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: $32 billion. That's the amount at stake in potential revenue for the federal government in the municipal bond interest tax exemption, according to a story by Mary Williams Marsh in The New York Times. It's one of the smaller fights in the fiscal cliff negotiations which has attracted intense lobbying from special interests. For more on the secondary theaters of the fiscal cliff, see Wonkbook's top story today.
Wonkblog's Graph of the Day: A plateau in young adults’ insurance gains.
Today in Wonkbook: the fiscal cliff; gun control after Newtown, Conn.; the economy; the end of the GM bailout; and green politics.
Top story: The 'fiscal cliff' fights you haven't heard about
The secondary theaters of the fiscal cliff. "When people talk about the 'Bush tax cuts,' they typically focus on just one thing: the marginal tax rates for individual income that are scheduled to expire at the end of the year unless Congress acts. But there are a host of other less-discussed tax changes that are also scheduled to happen on Dec. 31. These have all played a role in the talks between President Obama and House Speaker John Boehner. Here’s the state of play for each of them." Suzy Khimm in The Washington Post.
@damianpaletta: Obama seems to signal willingness to make more concessions on fiscal cliff. Talks about need to "bridge the gap."
‘Cliff’ standoff: Boehner works to wrangle votes for ‘Plan B’; Obama threatens veto. "House GOP leaders scrambled to rally their members Wednesday behind a plan to extend tax cuts on income up to $1 million, defying President Obama’s veto threat and setting up a showdown that could send Washington over the year-end 'fiscal-cliff'…A House vote on the plan, scheduled for Thursday, poses a major political test for Boehner’s leadership team, which is pitching it as a vote of confidence and a way for Republicans to extract more concessions from Obama in negotiations over government spending and taxes." Paul Kane and Rosalind S. Helderman in The Washington Post.
No specifics on spending cuts yet. "Despite the dueling news conferences and stream of well-rehearsed sound bites from the White House and Congress about the budget talks, one element is still largely missing from the debate: details about spending cuts. Beyond numbers so large they are virtually meaningless to most Americans and a few specific proposals, like an adjustment to the Social Security formula, neither side has said much about how it wants to cut federal spending." Jeremy W. Peters in The New York Times.
@damianpaletta: No fiscal cliff talks since Monday. Unclear if Plan B has enough votes to pass House. Buckle your seatbelt. This is when it could get bumpy.
Boehner is whipping votes for 'Plan B.' "Even though House Speaker John A. Boehner (R-Ohio) vowed Wednesday that his plan to raise taxes on upper-income Americans will pass, he was seen doing something later in the day that he rarely does: Glad-handing colleagues on the House floor. Though his conversations were inaudible to reporters in the House gallery, Boehner’s body language said it all: He was eagerly seeking out wavering colleagues that might not join him tomorrow in voting for the plan." Ed O'Keefe in The Washington Post.
@pourmecoffee: Obama has edge now in fiscal cliff talks. "Taxes? Why don't we let the TIME Person of the Year decide, j/k no really I did win tho."
Obama says the GOP has been offered a fair deal. "Hopes for a broad deficit-reduction agreement faded on Wednesday as President Obama insisted he had offered Republicans 'a fair deal' while Speaker John A. Boehner moved for a House vote as early as Thursday on a scaled-down plan to limit tax increases to yearly incomes of $1 million and up, despite Senate opposition and Mr. Obama’s veto threat. The impasse was clear as Mr. Obama and Mr. Boehner separately spoke to the television cameras instead of each other." Jackie Calmes and Jonathan Weisman in The New York Times.
@petersuderman: These things are of course difficult to predict. But I still think we are headed for a fiscal cliff deal. Not guaranteed. But likely.
John Boehner’s 'Plan B' would raise taxes on the poor. "While the bill makes permanent the expansion of the Child Tax Credit (CTC) signed into law by George W. Bush as part of the 2001 tax cut deal -- which bumped the credit from $500 to $1,000 -- it does not extend an expansion that was passed as part of the 2009 stimulus package, and has been renewed since then, allowing poor families to refund more of the credit. Nor does it extend the stimulus’s expansion of the Earned Income Tax Credit (EITC), by far the most important anti-poverty program the federal government has, or the American Opportunity Credit (AOC), which provides tuition assistance for middle-class families." Dylan Matthews in The Washington Post.
@blakehounshell: Some very smart people keep trying to convince me that we’re not going over the fiscal cliff. Still skeptical.
Norquist OKs 'Plan B.' "The powerful anti-tax advocacy group Americans for Tax Reform said Wednesday that it would not consider a vote for House Speaker John Boehner’s 'Plan B' a violation of the Taxpayer Protection Pledge many Republican members of Congress have signed." Natalie Jennings in The Washington Post.
…But the Club for Growth won't have it. "The anti-tax group Club for Growth is warning lawmakers not to vote for House Speaker John A. Boehner’s proposal to raise taxes on Americans making more than $1 million annually, because the bill is 'a bargaining tactic.'…In a further splinter of conservative groups, Heritage Action for America was also urging House Republicans to vote against Boehner’s plan." Ed O'Keefe and Rosalind S. Helderman in The Washington Post.
Some conservatives are now looking for a 'Plan C.' "Rep. Paul Broun (R-Ga.) said Wednesday that some conservatives are trying to put together an alternative to a plan forwarded by House Speaker John A. Boehner (R-Ohio) to avert the year-end fiscal cliff." Rosalind S. Helderman in The Washington Post.
The IRS is warning that failing to patch the alternative minimum tax could create a massive hold-up. "The acting commissioner of the Internal Revenue Service said Wednesday that if Congress fails to act this year to prevent the alternative minimum tax from expanding, as many as 100 million households -- of the 150 million total taxpayers -- will be unable to file their taxes on time as the I.R.S. scrambles to reprogram its computers. Some 30 million tax-filers will see an unexpected tax hit. In a letter to the chairmen and ranking members of Congress’s tax-writing committees, the acting commissioner, Steven T. Miller, indicated that Congress’s inaction would lead to chaos." Jonathan Weisman in The New York Times.
Read: The IRS letter.
Fitch, a credit rating agency, issues warning over fiscal cliff. "A fall off the fiscal cliff could 'tip the U.S. into an unnecessary and avoidable recession,' and lengthy negotiations on the matter could risk the U.S. credit rating, according to a new report on Wednesday from a credit ratings agency. 'Fitch has identified the US fiscal cliff as the single biggest, near-term threat to the world economy, given its potential to tip the US into an unnecessary and avoidable recession, with negative implications for global growth,' read a statement from Fitch Ratings. 'However, the agency’s base case expectation is that a compromise will be reached.'" Katie Glueck in Politico.
How the U.S.'s international standing is at stake in the fiscal cliff. "There has been plenty of discussion of what a failure to address the looming fiscal cliff could mean to the economy, ranging from a new recession to the loss of government contracts to higher taxes. But some executives are arguing that even more is at stake: The United States’ standing as a global destination for investment, and maybe even its central role in the in the world financial system." Howard Schneider in The Washington Post.
How the cuts from 2011 are undermining the deal in 2012. "Thinking back to 2011 puts today’s deal in fairly sharp relief: After Republicans won the midterm election, they didn’t go for a balanced package. They went for all spending cuts. Now that they’ve lost the 2012 election, they’re demanding a balanced package. But because of those 2011 spending cuts, it’s hard to get to a balanced package, because so many of the cuts that would’ve been part of a package in 2011 are no longer available." Ezra Klein in The Washington Post.
Municipalities not so hot on losing tax preference on debt. "The administration has proposed capping the tax break that America’s highest earners now receive from municipal bonds, as part of its campaign to close loopholes and enlist more of the rich in fighting the federal deficit. Analysts expect such a cap to be part of a comprehensive tax overhaul package that Congress will take up next year, under a broad fiscal framework now being negotiated by President Obama and House Speaker John A. Boehner…At present, the federal government forgoes about $32 billion a year in taxes by exempting the interest that investors earn from municipal bonds." Mary Williams Marsh in The New York Times.
KLEIN: Think quality, not quantity, in fiscal-cliff deal. "Judging a deal based on an arbitrary bottom-line number is a mug’s game…The right way to judge a deal, in [Shiller's] view, is policy by policy. If the policies make sense on their own terms, the deal is a good one." Ezra Klein in Bloomberg.
CILLIZZA: This is what it looks like when grand bargains end. "The dueling press conferences today by President Obama and House Speaker John Boehner regarding the fast-approaching fiscal cliff had an eerie feeling of deja vu for political observers. After all, this was the exact same way that the attempts by Obama and Boehner to strike a big debt and spending deal over the summer collapsed. Threats over who would be blamed? Check. Assertions that each side has gone more than halfway to compromise? Check. Calls to 'get serious'? Check…Both governing principles suggest that declaring today the end of the end in terms of the possibility of a big-ish deal on the fiscal cliff is premature. But, today clearly marked a major step backwards, and one from which it isn’t entirely clear the negotiations for a grand bargain on debts and spending can recover any time soon." Chris Cillizza in The Washington Post.
BARRO: The policy rationale behind 'Plan B.' "If higher marginal tax rates are such a problem, why is Plan B any better than the president's original proposal? Here are three possible cases, none of which I think are very convincing…Plan B does hold down marginal tax rates for taxpayers earning between $250,000 and $1 million." Josh Barro in Bloomberg.
Music recommendations interlude: 'Round the World in 18 Songs (Live at Google Zeitgeist '12).
SOLTAS: The Social Security double standard. "The political conversation around Social Security is filled with double standards. Its trust fund is a national asset one minute and debt by another name the next. The 12.4 percent payroll tax on incomes of as much as $113,700 in 2013 is a dedicated source of funding -- until, when politically convenient, the money becomes fungible for economic stimulus. And yet, the most potent double standard may be how parties define the purpose of the program itself. Is it a publicly run, universal, national retirement-savings program? Or is it a safety net for the elderly and disabled who need it?" Evan Soltas in Bloomberg.
YGLESIAS: Will fast food turn healthy next year? "One of the least-noticed elements of Obamacare is a federal rule requiring chain restaurants to post calorie counts on their menus starting in 2013. Similar laws have been enacted already on a state or local basis in several jurisdictions, but it’s only now that the policy is going national that it really makes sense for companies to start building strategic decisions around it."Matthew Yglesias in Slate.
KINSLEY: Taxation 101. "So, given that all taxes are disincentives, what kinds of taxes do we want? The answer is that most of the time, if we believe in free-market capitalism, we want taxes that affect behavior as little as possible. Or, to put it another way, we want a tax system that replicates the incentives of a world with no taxes. Sometimes we do want to affect behavior. That is the explanation for 'sin taxes' such as the heavy taxes on cigarettes." Michael Kinsley in Bloomberg.
DERVIS: Should central banks target employment? "CommentsView/Create comment on this paragraphThere is no recent example, however, of a major central bank setting a numerical employment target. This should change, as the size of the employment challenge facing the advanced economies becomes more apparent. Weak labor markets, low inflation, and debt overhang suggest that a fundamental re-ordering of priorities is in order…[P]olicymakers should take into account the tremendous human and economic costs of high unemployment, ranging from the millions of shattered lives, skills erosion, and disappearance of opportunities for an entire generation, to the dead-weight loss of idle human resources." Kemal Dervis in Project Syndicate.
Photo interlude: Mount Everest, in two billion pixels.
Gun control after Newtown, Conn.
Obama's plan to address gun violence. "President Obama on Wednesday urged Congress to vote on measures banning the sale of assault weapons and high-capacity ammunition magazines and requiring background checks before any firearm sale, part of an emerging White House response to a massacre last week at a Connecticut elementary school. The potential gun-control measures, which will be the focus of a working group led by Vice President Biden, mark the most specific proposals to date from Obama to deal with what he called a gun violence epidemic plaguing the United States." Scott Wilson and Philip Rucker in The Washington Post.
Gun control to get State of the Union spotlight for first time in a decade. "President Obama's vow Wednesday to include gun control in his State of the Union address marks the first time in more than a decade a president will highlight the issue in his agenda-setting speech." Mario Trujillo in The Hill.
Outgoing Sen. Brown backs assault weapons ban. "On Wednesday, Sen. Scott Brown (R-Mass.) became the first Republican senator to express support for a federal ban on assault weapons." Ed O'Keefe in The Washington Post.
How the U.S. gun industry became so lucrative. "The U.S. gun industry has been going through a rough patch ever since the school shooting in Newtown last Friday. Retailers are pulling weapons from their shelves. Private equity firms are jumping ship. Stocks are plummeting. But even a rough patch can’t change the fact that the guns and ammunition industry continues to thrive in the United States. This year, the industry is expected to rack up a steady $11.7 billion in sales and $993 million in profits, according to analysts at IBIS World. Gun makers churned out nearly six million guns last year -- double the number that they did a decade ago." Brad Plumer in The Washington Post.
Gun-control lessons from the 1990s. "It took five years of legislative slogging to pass a federal assault weapons ban that finally took effect in 1994. But the price of passage was a host of compromises -- most painfully for supporters, a sunset provision added late in the legislative wrangling that paved the way for the measure to expire in 2004…Just as it was then, the most difficult terrain to navigate will most likely be political, as any new federal measure would have to overcome the opposition of pro-gun lawmakers and the gun lobby. But contours of the policy will be nettlesome as well. As states and the federal government have experimented with various kinds of assault weapons bans over the years, gun manufacturers have excelled at finding ways around the restrictions, tweaking their guns just enough to comply with new laws." Michael Luo and Michael Cooper in The New York Times.
Chart: How the US stands out on guns.
ZAKARIA: Obvious solutions on gun control. "The category in which the U.S. rate is magnitudes higher is gun homicides…So what explains this difference? If psychology is the main cause, we should have 12 times as many psychologically disturbed people. But we don’t. The United States could do better, but we take mental disorders seriously and invest more in this area than do many peer countries. Is America’s popular culture the cause? This is highly unlikely, as largely the same culture exists in other rich countries." Fareed Zakaria in The Washington Post.
WHITNEY: We can protect both gun rights and child safety. "The main mechanism for keeping firearms out of the hands of felons and the mentally ill is the National Instant Criminal Background Check System, run by the Federal Bureau of Investigation. If you try to buy a gun from a federally licensed firearms dealer and your name is on the list of disqualified buyers, the dealer will refuse to sell to you. Yet anyone can buy a firearm from a private seller, at a gun show or elsewhere, without having to be cleared by the system, and as many as 40 percent of all gun sales are made privately. Leaving this gun-show loophole open is madness, yet the NRA has fought tooth and nail all attempts to close it." Craig R. Whitney in Bloomberg.
PONNURU: The biggest obstacle to gun control. "The problem with more ambitious gun regulation...: Guns are everywhere in our country. A ban on civilian handgun ownership would be unenforceable even if it were constitutional and popular. I am reading a lot of anguished op-eds from people who want gun control. Many of them claim, very plausibly, that other countries show that a less armed society would be a more peaceful one. What they don’t show is that our country can get there from where it is now." Ramesh Ponnuru in Bloomberg.
Old magazines interlude: 10 iconic covers of 'Life'.
Wall Street is betting on a housing recovery. Here’s why that’s great news. "The question now is not whether housing is coming back; new data out Wednesday show that November housing starts were up 21.6 percent from a year earlier. The question is what will the housing recovery look like. Will it be strong enough to pull the rest of the economy with it, even amid potentially tighter fiscal policy and international economic turmoil. Housing should, by all rights, be an afterthought for the overall economic picture. In normal times, the work of building, renovating and selling homes is around 4 percent of the overall economy, and right now it is closer to 2 percent. But housing is almost always the engine pulling the train of the broader economy, both dragging the nation into recession when things turn bad and pulling out toward recovery." Neil Irwin in The Washington Post.
Homebuilding permits rise. "Homebuilding permits touched their highest level in nearly four and a half years in November, the Commerce Department said on Wednesday. The agency said building permits increased 3.6 percent to a seasonally adjusted annual rate of 899,000 units, the highest level since July 2008. That was well above economists’ expectations for a rate of 875,000 units." The Associated Press.
Wintry interlude: How snowflakes get their shape.
Ending the General Motors bailout
U.S. to sell off its remaining GM shares. "The much-debated bailout of Detroit is finally nearing an end after four years -- and it looks like the ultimate cost to taxpayers will be between $10 billion and $20 billion. Having already disposed of its stake in Chrysler, the Treasury Department announced Wednesday that it is now planning to sell its 500 million shares of General Motors stock. The company is buying back 200 million of those shares for $5.5 billion, while the Treasury is developing a plan to sell the rest over the next 12 to 15 months." Zachary A. Goldfarb in The Washington Post.
RATTNER: Liberation for GM. "The divorce will ultimately also liberate G.M. from a number of government-imposed restrictions, importantly including those relating to executive compensation. These restrictions adversely affected G.M.’s ability to recruit and retain talent. Now, compensation decisions will be made by the company’s board of directors, just as they are in every other public company in America. From Washington’s point of view, divesting its remaining shares will end an uncomfortable and distinctly un-American period of government ownership in a major industrial company." Steven Rattner in The New York Times.
Memes interlude: 21 British people problems.
Obama: Climate change among top three priorities for second term. "President Obama has identified climate change as one of his top three priorities in his second term after coming under fire from environmentalists for giving the issue short shrift during the campaign." Zack Colman in The Hill.
Obama energy chief backs effort to encourage renewable investments. "The Obama administration lent its support Wednesday to a congressional effort that would open a financing structure for renewable energy. Energy Secretary Steven Chu called on Congress to approve legislation that would let investors utilize master limited partnerships for renewable energy, which he said would spur development." Zack Colman in The Hill.
California issues proposed rules for 'fracking'. "Under pressure from state lawmakers and environmentalists, Gov. Jerry Brown's administration released draft regulations for hydraulic fracturing, or 'fracking,' the controversial drilling process driving the nation's oil and gas boom. The proposed rules, released Tuesday, would require energy companies to disclose for the first time the chemicals they inject deep into the ground to break apart rock and release oil. They also would have to reveal the location of the wells where they use the procedure." Michael J. Mishak in The Los Angeles Times.
Animals interlude: Tiger staring dead at you.
Time magazine's 'Person of the Year' is President Barack Obama. Richard Stengel in Time.
Quartz thinks 'Person of the Year' should have gone to the American corporation. Tim Fernholz in Quartz.
When you count non-market work, women put in more time than men. Catherine Rampell in The New York Times.
Wonkbook is produced with help from Michelle Williams.