Wonkbook: On taxes, George W. Bush has won
"I wish they weren’t called the Bush tax cuts," the 43rd president said in remarks on Tuesday. "If they were called some other body's tax cuts, they're probably less likely to be raised."
Perhaps. But George W. Bush is selling himself short here. Most of his tax cuts are, at this point, an almost foregone conclusion. No one is talking about taking the 10% bracket and raising it back to 15%. No one is talking about raising the 25% bracket back to 28%, or the 28% bracket back to 31%, or the 33% bracket back to 36%. And not only do both parties support the expanded child tax credit, but Democrats have expanded it further. The bulk of the Bush tax cuts are now a bipartisan affair.
To put it differently, Democrats have, for the most part, admitted that Bush was right, and the Clinton-era tax rates were too high on most Americans. For all that Democrats talk about returning to the Clinton-era tax rates, they only ever mean for the top two percent of taxpayers -- the folks who are now in the 35% bracket, but whom they would like to see in a 39.6% bracket.
The reality is that, on tax policy, Democrats are now closer to Bush than to Clinton. But neither side much likes to admit that. For Democrats, it means confessing to how far right they've moved on taxes. And for Republicans, it means admitting how far right Democrats have moved on taxes.
1) Obama renewed his public campaign for the Buffett Rule. "President Obama on Tuesday renewed his public push for the 'Buffett rule,' hoping that the proposal to raise taxes on millionaires will deepen distinctions with his political rivals in an election year, even if it has little chance to become law. Appearing before thousands of students at Florida Atlantic University, Obama urged the Senate to approve the Paying a Fair Share Act, which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes...The Senate is scheduled to vote Monday on the proposal, inspired by billionaire investor Warren Buffett, who has said it is unfair that he is able to use tax loopholes to pay a lower effective rate than his secretary. Although the legislation is probably doomed in the Republican-led House even if it succeeds in the Senate, the White House believes that the bill appeals to the public’s sense of economic fairness." David Nakamura in The Washington Post.
Wonkbook real talk: Republicans have taken an amusingly Woody Allen-esque "the food is terrible and the portions are so small" approach to fighting back on the Buffett rule, they say. On the one hand, the proposal is "class warfare." A counterproductive tax hike on job creators. On the other, it would only raise $47 billion (though $160 billion against the more oft-used current policy baseline), and so it doesn't do enough. So: This terrible, dangerous policy is too small to even talk about.
2) FHFA head Ed DeMarco opened the door to principal reduction. "The overseer of Fannie Mae and Freddie Mac on Tuesday opened the door to forgiving some mortgage debt of homeowners who owe more than their houses are worth, as the Obama administration has recently urged...But in his speech at the Brookings Institution, Mr. DeMarco described as limited the benefits from principal reduction, saying it would hardly be a magic bullet for struggling homeowners and noting that it might carry significant costs for taxpayers. His comments left doubt about whether he would change his long-held stance against principal reduction...In a new analysis cited by Mr. DeMarco, the F.H.F.A. found that reducing mortgage principal for about 691,000 eligible underwater homeowners would reduce Fannie and Freddie’s losses by about $1.7 billion, compared with doing another form of loan modification. But the Treasury Department would pay out $3.8 billion in incentives for the principal reductions, meaning a $2.1 billion net loss for the taxpayer." Annie Lowrey in The New York Times.
@NickTimiraos: DeMarco: Principal reduction option would only be available to 700K borrowers max. "This is not about some huge difference-making program"
@ObsoleteDogma: Hey DeMarco, YOU have the power to make this a "difference-making program" if you wanted. Recess appointment anyone?
3) Rick Santorum suspended his campaign. "Rick Santorum suspended his campaign for the White House on Tuesday, clearing the way for former Massachusetts Gov. Mitt Romney to claim the Republican presidential nomination and end the primary season after three months and 37 contests. The former Pennsylvania senator told a news conference he had made the decision over the weekend with his family. Trailing far behind Mr. Romney in the delegate count, Mr. Santorum faced a growing chorus of calls from within his party to exit the race and allow Republicans to unify their forces for the November election...Mr. Santorum was the last viable challenger to Mr. Romney, who is more than halfway to the 1,144 convention delegates needed to win the nomination. It is unlikely the remaining GOP challengers, former House Speaker Newt Gingrich and Rep. Ron Paul, can overtake him." Colleen Nelson, Danny Yadron, and Patrick O'Connor in The Wall Street Journal.
PREDICTION: Rick Santorum about to very publicly come to the conclusion that Mitt Romney is not as bad as he previously thought.
4) Natural gas is displacing coal. "Plummeting natural-gas prices are pushing U.S. industries into virgin terrain, even beginning to dislodge cheap Western coal from its once-untouchable perch as the nation's favorite fuel for power production...The shock wave for industry could intensify this summer because the U.S. is running out of room to store the glut of natural gas, which could drive gas prices down to sustained lows not seen in decades...The natural-gas surplus has implications for a variety of industries. Energy companies that produce gas are seeing revenue shrink and are searching for more lucrative oil. Cheap gas is stealing power-generation markets from coal, spreading gloom across a mining industry that is being spurned by its most important customer. Railroads, whose single largest source of revenue is typically hauling coal, are hurting. The economics of building a nuclear plant, wind farm or solar-power installation look shakier than ever." Russell Gold, Rebecca Smith, and Daniel Gilbert in The Wall Street Journal.
5) The growth of the labor force is slowing down. "If demography is destiny, the U.S. economy may be in the midst of a decades-long slowdown. The U.S. labor force is growing at about half the rate it was 20 years ago; according to recent projections by the Bureau of Labor Statistics, it will continue to expand at a slightly lower pace through 2020. Slower growth in the number of workers tends to hold back gross domestic product and employment, economists say. And that makes it less likely that the economy will pick up steam at the rate it did in previous recessions...The slower growth in the labor force arises from two factors, according to the BLS. First, the U.S. population is growing more slowly. Second, the percentage of Americans working or seeking work will continue to decline as the population ages. What exactly stalled the recovery from the recent recession and what might still be holding it back continue to be a matter of debate among economists and politicians." Peter Whoriskey in The Washington Post.
1) MEYERSON: The recovery has left workers behind. "Why is this recovery different from all other recoveries? Many of the reasons are widely known: Rebounding from a financial crisis takes an excruciatingly long time; the huge decline in housing values has reduced Americans’ purchasing power; large corporations are making do with fewer employees -- at least, in this country. But what really sets the current recovery apart from all its predecessors is this: Almost three years after economic growth resumed, the real value of Americans’ paychecks is stubbornly still shrinking...This recovery differs from its predecessors because it is concentrated among the affluent, and almost entirely among the very rich. Until we address the imbalance of power in the U.S. economy, and until Americans regain the clout that their parents and grandparents had to compel employers to share their revenue more equitably, the difference between our recoveries and our recessions will grow harder to discern." Harold Meyerson in The Washington Post.
2) BARRO: The Buffett Rule is arbitrary. "Tax reform is supposed to be about making the tax code simpler, less distorting, and less arbitrary. Yet...the Buffett Rule moves in the wrong direction on all of those measures...The most legitimately important loophole that allows people to avoid tax on unrealized capital gains is that when you die, your assets will have their basis 'stepped up' to their value at your death, meaning your heirs avoid tax on all the gains during your lifetime. But the solution to that problem is to eliminate the step up in basis, not to introduce the Buffett Rule. Abolishing the step up in basis is exactly the sort of item that would show up on a real tax reform plan--it’s a reform that locates income that currently is improperly excluded from tax, and then taxes it. It would not introduce new distortions into the tax code, in fact, it would reduce them, by eliminating a tax incentive for people to hold assets they would otherwise trade. But then, that would be a serious policy idea, and the White House is mostly interested in the Buffett Rule as a political gimmick." Josh Barro in Forbes.
3) WALLISON: The Volcker Rule needs to go. "Nearly two years ago, in the wake of the financial crisis, Congress passed and President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Part of that law, the Volcker Rule--which prohibits banks and their affiliates from engaging in bond trading for their own account--is garnering a lot of attention in Washington these days, none of it positive...Even Rep. Barney Frank, co-author of the provision, has urged regulators to simplify it. Simplification sounds like a reasonable idea, but it's much easier said than done. The regulation is almost 300 pages and contains over 1,000 separate questions for banks and their associates. That's not because the regulators delight in abusing the regulated, but because the regulators are grappling with an impossible problem--how to prohibit proprietary bond trading while preserving bank activities that are vital to the health of the capital markets." Peter Wallison in The Wall Street Journal.
4) PORTER: The tax code has been distorted by politics. "The deadline for filing tax returns is almost upon us. If you are like me, you must be pondering how such a rich, high-technology democracy as the United States could endure what must be the most inefficient, mind-bogglingly complex tax system known to man. Either you’ve hired an accountant to prepare your tax returns or you’ve spent countless hours plowing through schedule after schedule, noting deductions, exemptions and limitations and hoping the software you are using will get it right. Exhausted and anxious, you’re thinking surely there must be a better way. There are, in fact, more efficient ways for government to collect money. They are much less complicated. And they can raise a lot of revenue to solve our long-run budget deficit and pay for the increased benefits demanded by our aging society. What’s more, they can do so without raising income tax rates. Unfortunately, history suggests we won’t really consider these alternatives." Eduardo Porter in The New York Times.
5) GOOLSBEE: There's too much oil in the Strategic Petroleum Reserve. "When my parents moved from Texas to California in the 1970s, my mother decided that if we had to live with the chance of earthquakes, we should always have two weeks worth of toilet tissue on hand in case the 'big one' hit...Lately, two camps have fought over whether the president should release oil from the Strategic Petroleum Reserve. They have debated the original intent of the Energy Policy and Conservation Act of 1975 and what constitutes a 'significant reduction in supply' thoroughly enough to make Antonin Scalia proud. I have wondered, though, if it wouldn't be wiser to learn something from my mom's old strategic toilet paper reserve and explicitly adopt a Linda Rule in the spirit of the Buffett Rule on taxes. This rule would say: In normal times, hold enough oil in reserve to cover what you would need for a set number of days in an emergency. But don't just pump more crude into the storage caverns because it fits." Austan Goolsbee in The Wall Street Journal.
Collaboration interlude: The Decemberists and Gillian Welch play "Down By The Water" live on Conan.
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Still to come: Small business' aren't as optimistic; cigarette warnings may get court approval; cybersecurity legislation faces dim prospects; renewables grow despite bumps; and the ultimate Tumblr for wonks.
The future of exports may be services rather than stuff. "In the drive to double America’s exports, Washington has been focusing on manufacturers. But that may be the wrong target. With an educated work force, a culture of innovation and strong capital markets, the United States has a larger comparative advantage in high-skilled services like engineering, law and finance than in lower-skilled manufacturing jobs that rely on cheap labor. For these reasons, economists see tremendous potential for growth -- if, that is, Washington helps clear the way...America already exports more services than any other country in the world, even more than the next two competitors combined. In 2011, that amounted to $612 billion exported in services, up 10.1 percent from 2009, and up 136 percent since 1991. Still, there is great untapped potential for more, since all of these exports are being sold from a tiny share of all the American companies that could participate in the global marketplace." Catherine Rampell in The New York Times.
Subprime loans are back, baby. "In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out from credit at traditional lenders. It was hard enough for people with stellar credit to get loans. But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending. Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said." Jessica Silver-Greenberg and Tara Bernard in The New York Times.
Small business optimism sagged. "Higher energy prices have stung U.S. small-business owners, dimming their outlook on the economy for the first time in six months. But other reports released Tuesday indicated that employers still are looking to hire and that inventories are robust, suggesting confidence in the economy. The small-business optimism index of the National Federation of Independent Business fell to 92.5 for March from 94.3 in February--the first drop since August 2011. Small-business owners said their costs are rising and sales slowing. An increasing number of firms cited inflationary pressures as 'the number one business problem' and 21% of owners said they plan to raise the prices of their goods or services in the coming months, the survey found...The small-business report comes amid questions about the strength of the recovery. Last month, the U.S. added only 120,000 jobs, far fewer than many economists were expecting." Eric Morath in The Wall Street Journal.
Pension changes are facing legal battles. "US states are increasingly being blocked from changing public employees’ retirement benefits as the fight over shoring up chronically underfunded public pension systems moves from state legislatures to the courts. While some states have successfully altered terms for future employees, plans to force all current public workers to contribute more to state pensions have been ruled unconstitutional in Florida, Arizona and New Hampshire in recent weeks, a significant victory for public sector employee unions. Other states are expected to face similar legal battles as they plan to close large holes in their public pension funds by redrawing benefits. US state and local pensions could face a shortfall of as much as $4.4tn, up from $3.1tn in 2009, according to some estimates...The courtroom battles are being fought over the extent to which state laws protect benefits for existing workers. In many cases the question is where the defining line from which workers accrue benefits begins." Hal Weitzman and Nicole Bullock in The Financial Times.
The OECD sees growth ahead. "The world's developed economies appear set for stronger growth in the months ahead, while China's economy is also likely to pick up, according to the Organization for Economic Cooperation and Development's composite leading indicators. The Paris-based think tank Tuesday said its leading indicator of economic activity in its 34 members rose to 100.5 in February from 100.3 in January, the fourth straight monthly increase in the measure. The recovery will likely be led by the U.S. and Japan, with the leading indicator for the world's largest economy rising to 101.3 from 101.0 to register a fifth straight monthly gain, and the leading indicator for the third-largest economy rising to 101.1 from 100.8...For the euro zone as a whole, the leading indicator was unchanged for the fourth straight month, a development the OECD said could signal a pickup is on its way. The euro-zone economy contracted in the final three months of last year." Paul Hannon in The Wall Street Journal.
@ObsoleteDogma: I've never understood the "tax-and-spend" epithet? As opposed to borrow-and-spend?
Engineering interlude: A rube goldberg machine inflates and pops a balloon in 300 steps.
An appeals court may allow cigarette warning labels. "A Washington-based federal appeals court on Tuesday struggled with whether federally mandated graphic cigarette warning labels were constitutional but suggested during a hearing that a lower court may not have properly ruled on the matter. In February, Richard Leon of the U.S. District Court for the District of Columbia ruled that proposed graphic images that would be placed on cigarette packages violated First Amendment free-speech rights. The U.S. government appealed that ruling to the U.S. Court of Appeals District of Columbia, which held a hearing on the case Tuesday. Two of the three judges on the Washington-based U.S. Appeals Court appeared to question whether the lower D.C. court properly decided the case on constitutional grounds...Legal observers believe the U.S. Supreme Court will ultimately decide on key provisions of the tobacco law, such as the graphic warning labels." Jennifer Dooren in The Wall Street Journal.
An influential advisory body wants a tax on medical care to fund public health efforts. "An influential federal advisory body called for levying a new tax on medical care to finance improvements to public-health services in the U.S. A report Tuesday from the Institute of Medicine says the U.S. health system has a 'fixation' on clinical care, or treating people when they get sick, rather than preventing them from getting ill in the first place. More money from reliable sources is needed to fix the problem, said the report, which calls for the U.S. to close a gap in life expectancy with other high-income nations within 20 years...The report recommends that the government create a detailed description of a basic set of public-health services that should be made available everywhere. These could include anti-smoking programs, testing for and vaccinating against communicable diseases, injury prevention, screening for chronic diseases such as diabetes, and mental-health and substance-abuse treatment." Louise Radnofsky in The Wall Street Journal.
@mattyglesias: Health care is less non-tradeable than simply not traded. People travel for surgery all the time.
@petersuderman: Can't we just skip to the point where health care and makeup are both managed by nanobot swarms?
Every health wonk's new favorite Tumblr interlude: Payment Reform Made Meme.
A cybersecurity bill faces a tough climb. "After last year’s intense debate of an anti-piracy bill, any legislation dealing with Internet security faces an uphill climb. That point was made clear today by House Intelligence Chairman Mike Rogers, who was careful to point out differences between his bipartisan cybersecurity legislation and last year’s failed online piracy bill that was crushed after an all-out lobbying campaign from Internet companies and users...Sources say that Democrats on the House Homeland Security Committee are largely opposed. Ranking member Bennie Thompson (D-Miss.) said in a statement that 'while promoting information sharing on cyber threats is urgently needed, I am concerned about the approach taken in the Rogers bill, as approved by the Intelligence Committee, and its potential implications on Americans’ privacy and civil liberties.' Civil liberty groups, including the American Civil Liberties Union, are preparing their own counteroffensive next week after Members return from the two-week recess." Jessica Brady in Roll Call.
The future of driving is wireless. "Fender benders, rear-enders and those three-car pileups that back up traffic may be going the way of the buggy whip. Within a few years, cars whizzing down the highway will begin chatting among themselves. Once they all are equipped to join the conversation, every car will know the speed, distance and direction of every other car close enough to pose a risk...Just as it has changed so many other aspects of life, wireless technology is about to revolutionize the way we drive...It could cut highway fatalities and injuries by more than half, eliminating billions of dollars in medical bills. It could reduce by millions more what it costs to repair damage from the more than 6 million crashes each year. By governing the flow of traffic with real-time information, it can reroute drivers to avoid congestion and reduce time and fuel wasted while stuck in traffic." Ashley Halsey in The Washington Post.
The boom in oil and gas could have sweeping implications. "The reversal of fortune in America’s energy supplies in recent years holds the promise of abundant and cheaper fuel, and it could have profound effects on what people drive, domestic manufacturing and America’s foreign policy. Cheaper fuel produced domestically could reduce the cost of shipping and manufacturing, trim heating and cooling bills, improve the auto market and provide tens of thousands of new jobs. It might also pose new environmental challenges, both predictable and unforeseen, by damping enthusiasm for clean forms of energy and derailing efforts to wean the nation from its wasteful energy habits. But for Americans battered by rising gasoline prices, frustrated by the dependence on foreign oil, skeptical of the benefits or practicality of renewable fuels and afraid of nuclear power, the appeal of plentiful domestic oil and gas could far outweigh the costs." Jad Mouawad in The New York Times.
Renewable energy continues to thrive despite hurdles. "Just a few years ago, the future of renewable energy looked as bright and shiny as a white turbine blade coming out of the mold. The federal government was handing out money under the stimulus package, states were approving clean energy mandates, young companies were racing ahead with promising new technologies and big global developers were planting stakes for ambitious, utility-scale projects. Now that picture has dimmed...Yet, though the waters ahead are choppy, with businesses laying off workers and shutting down, the prospects for renewables continue to grow. Major companies like General Electric, Dow Chemical and ConocoPhillips are developing or investing in new technologies. Many projects -- some rushing to start in time to qualify for federal tax breaks before they disappear -- are going forward. And the Obama administration has been using some of its powers to promote clean energy." Diane Cardwell in The New York Times.
Reports of nuclear power's death have been greatly exaggerated. "Nuclear energy is going through an odd patch. It refuses to die, but it does not prosper. This is how modest the nuclear industry’s prospects now look: Senator Lamar Alexander, a Tennessee Republican who has called for building 100 reactors in the next few years, told a conference of industry specialists in late March that the long-ballyhooed 'nuclear renaissance' did not really exist anymore. Now, he said, it is an 'awakening to the awareness of nuclear.' But it is an awakening with a price of $30 billion or more. Mr. Alexander was speaking to a conference convened on the 33rd anniversary of the Three Mile Island accident, a few weeks after the Nuclear Regulatory Commission gave permission to build a power reactor for the first time in more than 30 years, for the twin Vogtle reactors near Augusta, Ga. Those will cost $14 billion, if all goes well, and more if it does not." Matthew Wald in The New York Times.
@drgrist: The notion that there is any meaningful support for a carbon tax in the US is now, as it has always been, delusional.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.