Wonkbook: Obama’s strategy for the fiscal cliff comes clear

November 30, 2012

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkblog's Number of the Day: $450 billion. That's the revenue the White House says would be raised by a "realistic" policy that capped deductions at $25,000 for those making more than $250,000. "Realistic" here means a policy that phases in so there's not a huge cliff when you move from making $249,999 to $250,001, and that exempts charitable donations so the sector isn't devastated. For comparison's sake, simply letting the Bush tax cuts expire for income over $250,000 would raise almost a trillion dollars, and the White House's ultimate revenue target is $1.6 trillion. More here.

Wonkblog's Graph of the Day: Our long-run growth problem.

Today in Wonkbook: How Obama wants to handle the austerity crisis; special coverage of the austerity crisis and immigration; our continuing coverage of the economy, health care, and energy.

Top story: How Obama wants to handle the austerity crisis

The Democratic proposal on the austerity crisis. "Treasury Secretary Timothy F. Geithner presented the House speaker, John A. Boehner, a detailed proposal on Thursday to avert the year-end fiscal crisis with $1.6 trillion in tax increases over 10 years, $50 billion in immediate stimulus spending, home mortgage refinancing and a permanent end to Congressional control over statutory borrowing limits. The proposal, loaded with Democratic priorities and short on detailed spending cuts, met strong Republican resistance." Jonathan Weisman in The New York Times.

Read: The White House’s proposal.

Geithner, Obama’s unlikely negotiator. "Geithner was Thursday on Capitol Hill, heading into critical meetings with the Republican and Democratic congressional leaders, Obama’s choice to be the senior negotiator on behalf of the White House...people close to Geithner and to the White House say he was chosen to lead the discussions because he can make clear for Republicans what Obama will and won’t accept, while at the same time be frank with Democrats about the need to make concessions on entitlements, such as Medicare." Zachary A. Goldfarb in The Washington Post.

@mattyglesias: There’s no “new” ask in Geithner’s fiscal cliff proposal but many old ideas are being presented in a new context

Obama to GOP: I'm done negotiating with myself. "We’re seeing two things here. One is that the negotiations aren’t going well. When one side begins leaking the other side’s proposals, that’s typically a bad sign. The other is that Republicans are frustrated at the new Obama they’re facing: The Obama who refuses to negotiate with himself...Perhaps the key lesson the White House took from the last couple of years is this: Don’t negotiate with yourself. If Republicans want to cut Medicare, let them propose the cuts. If they want to raise revenue through tax reform, let them identify the deductions. If they want deeper cuts in discretionary spending, let them settle on a number. And, above all, if they don’t like the White House’s preferred policies, let them propose their own." Ezra Klein in The Washington Post.

@grossdm: for Gop the opportunity isn't to split difference between what they want and what O offers. rather, split diff. his offer and the cliff

Democrats are betting Republicans cave on taxes. "Democrats are increasingly confident that rank-and-file Republicans will cave on taxes and force House GOP leaders to pass a tax cut plan for families who earn less than $250,000. It’s a risky gambit with about a month before the country hits the fiscal cliff of tax increases and spending cuts." Jake Sherman and Manu Raju in Politico.

@mattyglesias: Very good to see the White House seeking stimulus in cliff deal and not just debt-reduction in the long run.

The GOP’s Medicare confusion. "The austerity crisis talks have hit a peculiar impasse. The problem isn’t, as most analysts expected, taxes, where Republicans seem increasingly resigned to new revenue. It’s Medicare. And the particular Medicare problem isn’t that Democrats are refusing the GOP’s proposed Medicare cuts. It’s that Republicans are refusing to name their Medicare cuts...That’s left Republicans in a peculiar negotiating position: They know they want 'Medicare reform' -- indeed, they frequently identify Medicare reform as the key to their support for a deal -- but aside from premium support, they don’t quite know what they mean by it, and they’re afraid to find out." Ezra Klein in The Washington Post.

@Goldfarb: POTUS's opening bid in fiscal cliff negotiations is his 2013 budget + a refinance proposal -- nothing new to see there, folks!

Is Norquist feeling lonely yet? "Rep. Tom Latham (R-Iowa) 'knows that all options are on the table in the negotiations taking place,' his chief of staff told the Des Moines Register. Nebraska Republican Reps. Jeff Fortenberry, Adrian Smith, Lee Terry, along with Sens. Mike Johanns (R) and Ben Nelson (D-Neb.) all say they are not bound by the pledge to reject a deal that raise revenues." Rachel Weiner in The Washington Post.

Explainer: A menu of revenue-raising options, from The Wall Street Journal.

Companies quietly push for tax break on foreign profits in the austerity debate. "Amid the tumult over looming tax hikes and spending cuts, a massive change to the corporate tax code is quietly gathering steam. U.S. multinationals have spent years pushing for a reform of the tax code that would eliminate taxes on business profits overseas, just as these firms are banking their futures on growth abroad." Jia Lynn Yang and Suzy Khimm in The Washington Post.

@tylercowen: If we won't face up to "the cliff" at 2.7% gdp growth, when again are we hoping to face it?

Tax hit looms on mortgage relief. "Troubled homeowners who get a break from their mortgage lenders might not be so lucky with Uncle Sam, and could face hefty tax bills unless Congress acts to extend a key provision. The tax provision currently allows some homeowners—mostly those facing foreclosure—to avoid paying taxes on certain relief they receive on their mortgages. The provision covers mortgages where lenders forgive a portion of the principal, a key component in the $25 billion federal-state settlement over mortgage-foreclosure abuses. It also affects homeowners who do "short sales," where banks agree to allow a property to be sold for less than the debt owed." Nick Timiraos in The Wall Street Journal.

Infographic: How different groups of people may be affected by the tax changes that will take place if the fiscal cliff isn't resolved.

Cap on tax deductions would do little to trim debt: White House report. "A realistic cap on itemized deductions that protects charities and the middle class would raise only about $450 billion over the next decade, according to new White House estimates -- too little to make a serious dent in the soaring national debt." Lori Montgomery in The Washington Post.

@hillhulse: Fiscal cliff talks move from the phase where everyone is optimistic to where no progress is being made. Usual progression of such things.

The White House reveals their tax math. "The White House has been saying that 'the math' precludes replacing the revenue from the Bush tax cuts for the rich with tax reform that holds rates steady. As we’ve pointed out, that’s not technically true...The basic argument isn’t that 'the math' makes that kind of tax deal impossible; it’s that the reality of tax policy makes that kind of tax deal impossible, for three reasons." Ezra Klein in The Washington Post.

@grossdm: If you're buying and selling stock indices based on public utterances of elected officials about fiscal cliff. . you might be a dope

CARTER: The long history of the phrase 'fiscal cliff.' "While 'fiscal cliff' negotiations may produce high drama for journalists and partisans as well as desperate uncertainty from Main Street to Wall Street, they are an absolute gold mine for wordsmiths...Understanding how the metaphor has been used throughout history, as well as examining a few literary antecedents, can shed light on our current mess, and help us appreciate that our situation is not unique." Stephen L. Carter in Bloomberg.

@jbarro: Higher taxes on the rich have nothing to do with "solving" the fiscal cliff, which is an excess austerity problem. Just something Dems want.

BROOKS: Let's give them something to talk about...How 'bout an X tax? "The 1986 [tax reform] paradigm has become an intellectual straightjacket, foreclosing considerations of the things we actually have to do...f we’re going to simultaneously address our two most pressing needs -- raising revenue and boosting growth -- we’re going to have to break free from the 1986 paradigm. That means asking the basic question: What is the single biggest problem with the tax code? It’s not the complexity, bad as that is. The biggest problem is that it rewards consumption and punishes savings and investment. You can’t fundamentally address that problem within the 1986 paradigm. You can address it only through a consumption tax." David Brooks in The New York Times.

@krauthammer: Cliff diving with Barack: Obama offers to tax now, cut spending later. GOP should walk. He doesn't hold all the cards.

KRUGMAN: The class wars of 2012. "The important thing to understand now is that while the election is over, the class war isn’t. The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth -- in the name of fiscal responsibility -- the ground they failed to gain in an open election...[W]hat voters said, clearly, was no to tax cuts for the rich, no to benefit cuts for the middle class and the poor. So what’s a top-down class warrior to do? The answer, as I have already suggested, is to rely on stealth — to smuggle in plutocrat-friendly policies under the pretense that they’re just sensible responses to the budget deficit." Paul Krugman in The New York Times.

@MichaelSLinden: More and more it seems the main stumbling block in fiscal cliff negotiations is that GOP has finally realized its positions are unpopular.

Top op-eds

BLOW: The gun frenzy. "President Obama’s election and recent re-election have apparently fueled a gun-buying craze in this country unlike anything we’ve seen in modern times...The F.B.I. has conducted nearly 156 million background checks for gun purchases from November 1998 to October 2012 (the last month for which they have published data) and a full 40 percent of those checks occurred in just the four years since President Obama was first elected." Charles Blow in The New York Times.

POSTREL: Fix copyright, and do with with free markets. "While most of the punditocracy was chattering earlier this month about Mitt Romney’s 'gifts' gaffe, another Republican took an unexpectedly bold stand about a huge and controversial special-interest handout that largely benefits Democratic constituencies. A young Capitol Hill staff member named Derek S. Khanna published a Republican Study Committee policy brief [which] attacked the current copyright system, particularly the continual and retroactive extension of copyright terms at the behest of entertainment-industry lobbyists. The target wasn’t new -- today’s expansive copyright law has long been a pet peeve of many technorati and left-leaning critics of corporate power -- but Khanna’s critique was striking. He made his case in the traditional Republican language of free markets, limited government and constitutional intent." Virginia Postrel in Bloomberg.

BARRO: A new Republican economic pitch. "[C]onservatives have no serious proposals of their own on rising inequality...What can they say about it? I have a few ideas, though I don't think conservatives are likely to like any of them too much...[T]hey can take up the cause of cost control in health care and higher education, the effect of which would be to raise real incomes for the middle class...If conservatives made peace with the need for more redistributive economic policy, they could fight to make sure it is pro-growth. For example, they could focus on minimizing poverty traps created by means-tested entitlements, and making sure the tax base is broad so progressivity can be achieved with relatively low tax rates." Josh Barro in Bloomberg.

EGAN: A liberal moment, by any other name. "What’s going on here, demography and democracy seem to be saying at the same time, is the advance of progressive political ideas by a majority that spurns an obvious label. Liberals have long been a distinct minority; liberalism, in its better forms, has been triumphant at key times since the founding of the Republic...Which brings us to the fascinating self-portrait of the United States at the start of the second half of the Obama era. A tenuous center-left majority wants to restore some equality to the outsize imbalance between the very rich and the rest of us...In the process, he could restore the good name to traditional liberalism." Timothy Egan in The New York Times.

BARON: Evidence-based policy? "There is a different way forward, focused on increasing the effectiveness of existing funds...In social spending, though, scientific evidence plays little role in allocating resources. Historically, major programs like Head Start, Title I at the Department of Education and the Job Training Partnership Act have been set up as multibillion-dollar faucets...The promising news is that in a few recent instances, Congress has enacted initiatives in which evidence of effectiveness is a main factor determining which activities get funds...The administration and Congress could fundamentally shift the social spending landscape by incorporating such evidence-based funding criteria into billion-dollar federal programs, rather than just a few isolated initiatives." Jon Baron in The New York Times.

Adorable animals interlude: Cloudy with a chance of cats.

Got tips, additions, or comments? E-mail me.

Immigration

House advances visa reform bill, sets up Friday vote. "The House voted Thursday to advance a visa reform bill that Republicans say would help keep talented foreign students in the United States, but which Democrats say would needlessly eliminate another key visa program. Members voted 243-170 in favor of a rule for H.R. 6429, the STEM Jobs Act. That bill would eliminate a visa program for countries with low rates of emigration to the United States, and hand those visas to foreign students with degrees in science, technology, engineering or math (STEM)." Pete Kasperowicz and Jennifer Martinez in The Hill.

Economy

The U.S. economy grew 2.7% last quarter. That’s not entirely good news. "The economy grew at a 2.7 percent pace in the third quarter of 2012, not the 2 percent pace previously estimated. That’s the latest verdict from the Bureau of Economic Analysis today, which went back and updated its GDP numbers as better data rolled in. On the surface, this looks like a good sign -- the economy was growing even faster than we thought...But the details of the report aren’t entirely positive. About 0.7 percentage points of growth between July and September came from an anomalous spike in federal defense outlays...What’s more, another 0.8 percentage points of growth came from faster-than-expected inventory accumulation." Brad Plumer in The Washington Post.

Corporate profits in record territory again. "Domestic profits of financial corporations rose $71.3 billion in the third quarter, after falling $39.7 billion in the second. Domestic profits of nonfinancial corporations, on the other hand, decreased $1 billion in the third quarter, after rising $27.8 billion in the second quarter...Additionally, all of the growth in domestic corporate profits was accounted for by the financial sector." Catherine Rampell in The New York Times.

A not-so-happy birthday: The 'Great Recession' hits five.

Why economists love Intrade, and why the government hates it. "Economists love prediction markets like Intrade. But the U.S. government has long been skeptical of such sites. Is it time for that change? That question popped up again this week after federal regulators filed a lawsuit against Intrade, a popular Web site that allows people to wager on the outcome of elections and other political events. In response, Intrade announced that it would close its doors to all American customers...[I]f prediction markets are really as valuable as economists think, then a little more experimentation could prove worthwhile." Brad Plumer in The Washington Post.

Total effective tax rates are way lower than they were in 1980. "According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980. Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980. Lower-income households, however, saved little or nothing." Binyamin Appelbaum and Robert Gebeloff in The New York Times.

Big firms pay 50 percent higher wages than small businesses, study shows. "Small business owners are finding it increasingly difficult to match the wages offered by their larger competitors, according to new research, which could make it harder to find and retain talent on Main Street. A new Kauffman Foundation study shows that small businesses have historically paid workers significantly less than large firms, with small firms closing the gap to its slimmest margin in 2001, when their employees earned on average 78 percent of the salaries paid to workers at large firms. But the gap has been growing steadily ever since, and by 2011, that figure dropped to 66 percent." J.D. Harrison in The Washington Post.

New videos interlude: Timelapse Writing of a Research Paper.

Health Care

Conversion to electronic health records is flawed. "The conversion to electronic medical records -- a critical piece of the Obama administration’s plan for health care reform -- is 'vulnerable' to fraud and abuse because of the failure of Medicare officials to develop appropriate safeguards, according to a sharply critical report to be issued Thursday by federal investigators." Reed Abelson in The New York Times.

Read: The report of the Department for Health and Human Service's Office of Inspector General on electronic health records.

Senate approves amendment to expand military mental health care. "The Senate has approved adding an amendment to the Defense authorization bill to require the Pentagon to create a comprehensive and standardized suicide prevention program...The legislation would also expand eligibility for some Department of Veterans Affairs mental health services to family members and strengthen oversight of the Pentagon’s mental health programs and the Integrated Disability Evaluation System established by the Department of Defense and VA." Steve Vogel in The Washington Post.

Graph: U.S. birthrate falls to lowest on record.

Missouri governor backs Medicaid expansion under 'ObamaCare'. "Missouri Gov. Jay Nixon (D) said Thursday that he plans to take part in the Medicaid expansion included in President Obama's healthcare law...Nixon is legally prohibited from acting on his own to set up a state-based exchange, thanks to a ballot measure that requires approval from the Republican-controlled legislature to create an exchange. But Nixon said Thursday he intends to press ahead on the health law's Medicaid expansion -- the other central component in extending healthcare coverage to millions of uninsured people." Sam Baker in The Hill.

Is 'concierge medicine' the future of health care? "[A]n increase of direct-pay doctors -- especially affordable ones -- could lead to better health care in the U.S., which has the highest costs and some of the worst outcomes of any wealthy nation...Others worry that the growth of concierge medicine will mean the affluent receive high-quality care while the rest of the country struggles to be seen by fewer and fewer doctors...Proponents of concierge medicine insist that more time with each patient allows them to provide holistic care that can prevent diseases such as diabetes that are major drivers of health-care costs in America and keep people out of hospital emergency rooms." Devin Leonard in Bloomberg Businessweek.

Cancer research funding bill to go forward. "A bipartisan cancer research measure was adopted as an amendment to the Senate defense bill, paving the way for its passage after nearly six years of work. The Recalcitrant Cancer Research Act mandates that federal health officials create research frameworks for pancreatic and lung cancer, which have five-year survival rates of less than 50 percent." Elise Viebeck in The Hill.

Old videos interlude: Bell Labs' orientation video for programmers in 1973.

Energy

The polar ice sheets are melting faster. "Higher temperatures over the past two decades have caused the polar ice sheets to melt at an accelerating rate, contributing to an almost half-inch rise in global sea levels, according to the most comprehensive study done so far...The new study, published Thursday in the journal Science, estimates that the melting of the ice sheets as a whole has raised global sea levels by 11.1 millimeters (0.43 inch) since 1992. That represents one-fifth of the total sea-level increase recorded in that period." Gautam Naik in The Wall Street Journal.

Infographic: Who used what energy in 2012.

Global carbon cut targets grow impossibly deep. "As the nations of the world struggle in Doha to agree even modest targets to tackle global warming, the cuts needed in rising greenhouse gas emissions grow ever deeper, more costly and less likely to be achieved. U.N. talks have delivered only small emissions curbs in 20 years, even as power stations, cars and factories pump out more and more heat-trapping gases." David Fogarty and Alister Doyle in Reuters.

France's love affair with nuclear energy cools. "For decades, the elite engineers turned out by Paris's grand Corps des Mines academy were faithful followers of the pro-atomic creed that transformed their country into the most nuclear-reliant nation in the world. But a new generation of Mines graduates is starting to question that policy. It is a change of mindset that could aid efforts by President Francois Hollande to cut reliance on nuclear power from 75 percent to 50 percent of the electricity mix by 2025." Muriel Boselli in Reuters.

Wonkbook is produced with help from Michelle Williams.

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