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Political Economy
Posted at 09:32 AM ET, 06/15/2011

Morning roundup: The Senate ethanol tax credit vote and the budget debate

Is this beginning of the end of two decades of GOP orthodoxy against higher taxes?

Another session of the budget talks led by Vice President Biden begins today after a closely-watched vote Tuesday on tax credits.

The vote itself was limited to ethanol blenders. But the fact that 34 of 47 Republicans, most of whom have signed an anti-tax pledge that specifically prohibits raising taxes by any means but economic growth, voted for a plan to cancel the credit was a significant development. Washington is buzzing with debate about whether wiping out the credit was tantamount to raising taxes.

Rep. Chris Van Hollen (D-Md.): Some Republicans’ “willingness to cut special-interest tax breaks for the purpose of deficit reduction is encouraging.”

Sen. John McCain (R-Ariz.): “Everybody’s entitled to their own opinion. It’s my opinion that it’s a disgraceful subsidy that is unwarranted and a waste of taxpayer dollars.”

While the terms of a tentative deal are still in flux, all sides signaled on Tuesday that they are aiming to reduce future borrowing by at least $2 trillion and a debt-limit increase of roughly the same size. The group is aiming to have something to present to President Obama, House Speaker John A. Boehner (R-Ohio) and Senate Majority Leader Harry M. Reid (D-Nev.) by July 1.

Today’s meeting is scheduled to focus on spending caps.

PAYROLL TAX HOLIDAY?: While much of the public rhetoric by the White House about the budget has focused on cutting taxes, Damien Paletta and Carol E. Lee, writing the in Wall Street Journal, report that during closed-door budget meetings administration officials floated the idea of extending a payroll-tax break for workers and a new tax break for employers to boost the economy. Citing people familiar with the meeting, Paletta and Lee wrote that the White House sent “a clear signal that fresh concerns over slowing job growth have spilled into discussions about how to reduce the deficit… [T]he provisions could make the budget deficit—projected to rise to $1.5 trillion this year—worse in the short term.

HELP FOR THE ECONOMY: David Leonhardt argues in the New York Times that the best deal for the economy would have two kinds of help: “The first would be immediate: further tax cuts for households and businesses, as well as an extension of jobless benefits.”

HELP FROM BIG BUSINESS: Rachelle Younglai writes for Reuters that the “Obama administration is enlisting the business community to persuade lawmakers that a default will have dire consequences. Outgoing White House economic adviser Austan Goolsbee is set to talk to a slew of business representatives this week, according to a person with knowledge of the meeting. The meeting will mark the second time in less than a month that Goolsbee has tried to get businesses to ratchet up the pressure on Congress to raise the nation’s $14.3 trillion debt limit before August 2, when the Treasury says it will no longer be able to pay the government’s bills. ‘The White House wants the business community to pull its weight,’ said one person familiar with the administration’s thinking who was on Goolsbee’s initial conference call on the subject.”

BERNANKE WEIGHS IN: Federal Reserve Chairman Ben Bernanke said Tuesday that “maintaining the status quo is not an option” when it comes to the debate over addressing the country’s soaring debt and that the market could see “severe disruptions” if the debt limit isn’t raised, according to Washington Post colleague Felicia Sonmez. But he also cautioned that the debt limit should not be used as a bargaining chip to force budget cuts. At least one analyst called his remarks “unhelpful.” The markets shrugged.

BOEHNER AIMS FOR LONG-TERM DEAL: While House Speaker John Boehner (R-Ohio) called for a sweeping deficit reduction plan, House Minority Leader Steny Hoyer (D-Md.) proposed just the opposite. He instead recommends striking a short-term deal by the end of the month and working more incrementally toward broad changes.

HOW APPROPRIATIONS COULD BE IMPACTED: House Majority Leader Eric Cantor (R-Va.) suggested to his fellow Republicans Wednesday morning that they can’t make any cuts to government operations without first dealing with spending bills. Politico’s Jonathan Allen reports that Cantor’s warning hints “strongly at leadership’s concern that appropriations could be hamstrung by reflexive votes against spending.”

By and  |  09:32 AM ET, 06/15/2011

 
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