tax cuts and the likely shock to the economy that would result."

The House will vote on an amendment to alter the estate tax provisions of the tax deal before voting on the final deal today: http://bit.ly/fpRiwW

But the amendment they're voting on isn't very different than the language that's already in the bill: http://wapo.st/gsSn1j

Obama used a meeting with CEOs to press for increased hiring, reports Elizabeth Williamson: "President Barack Obama pressed 20 corporate chief executives Wednesday to suggest policies that would spur them to "start investing in job creating enterprises." The private meeting at Blair House, across the street from the White House, was part of an administration effort to repair relations with corporate America, which have been battered by disagreements over policy and presidential rhetoric...The White House has been pursuing a charm offensive with the biggest U.S. employers in recent weeks, hoping to convince them to plow some of the $2 trillion in cash they are sitting on into expansion and hiring in the U.S."

The US has secured a number of trade concessions from China, reports Howard Schneider: "China has agreed to lift its extensive limits on the import of U.S. beef, lower restrictions on imports of wind turbines and telecommunications equipment, and take an array of other steps that U.S. officials say could lead to a substantial boost in U.S. exports to the world's second-largest economy. After two days of high-level talks, U.S. and Chinese officials unveiled a set of agreements Wednesday that address some of the core trade grievances raised by U.S. firms that do business - or want to - in the fast-growing Chinese economy."

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'90s alt-rock interlude: PJ Harvey plays "To Bring You My Love".

Still to come: Republican members of the financial crisis commission want to avoid blaming Wall Street; health care lawsuits will likely shake out on party lines; the tax deal contains billions in industry subsidies; and a ladybug plays with sprinkles.

Economy

Republican members of the Financial Crisis Inquiry Commission are blaming housing policy, not Wall Street, for the financial crisis, report Zachary Goldfarb and Brady Dennis: "Republicans on a congressionally appointed panel studying the causes of the financial crisis largely blamed federal housing policy in a brief paper Wednesday that highlighted how differently the right and the left view the origins of the crisis. Splintering from their Democratic counterparts, the four GOP members of the Financial Crisis Inquiry Commission pointed the finger at politicians in Washington for promoting lax mortgage lending standards that allowed lower- and moderate-income people to buy homes beyond their means."

Shahien Nasiripour lists some of the words you won't find in the report: "All four Republicans voted in favor of banning the phrases 'Wall Street' and 'shadow banking' and the words 'interconnection' and 'deregulation' from the panel's final report."

Download the report: http://bit.ly/ePkoB3

The World Bank is pledging $50 billion in aid to poor countries, reports Howard Schneider: "Officials meeting in Brussels this week agreed to contribute nearly $50 billion over the next three years to the World Bank fund dedicated to the globe's poorest countries. The 18 percent boost marked the arrival of some previous aid recipients as donors. World Bank President Robert Zoellick said he could not provide details on individual donors until the World Bank board approves the funding package early next year. The United States pledged $3.7 billion in the last funding round, negotiated in 2007. Treasury Department officials would not release the amount of the latest U.S. pledge."

Some Republicans are voting against their own earmarks, report Philip Rucker and Paul Kane: "The spending bill also contained earmarks totaling $30.2 million sponsored by Sen. Bill Nelson (D-Fla.), who swore off earmarks last month...Sens. John Cornyn (R-Tex.) and John Thune (R-S.D.), who sponsored an estimated $15.7 million and $38.5 million worth of earmarks in the bill, came under sharp questioning Wednesday when they staged a news conference to condemn the practice. 'Earmarks are a symptom of wasteful Washington spending that the American people have said they want reformed,' Cornyn told reporters. 'We agree with them, and that's why we will vote against this bill.'"

Cutting payroll taxes for employers could be more effective than cutting them for employees, writes Casey Mulligan: http://nyti.ms/f25SKu

Larry Summers, in aggregate, did well in his post, writes John Cassidy: "With the credit markets frozen and the economy in free-fall, the President-elect ignored the counsel of some of his campaign advisers and hired the controversial professor to guide him in the right policy direction. Did Larry do that?...Summers, for all his blemishes, has never pretended to be a politician or a political tactician. His job was to give the President economic advice and present the options available to him. This he did for two years. He made some mistakes and he failed to articulate an overarching narrative for Obamanomics, but on the defining question of the age--how to react to the financial crisis of 2008--Summers got things largely right. For this, at least, we owe him some gratitude."

Insect interlude: A ladybug plays with sprinkles.

Health Care

Health care lawsuits highlight the influence of partisanship on court outcomes, reports Kevin Sack: "The two federal judges who have upheld the law were appointed by President Bill Clinton, a Democrat. Judge Hudson and Judge Vinson were appointed by Republican presidents -- George W. Bush and Ronald Reagan, respectively... Although the science is imprecise and often disputed, some scholars have found patterns of partisan divisions at all levels of the federal judiciary, based on the appointing president. At the district court level, there is generally a high degree of consensus among judges in similar cases, except when they confront polarizing constitutional questions like abortion, campaign finance and now health care."

Even states opposed to the individual mandate are aggressively implementing other parts of health care reform: http://politi.co/gUpnYL

If Social Security is any guide, health care reform will take years to become uncontroversial, writes Matt Bai: "The pattern here is perhaps best illustrated by Social Security. Franklin D. Roosevelt signed the program into law in 1935, but it didn’t begin to pay out benefits until 1941...Even as the political maelstrom raged, though, Social Security was slowly expanded to cover more categories of workers, and a generation of retirees began receiving their checks. 'It basically gets woven into the way employers are operating and people are planning,' says the political scientist Theda Skocpol, a Harvard professor who has written extensively on the history of American social policy. 'People didn’t get used to the benefits to which they were entitled until the ’50s.' By that time, political support for the program was no longer in doubt, and Republican opponents had little choice but to desist."

Exchange systems might be able to solve the organ transplant shortage, writes Annie Lowrey: http://slate.me/e5jlMQ

Domestic Policy

The tax deal includes $55 billion in subsidies for specific industries, reports Dan Eggen: "U.S. technology companies such as Microsoft would continue to benefit from a tax credit for research and development carried out in the United States, costing taxpayers about $6 billion. Rum-makers in Puerto Rico and the U.S. Virgin Islands would get another two-year extension of excise tax credits for their products ($235 million), while movie and television producers would enjoy special deduction rules for U.S.-based projects ($162 million). Owners of NASCAR tracks and other motor-sports facilities would benefit from two more years of a tax policy making it cheaper for them to fund capital projects. Estimated cost to taxpayers: $40 million."

Executives at the White House summit called for net neutrality rules: http://politi.co/dLH2Lx

Giving parents control can fix failing schools, writes Arnold Schwarzenegger: "On Dec. 7, history was made by a small group of parents in Compton, Calif. Their children attend McKinley Elementary School - a school that has been defined as failing for the past 10 years. Using a new power known as the 'parent trigger,"' which I fought for and state legislators approved last year, these Compton parents banded together to demand change. The legislation allows parents of students at troubled schools to demand such significant reforms as closing a school, replacing a school's management or most of its staff, or reorganizing a school into a charter, if 51 percent of parents sign a petition. McKinley Elementary is being reorganized and will soon be transformed into a charter school run by Celerity Educational Group, which is successfully operating three other schools in California."

The House will allow iPads and other technology on the floor: http://politi.co/hqUJ2k

Adorable animals adjusting to seasons interlude: Cats fighting in the snow.

Energy

Fox News does not allow positive coverage of climate science: http://wapo.st/glkQxS

Detroit is prospering by selling gas-guzzlers, writes Edward Niedermeyer: "At General Motors, sales of actual cars this year have fallen by nearly 6 percent compared with last year’s anemic numbers, while light trucks (which include pickup trucks, S.U.V.’s, minivans and crossovers) are up by more than 16 percent. Despite rolling out the much-hyped Cruze compact and the Volt plug-in hybrid, G.M. still sells half again as many trucks and S.U.V.’s as it does cars. This year 73 percent of Chrysler’s sales have been light trucks...According to the Environmental Protection Agency, the Detroit automakers have three of the four lowest average fleet fuel economy ratings among full-line manufacturers, and none achieves the industry average of 22.5 miles per gallon."

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

By Ezra Klein  | December 16, 2010; 6:53 AM ET
Categories:  Wonkbook  
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Next: Orszag and Citigroup

Comments

"In the campaign, President Obama promised that taxes wouldn't rise for anyone making less than $250,000."

Not true.

Obama said HE would not raise their taxes, but he didn't promise Congress wouldn't (by failing to extend Bush's tax cuts).

Posted by: lauren2010 | December 16, 2010 7:35 AM | Report abuse

"But the amendment they're voting on isn't very different than the language that's already in the bill"

Depends on your perspective.

In the sense of restoring power to the House Democrats, this amendment is VERY different from the Senate bill. It's a shot across the bow of everyone that it was a mistake to ignore House Dems, and this action could make them relevant again to other debates in the future.

And if the House amendment is not very different from the Senate bill in literal terms, why oh why wouldn't the Senate supporters of this overall deal then rush to pass the House version instead of letting all the Bush tax cuts expire?

After all, as you say Ezra, the bills are not much different, and then when you consider the GOP clearly has a reason to support this deal (otherwise they wouldn't have voted to pass the Senate bill), a betting person would lay money on the Senate rushing at the last minute to just pass the new House version. And if they don't, it must be because the two bills are somehow different in significant ways after all.

Posted by: lauren2010 | December 16, 2010 7:44 AM | Report abuse

"Fox News does not allow positive coverage of climate science:"

Why not just say that we now have proof Fox News actively censors the news?

This means you can't trust a single thing said on Fox News (as if reasonably intelligent people didn't already figure this out for themselves).

Posted by: lauren2010 | December 16, 2010 7:55 AM | Report abuse

sorry but Matt Bai is wrong. I fully expect that healthcare reform will extend well past when social security was not controversial for mainly one reason. Subsidies. Social Security is basically a forced savings plan for yourself. Subsidies are the kind of transfer of wealth (450 billion per year) that Social Security has never been or will ever be. Eventually if this point is made well enough and long enough we could possibly address the issue of cost.

Posted by: visionbrkr | December 16, 2010 8:16 AM | Report abuse

Whenever comprehensive health reform has been enacted in other western countries, the people have quickly learned to love it. Even many conservatives in those countries have done so.

Of course, this is America, and our health system is fragmented and ill-designed, and some of us do have apathy towards helping less unfortunates, so I am not sure the same love will happen here.

And though most Americans love SS, many conservatives here still hate it.

So my best guess is, if Obamacare is not soon fully repealed by the USSC (a 70% chance of happening in my estimate) Matt will be proved right. Obamacare will evolve in future decades to solving costs to some degree (the alternative is massive austerity) and most people will come to love their access to health care though a sizable number of tax-minded conservatives will continue to whine away. It'll be much the same as we feel as a nation for SS now (loved by most, but always under threat by a sizeable minority).

Posted by: lauren2010 | December 16, 2010 8:42 AM | Report abuse

"Not true.

Obama said HE would not raise their taxes, but he didn't promise Congress wouldn't (by failing to extend Bush's tax cuts)."

I don't think that helps much. He's not dishonest - he's just incompetent.

I'm not even sure Republican ads would even bother with such a distiction (e.g. "In 2008, candidate Obama promised not to raise taxes on anyone making less than $250,000 - despite this promise, in 2011 taxes rose on all Americans. Is this the change you voted for?")

If Obama attempts to defend himself by saying the tax hikes were the fault of Congress failing to act, the Republicans will come back and attack him for being unable to control his own party.

At the end of the day, if taxes rise for everyone it will be a net political liability for Obama, even if he wasn't the driving force behind it.

Posted by: justin84 | December 16, 2010 9:46 AM | Report abuse

A ho hum morning, not much to get excited about.

The Chinese story is pretty funny though. Beef wil certainly get a chance to make an impact. Chinese tastes are not groomed to it though, it will take time to develop the market. Most people don't realize that prior to the Civil War pork was the American meat of choice, not beef. (that was my nerd note of the day).

The idea that the Chinese would buy wind turbines from us is hilarious since the technology is fairly direct and they could make it much cheaper than we can. Oh well.

Posted by: 54465446 | December 16, 2010 10:09 AM | Report abuse

Justin

I wasn't referring to the political calculus of that statement, but rather just being literal on the correctness of the statement.

I agree your take is one possible outcome, but there are other outcomes as well. The bigger picture suggests we are headed for a hard reset and both parties will be heavily blamed regardless of whether this tax deal gies thru or not. This tax deal makes the hard reset more likely.

Posted by: lauren2010 | December 16, 2010 10:20 AM | Report abuse

Pork > Beef. There, I said it.

@Justin84,

It's hard to argue the point. I could argue that pretty much all the battleground districts will be in republican hands for the next two years, and telling the voters that their higher taxes is the fault of people who didn't do anything 3 years ago (and totally not the fault of the people who passed the tax hike 12 years ago) might be a tough sell.

If it blows up now, a lot will obviously depend on what happens in terms of the cuts over the next two years. Obama right now is the guy who went to the other party and struck a deal to make sure Americans didn't see smaller paychecks. If the other party fails to come through for the next two years...

Posted by: eggnogfool | December 16, 2010 10:33 AM | Report abuse

"Social Security is basically a forced savings plan for yourself. Subsidies are the kind of transfer of wealth (450 billion per year) that Social Security has never been or will ever be."

Social Security might be perceived that way, but it really isn't. It isn't a 'forced savings' system - it would be far better if it were, for several reasons:

1) Most people would have higher retirement incomes
2) Savings would increase, increasing the capital stock and driving economic/wage growth
3) People would have a property right to their retirement, as compared with the current system which can be adjusted by politicians at any time
4) People could retire at anytime they felt they had enough money - say if someone had saved a lot by 58 then lost their job and couldn't find a new one, they could retire rather than wait to 62 or 67

Social Security also subsidizes those with lower incomes (returns are higher, given the higher PIA for lower AIME), though admittedly not on the scale of PPACA.

Posted by: justin84 | December 16, 2010 10:53 AM | Report abuse

eggnogfool,

I think that if the tax deal fails now, next year House Republicans will pass a tax bill, most likely the deal they worked out with Obama.

If that tax bill fails, I think Republicans can easily say that they did what they could to prevent the tax hikes, but since they only control one house of Congress it was out of their control. Not only did the Dems not do anything to prevent the tax hike while in power, they actively blocked the Republicans' attempt to do so.

Lauren,

Fair enough. Obama can only sign what gets to his desk, so I agree it would be the fault of Congress if no action is taken.

Posted by: justin84 | December 16, 2010 11:11 AM | Report abuse

"next year House Republicans will pass a tax bill, most likely the deal they worked out with Obama."

That's what would make sense. But can the new tea bag regime come in and pass the Obama Trillion Dollar Debt Increasal Act of 2011 right away?

Anyway, I don't see any bluedog or republican support for the amendment, so it's almost certainly moot.

Posted by: eggnogfool | December 16, 2010 12:05 PM | Report abuse

This sounds terrific.

1. Foolish desperate discredited lame duck House Democrats who just watched 25% of their caucus get obliterated follow Pelosi's marching orders and much up the tax bill.

2. Tax bill is sent to Senate.

3. Republican Senators kill the tax bill and all other legislation and pass the proper deal as the first order of business in January.

In fact, skip to 3. No reason to allow any of this lame duck nonsense. These punks had 2 years to do what they wanted.

Posted by: krazen1211 | December 16, 2010 12:31 PM | Report abuse

justin

If SS were changed from a safety net program to an investment program (forced or not), here's what would happen:

A significant number of people would make bad investments and lose most or all of everything they have and would not be able to care for their needs after they become elderly.

And despite the fact that we would then have a Social Savings program in place to prevent that, we'd end up creating a new program to help the elderly who have fallen thru the cracks either because they were idiots or because the market crashed and wiped out much of their savings (which happened to most Americans in recent years).

So we'd end up with both a Social Savings program and a newer version of what was once Social Security. That's unless you think Americans would not be bothered by significant numbers of elderly Americans begging on street corners for handouts.

Also, forced savings programs won't help lots of people (even smart ones doing everything correctly) who early in life suffer catastrophic illnesses. That's because most people can't earn enough to save enough to pay for any catastrophic illness they suffer AND we don't have universal health coverage (and may never have it if the GOP gets their way with the current conservative court).

Now, if we had universal health coverage for all, then you could begin to make an argument that forced savings programs might be feasible. But even then, there are lots of other helpless people that a forced savings program would not help. For example, mentally or physically handicapped people (from birth) who can't care for themselves will suddenly find they are on the street if their parents or other guardians die.

No, a forced savings program is a fair-weather program only and won't work except for but a segment of society (maybe half at best), and later when society figures that out, they'll have need to reconstitute Social Security to help millions and millions of people who will otherwise end up on the street.

Posted by: lauren2010 | December 16, 2010 1:31 PM | Report abuse

"A significant number of people would make bad investments and lose most or all of everything they have and would not be able to care for their needs after they become elderly."

Too late. The US government already did that by increasing spending in Medicaid and education.

Universal health care is the prime definition of a miserable investment that will cut into US economic growth.

Posted by: krazen1211 | December 16, 2010 1:47 PM | Report abuse

"A significant number of people would make bad investments and lose most or all of everything they have and would not be able to care for their needs after they become elderly."

As long as the savings are forced already, you can always take away the option to make bad investments.

Note that I only devote 10.4% of income to forced savings - the other 2% can fund existing SI/DI or be a mandate to purchase private versions of the same.

A person who earned $28,850/yr and saved 10.4% of their income in the S&P ($3,000/yr) from 1968 to 2008 could have gotten an annuity worth $1,600/mo (using 28 year annuity inflation adjusted, 2% real return on annuity assets). Using Social Security's insurance amounts on average monthly earnings, they'd receive a payout of $1,203/mo from Social Security.

Had this person been working from 1960-2000, the annuity would have been $3,311/mo with the same assumptions, nearly triple the social security payout.

So if they retire when the stock market is pricing in a new depression, a lower income individual who worked for 40 years could make about a third more in the market than in social security. If they retired at the tail end of a boom, it would be close to triple the social security payout.

http://www.freeannuityrates.com/annuities/calculators/immediate-annuity-calculator.php

http://www.moneychimp.com/features/market_cagr.htm

http://www.ssa.gov/oact/cola/Benefits.html

"So we'd end up with both a Social Savings program and a newer version of what was once Social Security. That's unless you think Americans would not be bothered by significant numbers of elderly Americans begging on street corners for handouts."

Yes, you could do that. We could say "You are being forced to save 10% of your income. If your savings can't generate an annuity worth $15,000/yr as an individual or $22,000/yr as a couple, Social Security would top off the annuity payment."

Let's assume that by 2050, under such a program, 40% of the population failed to earn enough to cover their own retirement, and of that population, the average 'top off' needed from Social Security is 70% of the minimum values. We expect about 88.5 million people in the 65+ bracket in 2050, so this would cover 35.4 million people. Assuming a 40% single / 60% couple split, the average minimum benefit would be $12,750, 70% of which is $8,925. 35.4 million x $8,925 is $315.945 billion in total payouts.

http://www.census.gov/population/www/projections/downloadablefiles.html

Assuming GDP grows a modest 2%/yr over the next 40 years (to ~$32,500 billion), the old age insurance component of social security falls from ~5% of GDP under current law to ~1% of GDP. At the same time, no one's benefit falls below $15,000 or $22,500 depending on household status, and the retirement age is at 65, not 67 or 69.

The catch is you do have to pay for people in the current system, but they need to be paid for in one way or another.

Posted by: justin84 | December 16, 2010 2:45 PM | Report abuse

Nice Article. I just now got Coupons of my Favorite Brands at "Printapons" search online and start saving now

Posted by: billiecpolk | December 17, 2010 1:42 AM | Report abuse

Ezra,
Why is there NO STORY ANYWHERE about Obama's meeting with 20 CEOs?

Nothing in WaPo, NY Times. Nothing.

There must be a big story there for nothing to come out.

Methinks they're going to sit on their $2 trillion say "Screw you suckers!"

Posted by: boscobobb | December 17, 2010 3:29 AM | Report abuse

"I oppose borrowing nearly $1 trillion over the next two years when we will pay $438 billion in interest on the national debt this year alone", REP. PETE VISCLOSKY claims.

The estate tax, first enacted in 1916, was never intended to be simply a device for raising revenue. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth — which was considered a national problem.

I think we all know that the advanced countries are marked by the strong base of middle class, which ensures persistent economic vitality.
But Americans seem little inclined to resist wealth concentration. Efforts to impose taxes geared to the wealthy are lambasted as promoting class warfare.

Reacting to Republican opposition United for a Fair Economy, a nonpartisan, non-profit organization, issued the following statement:

"In the last decade, we've seen a massive transfer of wealth from the middle class to the rich, and tax policy has been a big driver of that," said Mike Lapham, director of UFE's Responsible Wealth project. "Extending the Bush tax cuts would give the average millionaire over $100,000 per year. Extending those tax cuts will do nothing to create jobs. Business owners make decisions about hiring based on demand, not based on their tax rate. By contrast, when middle class people get tax cuts, they spend it and that creates jobs. Republicans are blocking tax cuts for the real job creators – 98% of Americans, the vast middle class – in order to extend extra tax giveaways to the rich."

And added, "Republicans claim they are for fiscal responsibility, but they would like to repeal the estate tax, at a cost of $700 billion over 10 years. Republicans aren't concerned about growing wealth inequality, even though it hurts our country's economic growth and health, and is now the worst it's been since 1928. They opposed Sen. Baucus' bill, which sets the estate tax exemption at $7 million for a married couple, with a 45% rate on amounts above that. A stronger estate tax, with higher rates on billionaires, would do more to curb that wealth inequality and bring more broadly shared prosperity to all."

Posted by: hsr06011 | December 17, 2010 3:43 AM | Report abuse

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