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Posted at 6:33 AM ET, 12/17/2010

Wonkbook: What went right, and what went wrong, in Congress last night

By Ezra Klein


Congress was up late last night. First, something that could've gone wrong didn't. The tax deal passed, and despite a day of peculiar haggling over the way the vote would go down, most House Democrats joined with most House Republicans to protect the deal from amendment and pass it through the chamber. It doesn't have to go back to the Senate, a new round of negotiations isn't needed. It's done.

But then, something that wasn't supposed to go wrong did. Harry Reid announced he didn't have enough votes to pass the bill funding the government. That means he'll fall back on continuing funding at current levels -- never a good thing for the federal bureaucracy, as priorities change and programs that we needed last year should lose money while programs that we need next year should gain it.

And the lame-duck session still isn't done: Reid has announced the Senate will take another crack at repealing Don't Ask Don't Tell (and this time, it looks like they have the votes), and will also vote on the DREAM Act and the START treaty. To this, some Republicans say the Senate doesn't have enough time to consider all this legislation before it adjourns. Reid disagrees. The Senate doesn't have enough time only if it stops working the week before Christmas and doesn't come back. "We are in session, if necessary, up to January 5th," Reid said. "That is the clock our Republican colleagues need to run out. It's a long clock."

Welcome to Wonkbook.

Top Stories

The House has passed the tax deal, report Lori Montgomery and Shailagh Murray: "Congress approved the most significant tax bill in nearly a decade late Thursday, overcoming liberal resistance to continue for two more years tax breaks enacted under President George W. Bush and to provide a fresh boost of federal support to the tepid economic recovery. The package, brokered by President Obama and Republican leaders in the wake of the November elections, angered many Democrats, who have long argued that the Bush tax cuts were skewed to benefit the wealthy. But their last-minute campaign to scale back the bill's benefits for taxpayers at the highest income levels failed, and the House passed the measure 277 to 148, with 112 Democrats and 36 Republicans voting 'no.'...The $858 billion package now goes to the White House."

The unemployment benefit extension won't help 99ers:

Senate Democrats have given up on a bill to fund the government for the rest of the fiscal year, report Paul Kane and Mary Beth Sheridan: "Senate Democrats on Thursday abandoned their efforts to approve a comprehensive funding bill for the federal government after Republicans rebelled against its $1.2 trillion cost and the inclusion of nearly 7,000 line-item projects for individual lawmakers. After a day of backroom negotiations, Senate Majority Leader Harry M. Reid (D-Nev.) announced that he could not overcome a Republican filibuster after GOP senators turned their backs on billions of dollars of so-called earmarks they had sought in the bill. Instead, a slimmed-down resolution that would fund the government mostly at current levels will come before the Senate, and Reid and Minority Leader Mitch McConnell (R-Ky.) said it will pass by Saturday."

Obama might've just won reelection, writes Charles Krauthammer: "If Barack Obama wins reelection in 2012, as is now more likely than not, historians will mark his comeback as beginning on Dec. 6, the day of the Great Tax Cut Deal of 2010...Remember the question after Election Day: Can Obama move to the center to win back the independents who had abandoned the party in November? And if so, how long would it take? Answer: Five weeks. An indoor record, although an asterisk should denote that he had help - Republicans clearing his path and sprinkling it with rose petals."

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Beyoncé cover interlude: ceo plays "Halo".

Still to come: Krauthammer says the Republicans got schooled on the tax deal; Paul Krugman vs. the Republicans on the FCIC; America will ignore the Basel Committee's anti-credit measures; the Senate confirmed four of 38 judges; and a dog goes down a water slide.


The Fed is requiring lower swipe fees on debit cards, reports Ylan Mui: "The Federal Reserve proposed on Thursday lowering the fees that merchants must pay when shoppers use debit cards, a move that could reduce retail prices but result in higher banking fees for consumers. Under the recommended new rules, the so-called interchange fee, or 'swipe fee,' on debit cards would be capped at 12 cents - about 70 percent lower than the average fee of 44 cents per transaction last year, according to the Fed. The total amount banks received from debit card interchange fees was $16.2 billion. The move was applauded by retail industry groups and small businesses, which have long complained that the fees were excessive and they have little power to negotiate them down."

The US is rejecting a Basel committee proposal to prevent asset bubbles, reports Howard Schneider: "A committee writing new international financial standards has recommended strict new guidelines to restrain bank lending, an idea considered central to preventing the global financial system from overheating, but one that some feel could choke off needed credit for households and businesses. U.S. officials say they have already decided to ignore key parts of the proposal because of the potentially damaging impact to the country's economy. Data released by the group, the Switzerland-based Basel Committee on Banking Supervision, indicates that under the proposed guidelines, U.S. banks would have faced restrictions on lending for at least 13 of the 23 years from 1985 to 2007."

GM has bought the rest of its shares back from the federal government, reports Chris Nicholson: "The United States Treasury says General Motors has repurchased the rest of the preferred shares owned by the government for $2.1 billion. G.M. bought the 84 million shares for $25.50 a piece, 2 percent more than their liquidation value. The company said it would book a $700 million charge related to the buyback early next year. After G.M.’s initial public offering last month netted $13.5 billion for taxpayers, the buyback brings to $23.1 billion the amount the company has repaid out of $49.5 billion the government invested in a bailout."

The narrative pushed by Republicans on the Financial Crisis Inquiry Commission makes no sense, writes Paul Krugman: "For one thing, as I’ve already noted, the housing bubble was international -- and Fannie and Freddie weren’t guaranteeing mortgages in Latvia. Nor were they guaranteeing loans in commercial real estate, which also experienced a huge bubble. Beyond that, the timing shows that private players weren’t suckered into a government-created bubble. It was the other way around. During the peak years of housing inflation, Fannie and Freddie were pushed to the sidelines; they only got into dubious lending late in the game, as they tried to regain market share. But the G.O.P. commissioners are just doing their job, which is to sustain the conservative narrative."

Wage growth isn't keeping pace with productivity growth, writes Alan Blinder:

Republicans' defenses of tax cuts for the rich don't hold water, writes Steven Pearlstein: "Equally unconvincing is the argument that they are primarily concerned about small-business job creation. Surely there are other ways to encourage small businesses to expand their payrolls without giving tax breaks to movie stars, professional athletes, law firm partners and hedge fund billionaires. There may be some truth to the Republican belief that lowering taxes overall is a good way to boost economic growth or contain the size of government. However, that would apply just as well to cuts in corporate and payroll taxes or additional income tax cuts for the middle class. Yet you don't see Republicans drawing lines in the sand over those. What's so magical about the estate tax or the top marginal income tax rate?"

Supercut interlude: Movie characters noting that they're "not in Kansas anymore."

Health Care

Another federal judge appears likely to rule the individual mandate unconstitutional, reports N.C. Aizenman: "As in the Richmond case, Thursday's hearing before Judge Roger Vinson of the U.S. District Court for the Northern District of Florida will largely center on whether Congress has the constitutional authority to require virtually all Americans to obtain health insurance or pay a fine...Vinson...has already signaled that he might be willing to rule at least partly for the states. In an October decision allowing the case to move forward, he sternly rejected the Obama administration's assertion that the law's penalty for being uninsured amounts to a tax, which the Constitution gives Congress broad powers to levy."

The administration has given a thumbs up to lab-manufactured organisms:

Judge Hudson's ruling against the individual mandate has a century's worth of precedent behind it, writes Jason Mazzone:

Domestic Policy

The Senate has begun to act on Obama's judicial nominations, reports Abby Phillip: "The Senate unanimously confirmed four of 38 pending judicial nominations Thursday evening, the first of President Barack Obama’s judicial nominees to be approved since September. The nominees -- Catherine Eagles, Kimberly Mueller, John Gibney, and James Bredar-- had waited the longest on the Senate calendar, despite having won unanimous votes from the Senate Judiciary Committee. The nominations for Eagles, Mueller and Gibney were sent to the full Senate in May and Bredar was reported out of the committee in June. The White House hailed the confirmations but said the Senate must continue to act."

Senate Republicans are moving to block net neutrality, reports Cecilia Kang: "Sen. Kay Bailey Hutchison (R-Tex.), ranking member of the Commerce, Science and Transportation Committee filed an amendment to an appropriations bill aimed at preventing the Federal Communications Commission from adopting net neutrality regulation. Hutchison's amendment, co-signed by John Ensign (R-Nev.) and six other Republican lawmakers, would 'prohibit the FCC from using any appropriated funds to adopt, implement or otherwise litigate any network neutrality based rules, protocols or standards.' An FCC spokeswoman declined comment on the amendment."

The White House wants an Internet "privacy bill of rights":

Obama should offer each side a big policy achievement, writes David Brooks: "To get the left excited, Obama might offer an activist growth agenda. This would involve spending more on infrastructure, research and job training — the basic things he has always talked about. But it also would mean going further and embracing industrial policy...To get the right excited, he needs to offer fundamental welfare state reform...Paul Ryan, a Republican, and Alice Rivlin, a Democrat, have come up with a Medicare reform plan in which new enrollees would receive a fixed contribution from the government, growing a bit faster than inflation. They would apply that money against the cost of health insurance. This would make Medicare a defined contribution program and save hundreds of billions.

Adorable animals in water interlude: A dog that loves water slides.


Sen. Jay Rockefeller wants to force a vote on stripping the EPA of its authority on climate change, reports Darren Goode: "Sen. John Rockefeller (D-W.Va.) is pressing forward on his drive to vote this month on his plan to delay Obama administration climate regulations for two years, threatening to go directly to the Senate floor and force a vote to include it in a catch-all spending bill...'If left with no other option, Senator Rockefeller will seek to suspend the rules on the Omnibus Appropriations bill to bring up his legislation,' his office said in a statement. Such a maneuver would require 67 votes, which he is unlikely to get. A POLITICO analysis shows at least 56 senators would likely support Rockefeller’s amendment."

House climate skeptic James Sensenbrenner now has a senior post on the Science committee:

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

By Ezra Klein  | December 17, 2010; 6:33 AM ET
Categories:  Wonkbook  
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Next: An incoherent Congress


How is 'forcing' people to buy healthcare coverage or else pay a fine of $850 or whatever any different than taxing everyone $850 and offering a tax credit of $850 for those who buy coverage?

Let's be honest, the Supreme Court loves the commerce clause because it has no clear meaning, has been warped and manipulated to the point where anything and everything could be declared constitutional or unconstitutional based on it. This puts the Court in the position of an Oracle, who gets to decide whether every major piece of contentious legislation that comes along lives or dies on a case by case basis.

Several years from now, we will get a ruling. It will be on party lines. It will be narrow. It will provide no guidance to congress going forward on what is or is not constitutional under the commerce clause. The entire sham of a process will also add no value in terms of precedents for the legal community; a century of narrow dichotomous commerce clause rulings has already provided plenty enough precedents for future Courts to justify whatever their preconceived opinions are in any given future case.

We could save tens, perhaps hundreds of millions of taxpayer dollars by asking the Supreme Court for a show of hands tomorrow; their opinions won't change in the near future. I guess one of them might get hit by a truck between now and then and replaced, but other than that the entire serves no purpose. I guess my bigger question is, why does the New York Times think non-lawyers are morons who aren't aware of all this?

Posted by: eggnogfool | December 17, 2010 9:40 AM | Report abuse


This court is more active and ideological than any in recent memory.

For that reason expect a much more ardent statement from them about health care reform. I predict this court will shockingly GUT Obamacare, much in the same way they are gutting long-standing campaign finance reforms. They won't stop at eliminating the mandate.

Posted by: lauren2010 | December 17, 2010 9:53 AM | Report abuse

"What's so magical about the estate tax or the top marginal income tax rate?"

It's not only fairness issues - it's the economics:

"The first is the compensated demand or supply elasticity of the good being taxed: the more elastic the demand or supply, the greater the excess burden. The second is the tax rate: as a general rule, the excess burden of a tax increases with the square of the tax rate."

So if you're trying to minimize the deadweight loss to the economy due to taxes, a cut to the top rate matters a lot more than a cut to the lower rate.

More importantly, deadweight loss accumulates over time. Edward Prescott estimated the long run elasticity of labor supply to be roughly 3 (that is a 1% increase in marginal rates reduces labor supply by 3%).

As for the estate tax, it largely takes resources out of capital markets and distributes it to other people to spend. Taxing capital in order to pay for current consumption (which is what most of government spending is) is inefficient economically speaking.

Heck, Pearlstein could have bothered to read Ezra Klein's interview with Hubbard:

"My lens as an economist would be efficiency. Estate taxes are capital taxes, and the optimal capital tax is zero. But that won't happen. So I'd say a high exemption and a low rate makes sense. The estate tax is not an efficient way to effect wealthy people. It would make more sense to solve the entitlement problem on their backs. "

A robust economy helps keep progressive policies at bay.

"It's also worth noting that there are plenty of very rich people ... who don't seem to have a problem with paying higher taxes."

No need for compulsion then, Steve. Just let them donate to the government the amount of money they wish.

"While Republicans have argued recently that it would be an economic catastrophe to raise taxes on anyone now, in the midst of a jobs recession, the truth is that they don't believe there is ever a good time to raise taxes on anyone."

While it is a lot easier to have 50 bucks stolen from me when I have $5,000 in the bank than $500, I don't believe there is ever a good time to be stolen from.

"For years now, liberals have taken comfort in the work of behavioral economists that shows human beings aren't the rational, income-maximizing stick figures they're assumed to be in classical economic models. According to this research, one of the things we care about is fairness, even when the fair thing may not be in our economic self-interest."

And yet, liberals believe this sense of fairness is somehow missing from those with money, despite the generosity of the superrich (Carnegie, Gates, Buffett, Zuckerberg, etc).

Posted by: justin84 | December 17, 2010 10:28 AM | Report abuse

Damn, I hate agreeing with Krugman on anything, but honesty compels me to do it this time.

Posted by: 54465446 | December 17, 2010 12:19 PM | Report abuse

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