Wonkbook: A critical week for fiscal cliff negotiations

December 10, 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.

Wonkbook's Number of the Day: $1.5 trillion. That's the amount of deposits at small banks which will lose expanded protection from the Federal Deposit Insurance Corporation at the end of the year, according to a story by Alan Zibel, Corey Boles, and Ben Kesling of The Wall Street Journal. During the financial crisis, the FDIC temporarily issued unlimited deposit guarantees on zero-interest accounts used by businesses and local governments to meet payroll. In 2013, only the first $250,000 in deposits will receive FDIC coverage. For more, see Wonkbook's special coverage of the financial industry below.

Wonkblog's Graph of the Day: We need $2 trillion more in deficit reduction to stabilize the debt-to-GDP ratio for the next decade.

Today in Wonkbook: a critical week ahead for the austerity crisis; the financial sector; the new Congress; it's the economy, stupid; fixing the filibuster; implementing the Affordable Care Act; slashing the web; the energy revolution.

Top story: Austerity-crisis negotiations enter critical week

Obama, Boehner meet on 'fiscal cliff.' "President Obama and House Speaker John A. Boehner (R-Ohio) met Sunday afternoon at the White House to continue discussions over how to avert the 'fiscal cliff,' their first in-person gathering in nearly a month as the deadline to avert a massive tax hike is fast approaching." Ed O’Keefe and Paul Kane in The Washington Post.

@ReformedBroker: Should I read this new article about the Fiscal Cliff or just set myself on fire?

That's a good thing, because time is running short. "The contours of a deal to avert the year-end fiscal cliff are becoming increasingly clear. But progress has been slow, and time is running out for leaders to seal an agreement and sell it to restless lawmakers who so far have been given little information...Lawmakers say action this week is vital if Obama and Boehner hope to win approval by the end of the year for complex, bipartisan legislation that would raise taxes, push down social-safety-net spending and lift the federal debt limit." Lori Montgomery and Paul Kane in The Washington Post.

@mattyglesias: First real fiscal cliff behavioral response I’ve seen--developer of the house I’m buying is desperate to close by December 31.

How the White House could protect middle class from tax hikes if deficit talks falter. "The White House has the power to temporarily protect taxpayers from middle-class tax hikes even as upper income rates rise if Congress does nothing and all of the Bush-era tax rates expire in January. Experts and lawmakers alike agree that Treasury Secretary Timothy Geithner has the power to adjust how much is withheld from paychecks for tax purposes -- for all taxpayers or just for some." Peter Schroeder and Bernie Becker in The Hill.

@AndyHarless: It seems almost insane that employment indicators are holding up so well less than 2 months before the fiscal cliff hits.

What a deal, if one can be made, might look like. "Talk to smart folks in Washington, and here’s what they think will happen: The final tax deal will raise rates a bit, giving Democrats a win, but not all the way back to 39.6 percent, giving Republicans a win. That won’t raise enough revenue on its own, so it will be combined with some policy to cap tax deductions, perhaps at $25,000 or $50,000, with a substantial phase-in and an exemption for charitable contributions. The harder question is what Republicans will get on the spending side of the deal. But even that’s not such a mystery. There will be a variety of nips and tucks to Medicare, including more cost-sharing and decreases in provider payments, and the headline Democratic concession is likely to be that the Medicare eligibility age rises from 65 to 67." Ezra Klein in The Washington Post.

@mattyglesias: I don’t think this deal is likely. If White House doesn’t get total win on taxes, they won’t give this much up

What about the GOP's inflation-recalculation proposal? "Republican leaders are pushing what looks like a relatively painless method of slowing federal spending, one that alters how the government calculates annual cost-of-living increases for an array of programs...Using a different inflation measure would mean smaller annual increases in the size of Social Security checks, federal pensions and veterans' benefits...On the tax side, the size of the standard deduction and income thresholds for various tax brackets also would rise more slowly, making more income taxable, and at higher rates." John D. McKinnon in The Wall Street Journal.

We've already passed deep spending cuts. But nobody talks about them. "Last year’s debt-ceiling agreement included $1.5 trillion in cuts to discretionary programs through 10-year spending caps that are already in effect. According to a new analysis by the Center on Budget and Policy Priorities, the domestic programs subject to the spending caps will face a $615 billion shortfall if they keep their benefits and services at 2012 levels." Suzy Khimm in The Washington Post.

Extraterrestrial interlude: howmanypeopleareinspacerightnow.com.

Top op-eds

HUNT: Why big political money still matters, even after the 2012 flameout. "The fears that big money would corrupt the political process in 2012 weren’t realized, the conventional wisdom says. The fat cats, unshackled by U.S. Supreme Court and lower court decisions, weren’t able to buy the presidency or the Senate. True. It also misses the point...The flood of outside money weakened political parties." Albert R. Hunt inBloomberg.

KRUGMAN: Robots and robber barons. "The American economy is still, by most measures, deeply depressed. But corporate profits are at a record high. How is that possible? It’s simple: profits have surged as a share of national income, while wages and other labor compensation are down. The pie isn’t growing the way it should -- but capital is doing fine by grabbing an ever-larger slice, at labor’s expense. Wait -- are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy?" Paul Krugman in The New York Times.

WEINGARTEN: A 'bar exam' for teachers. "[T]he American Federation of Teachers has developed a proposal for an unprecedented leap in elevating the quality of the teaching profession. Instead of the current hodgepodge approach to teacher certification and licensing, we propose that all prospective teachers in the United States take a rigorous bar exam that gauges mastery of subject-matter knowledge and demonstrates competency in how to teach it. The process could be modeled after the bar exam for lawyers or the board certification of medical doctors." Randi Weingarten in The Wall Street Journal.

CAREY: Higher ed needs standards. "[T]here are no meaningful standards of academic quality in higher education. And the more colleges and universities move their courses online, the more severe the problem gets...[T]he most promising solution would be to replace the anachronistic credit hour with common standards for what college students actually need to know and to be able to do. There are many routes to doing this. In the arts and sciences, scholarly associations could define and update what it means to be proficient in a field. So could professional organizations and employers in vocational and technical fields." Kevin Carey in The New York Times.

Debunked at last interlude: NASA forced to explain why the world won't end in two days.

Finance, taxed and regulated

Has Wall Street's day of reckoning arrived? "The nation’s largest banks are facing a fresh torrent of lawsuits asserting that they sold shoddy mortgage securities that imploded during the financial crisis, potentially adding significantly to the tens of billions of dollars the banks have already paid to settle other cases...Estimates of potential costs from these cases vary widely, but some in the banking industry fear they could reach $300 billion if the institutions lose all of the litigation." Jessica Silver-Greenberg in The New York Times.

Small banks gird for loss of guarantee. "Small banks are making a last-ditch attempt to persuade Congress to extend a crisis-era blanket guarantee on nearly $1.5 trillion in deposits before it expires at the end of the year...Barring action by Congress, the FDIC on Dec. 31 will stop providing an unlimited guarantee on zero-interest bank accounts used by businesses and municipalities for payroll and other services. The guarantee would then revert to the normal $250,000 in insurance per depositor at any given bank. If the guarantee isn't extended, FBR Capital Markets estimates as much as $250 billion in deposits could flow out of smaller banks to large banks or big money-market mutual funds." Alan Zibel, Corey Boles, and Ben Kesling in The Wall Street Journal.

Are regulators getting 'protectionist'? "The US central bank has followed up with news that it plans to meet on Friday to discuss heightened capital and liquidity rules for overseas banks...During the past few years some US branches have shifted from borrowing from their overseas headquarters and lending in the US, to collecting dollar funding for their corporate parents, which use the money elsewhere." Shahien Nasiripour and Brooke Masters in The Financial Times.

VIARD: The tax on savings you didn't know about. "Scheduled to take effect on Jan. 1, the tax, which was adopted as part of the 2010 health-care law, is a 3.8 percent levy on interest, dividends, capital gains and passive business income received by taxpayers with incomes exceeding $200,000 (or $250,000 for couples)." Alan D. Viard in Bloomberg.

TED talk interlude: Amy Cuddy on how your body language shapes who you are.

The new (113th) Congress

Here come the old hands. "The 2010 election, with its throw-the-bums-out, antigovernment furor, swept into office a host of people who had no government experience. There was an exterminator, a dentist, a youth minister and a pizza man. But this year, voters sent many of those people packing. In their place will be a class of career bureaucrats and policy wonks who, after two years of intransigence and dysfunction on Capitol Hill, make up what could be characterized as the anti-antigovernment wave. These members, many of whom ran on a promise to break the seemingly endless impasse in Washington, will face their first test early."Jeremy W. Peters in The New York Times.

Adorable animals interlude: Ben Casselman in The Wall Street Journal.

Explainer: The jobs report, in six charts.

Review: Friday's jobs report for November. "The U.S. economy added 146,000 jobs in November, more than expected. And the unemployment rate dipped to 7.7 percent, the lowest level since Lehman Brothers went bankrupt back in 2008." Neil Irwin in The Washington Post.

Monetary stimulus program to push ahead. "The Federal Reserve is widely expected to announce on Wednesday that it will continue buying Treasury securities to stimulate growth in the new year." Binyamin Appelbaum in The New York Times.

Economic data for the week ahead. "Data scheduled to be released include the trade deficit for October and wholesale trade for October (Monday); import prices for November (Wednesday); weekly jobless claims, retail sales for November, the Producer Price Index for November and business inventories for October (Thursday); and the Consumer Price Index for November and industrial production for November (Friday)." The New York Times.

Musical recommendations interlude: Guster, "Satellite," 2007.

Fixing the filibuster

Senators trying to avoid the nuclear option. "Influential senators, fearful of Majority Leader Harry Reid’s threat to jam filibuster changes through the Senate early next year, have begun back-channel talks to avoid what critics dub the 'nuclear option.'…They’re alarmed that the move could fundamentally change the Senate: Future majorities could cite such a precedent to change whatever rules they want in an institution designed to protect the rights of the minority." Manu Raju in Politico.

Computers interlude: What Minecraft hath wrought.

Implementing the Affordable Care Act

GOP governors seek leeway on Medicaid expansion. "Republican governors are ratcheting up pressure on President Obama to scale back a key provision of his health-care law. In a letter to Obama last week, 11 governors asked for a meeting 'as soon as possible' to negotiate for greater control over their Medicaid programs. Among other things, the governors want the option of expanding Medicaid -- the state-federal program for the poor and disabled -- in a much more modest way than envisioned in the law." N.C. Aizenman in The Washington Post.

Interview: Doug Holtz-Eakin on the conservative case for implementing Obamacare.

Medicaid expansion scorecard: 17 states say yes, 9 say no. "Tallying up state decisions on the Medicaid expansion is a bit of a squishy science. States don’t have to make any official declarations, so we have to rely on what governors pledge. That doesn’t necessarily predict the future." Sarah Kliff in The Washington Post.

...But prices remain opaque in health care, as seen in a reporter's quest. "My doctor didn’t know, I got transferred to radiology, I got transferred to billing. Billing said they would call me back. They didn't. I couldn't even get a ballpark estimate." Martha Bebinger in Kaiser Health News.

More animals interlude: Angry otters.

Slashing the web

Autocrats want to clamp down on libertarian Internet. "An unexpected new proposal for international regulation of the internet drew warnings over the weekend of a spread of online censorship and left a global conference on the issue on the edge of collapse. The deep divisions over treatment of the internet came after a group of Arab states put forward a plan late on Friday that would require countries around the world to explicitly regulate internet companies. The proposal, made at a conference in Dubai to agree a new international telecoms treaty, has also won the backing of Russia and China, along with a group of other countries. The pitch for direct regulation came as an unwelcome surprise to delegations from the US and other countries that have supported the current light system of regulation for the internet." Simeon Kerr and Richard Waters in The Financial Times.

CROVITZ: Delete the would-be Internet regulators. "In a referendum among the world's two billion Internet users, how many would vote to transfer control of the Internet to the United Nations? Perhaps 100,000, an estimate based on the number of top officials ruling the most authoritarian countries, whose power is threatened by the open Web...The International Telecommunications Union is hosting a conference in Dubai, where many countries are eager to extend the agency's role beyond telecommunications to regulate the Internet. The two-week conference is half over, with meddlesome proposals from China, Russia and other authoritarian regimes dominating the discussion." L. Gordon Crovitz in The Wall Street Journal.

Smart animals interlude: Monkey does holiday shopping at Ikea.

The energy revolution

Obama expected to approve gradual expansion of natural-gas exports. "Marvin Odum, the head of Royal Dutch Shell’s U.S. arm, predicts the federal government will provide a green light for expanded exports of natural gas…The Energy Department (DOE) is weighing 15 politically controversial applications to export over 21 billion cubic feet of liquefied natural gas per day to nations that don't have free-trade agreements with the U.S." Ben German in The Hill.

How the natural-gas boom has affected LNG transport. "[T]he international trade in natural gas — and the rest of the energy business — has been turned upside down. It’s as startling as it would be if rivers decided to run upstream. As recently as four years ago, energy experts agreed that the United States would need to import LNG to fill the gap between rising U.S. consumption of natural gas and stagnant or diminishing domestic supplies." Steven Mufson in The Washington Post.

How much can the EPA cut carbon emissions? "It would be easy for the EPA to devise a carbon policy for power plants that was fairly uncontroversial -- the agency would just require small emissions cuts at coal power plants via standard techniques, such as biomass co-firing or improved efficiency. But this would only be a small tweak. Bigger, more ambitious cuts would take some creativity. But more ambitious plans also run the risk of getting struck down." Brad Plumer in The Washington Post.

PEARLSTEIN: A natural gas tax? "Who will get to grab [the natural gas] windfall -- the energy industry or its customers? I don’t know about you, but I’m having a hard time deciding which team to root for in this contest. While free trade tends to benefit the whole economy over the long run, increasing the overall size of the economic pie, there are times when it can also have a pronounced effect on how the pie is divided. This would seem to be one of those times." Steven Pearlstein in The Washington Post.

O'GRADY: The great North American gusher. "President Obama has promised to get the anemic U.S. economy going again by boosting exports...The obvious export opportunity on the horizon for the U.S. is hydrocarbons—oil, gas and coal...Since becoming president, Mr. Obama has treated hydrocarbon production like an infectious disease to be eradicated. His administration had to commission a study to learn, as announced last week, that allowing American companies to export liquefied natural gas would be beneficial to the U.S. economy. Still, the Department of Energy says it can't make 'final determinations' on export applications until it hears from those who object. So much for property rights." Mary Anastasia O'Grady in The Wall Street Journal.

Nightlight interlude: New shots from space.

Et Cetera

Why more and more businesses are being taxed like people. Dylan Matthews in The Washington Post.

Cutting smoking rates will save lives. It won’t save money. Sarah Kliff in The Washington Post.

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

Wonkbook is produced with help from Michelle Williams.

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Suzy Khimm · December 9, 2012