Wonkbook: The best sentence about tax reform, ever.

July 31, 2013

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(Photo by Hannah Foslien/AP)
(Photo by Hannah Foslien/AP)

“Get rid of the deductions that don’t affect me.” That's what Debbie Schaeffer, the owner of Mrs. G TV and Appliances, told Max Baucus and Dave Camp, the chairmen of the Senate and House committees charged with tax reform, when they asked for her advice.

This is the core problem with tax reform, a policy that Washington loves and the country mostly doesn't care about -- at least until Washington begins talking about taking away the deductions they use, and then they hate it. Everyone wants a simpler tax code. But they want it simplified by cutting somebody's else's tax breaks. Nobody is mad about filling out an extra box when it means they get $500 back.

Listen to the tax reform conversation for very long and you'll recognize it's developed a vocabulary that's exquisitely designed to obfuscate this reality.

Politicians love to talk about "revenue neutral" tax reform that "lowers rates." That's what the Obama administration wants on the corporate side (well, save for this part), and what Republicans want on both the corporate and individual sides. The "lowers rates" bit makes it sound like a tax cut. It isn't.

What "revenue neutral" means, in it's delightfully dull way, is that the tax code raises the same amount of money after reform as it did before. Those lower rates simply reflect fewer deductions. That means that on average, nobody gets a tax cut -- for every winner, there is an equal and opposite loser. And the loser will scream a lot louder.

Then there's "loopholes" and "tax breaks." These are the key ingredients of tax reform. They're the parts of the tax code everyone agrees need to be cut. After all, who wants a code filled with "loopholes" and "breaks"? Sounds terrible.

Of course, most Americans don't consider the deduction they get for state and local taxes a "break." Nor do corporations see the deductibility of interest as a "loophole." When you look closer, these "loopholes" and "breaks" -- at least the ones big enough to make a dent in the code -- were often added in for good reason and, whether they're still there for a good reason, remain the most popular parts of the tax code. It's only by keeping them vague that politicians can even talk about tax reform.

Want to know how unpopular cutting these deductions is? In the Senate, Max Baucus is promising his colleagues that any written ideas they contribute to tax reform will be kept held at the National Archives until the end of 2064. In other words, the only way he thinks he can get his colleagues to weigh in is offer to keep what they said secret for 50 years.

Of course, at some point, tax reform has to stop being polite and start getting real. The language has to become descriptive. And that's where the trouble always comes in.

To see why, Compare two sentences:

By the end of this year, we're going to pass revenue neutral tax reform that gets rids of wasteful loopholes and deductions and lowers your rates!

And the translated version:

By the end of this year, we're going to pass a tax-reform plan that doesn't save Americans any money but cuts things like the state and local tax deduction and the home-mortgage interest deduction and the depreciation rules for businesses in order to lower some of your rates!

Doesn't sound as good, does it?

Wonkbook's Number of the Day: $12 billion. That's how much it costs to delay the employer mandate until 2015, according to a new report from the Congressional Budget Office. Wonkblog's Sarah Kliff explains here.

Wonkbook's Quotation of the Day: “Get rid of the deductions that don’t affect me,” said Debbie Shaeffer, the owner of an appliance store in Lawrenceville, NJ, to Rep. Dave Camp and Sen. Max Baucus in a visit.

Wonkblog's Graphs of the Day: What the White House visitors’ log tells us about the Fed race.

Wonkbook's Top 5 Stories: 1) death, taxes, and tax reform; 2) Larry Summers as Fed chair; 3) Senate finishes roll of confirmations; 4) costs and benefits of government in health care; and 5) GDP report today!

1) Top story: Obama's tax reform offer

Obama’s plan to link corporate tax reform, jobs spending is quickly rejected by GOP. "President Obama on Tuesday proposed spending more on creating jobs in exchange for an overhaul of business taxes. But the idea quickly devolved into the type of partisan finger-pointing that shows why any agreement will be so difficult. With great fanfare, Obama and his aides promoted what they called a new “grand bargain” that would sidestep disagreements and focus on a longtime Republican goal: a rewrite of the business tax code to lower corporate rates...The overhaul, administration officials said, would generate new revenue that could be used to pay for Obama’s priorities, including hiring workers to build roads, bridges and other infrastructure." Zachary A. Goldfarb and David Nakamura in The Washington Post.

Details, details. "Administration aides said the White House proposal relies on the reality that a tax overhaul likely would generate higher revenues on a one-time basis from several areas of the tax code. One is the international area. Currently, U.S. businesses can largely avoid federal taxation on their overseas earnings, as long as they don't bring the money back to the U.S...Another possible change in corporate taxes would raise revenue by slowing the rate at which businesses can depreciate plant and equipment. Businesses likely would still get the full depreciation, just over a longer period of time. Still another possibility is doing away with a system of accounting for business inventory, known as "last in, first out," that benefits businesses facing rising prices...Mr. Obama has proposed allowing businesses, including small businesses, to expense up to $1 million in investments, a change that would provide certainty in an area where limits have changed frequently." John D. McKinnon and Colleen McCain Nelson in The Wall Street Journal.

This weird little policy is the key to Obama’s grand bargain on jobs. "What do you do with the $1.5-2 trillion in foreign earnings that’s sitting overseas because corporations don’t want to pay American tax rates?...Both the White House and House Republicans have settled on a different solution: A small, one-time fee on all deferred foreign earnings. This isn’t a tax cut for money corporations bring back. It’s a levy on all the money they have sitting overseas, and they pay it whether they bring it back or not. After paying the fee, that money is free and clear so far as the taxman is concerned — corporations can bring it back, leave it overseas, or set it on fire." Ezra Klein in The Washington Post.

Hey, finally people are paying attention to Dave Camp and Max Baucus. "Debbie Schaeffer, the owner of Mrs. G TV and Appliances, probably did not give the answer the two chairmen of Congress’s powerful tax-writing committees were looking for when they pressed her this week for ideas on a fairer, simpler tax code: “Get rid of the deductions that don’t affect me,” she said. As talk of tax reform caught Washington’s attention on Tuesday, the comment by Ms. Schaeffer illustrated the central challenge of those eager to overhaul the tax code: Even those who favor eliminating tax breaks want to hang on to the breaks that benefit them." Jonathan Weisman in The New York Times.

But their tax reform is now at risk. "Senate Finance Committee Chairman Max Baucus’s effort to cement his legislative legacy with an overhaul of the Tax Code is at risk of faltering. Senate Majority Leader Harry Reid is undercutting the Montana Democrat with warnings that tax reform should generate about $1 trillion in revenue — far more than Baucus is comfortable seeking...At the moment, the majority leader hardly seems interested in the type of tax reform Baucus is pursuing." Kelsey Snell in Politico.

Could these three tax tweaks help new and small businesses create a half million jobs? "In terms of jobs output, the most significant reform would come from a proposal to extend and expand a capital gains exclusion for the sale of what is known as qualified small business stock (QSBS)...The Senate Finance Committee, for example, has floated the idea of allowing individuals to carry forward any losses from investments in research-intensive small businesses and use them to offset gains for tax purposes in the future...A third proposal would reform the manner in which, in the case of an acquisition or ownership change, the net losses for a small, pre-profit company can be used by the acquiring company or new owners to offset their taxable revenue." J.D. Harrison in The Washington Post.

BERNSTEIN: A spurned offer on corporate taxes. "Given today’s political climate, one should not be surprised by senseless opposition to good ideas, but I must say I was a bit stunned by the Republican response to President Obama’s proposal to trade a corporate tax cut for a small jobs package. I choose the word “good” above carefully to mean an idea that is designed to appeal to Republicans who have long been clamoring for a corporate rate cut.  At this point, if the president came out in favor of breathing, they’d tell their caucus members to hold their breaths." Jared Bernstein in The New York Times.

KLEIN: The problem with covering policy as politics. "Here’s the problem with coming up with policy ideas in Washington: It’s not enough to go to the media and say, “Here’s an idea we think might make things better.” You have to come up with the reason that Congress might pass your idea to make things better, or else the media will ignore it as just one more DOA white paper...[T]here’s an alternative world on offer, one where the coverage of new policy ideas leaves their political future alone and focuses, at least at the outset, on whether they’re good ideas. If they’re bad ideas, then the conversation should end there. If they are good ideas, and people know that, then perhaps the knowledge will move a few Republican senators, or even — unlikely as it is — the public, and a policy that began with no evident path to passage will find a way forward." Ezra Klein in The Washington Post.

POSEN: The dangerous cult of homeownership. "Policies to increase home ownership do not necessarily improve the supply or distribution of housing, as the UK experience demonstrates, and often works against it. The Organization for Economic Cooperation and Development's (OECD) Better Life Index shows that no relationship exists between a country's home-ownership levels and its average housing satisfaction and quality. And there is no iron law that higher-income economies must have higher rates of home ownership." Adam Posen in The Financial Times.

Music recommendations interlude: Remy Zero, "Perfect Memory," 2009.

Top opinion

ORSZAG: Critics are wrong about IPAB. "[O]pposition to the Independent Payment Advisory Board -- created as part of the Affordable Care Act -- continues to mount. And opponents continue to mischaracterize the whole point of the board. What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs...The point of having such a board -- and here I can perhaps speak with some authority, as I was present at the creation -- is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation." Peter Orszag in Bloomberg.

BARTLETT: Should we keep the tax subsidy employer-sponsored health insurance? "One highly desirable result [for getting rid of it] would have been to delink health insurance from employment, which would improve labor mobility and aid small businesses that are less likely to be able to afford health insurance than large companies, as well as aiding part-time workers and others who tend to lack employer-provided health insurance. The proposal would also have improved fairness because the tax benefits would be the same regardless of one’s income or tax bracket." Bruce Bartlett in The New York Times.

FALLOWS: Why NSA surveillance will be more damaging than you think. "The real threat from terrorism has never been the damage it does directly, even through attacks as horrific as those on 9/11. The more serious threat comes from the over-reaction, the collective insanity or the simple loss of perspective, that an attack evokes. Our government's ambition to do everything possible to keep us "safe" has put us at jeopardy in other ways." James Fallows in The Atlantic.

LAZEAR: As an economic bellweather, stock market > GDP. "On Wednesday, the Bureau of Economic Analysis releases its estimates of U.S. gross domestic product for the second quarter of the year. The BEA bureau cautions that its numbers are estimates and are subject to significant revision. The reality is that the numbers BEA reports, which will be, as they always are, bandied about in the nation's news media, are not very good measures of what went on in the economy or is going on today, according to an analysis I've performed on U.S. economic performance from 1996 to 2012. They are even worse for forecasting the future. Instead, the stock market is a better leading economic indicator." Edward P. Lazear in The Wall Street Journal.

DELONG: America's healthcare divide. "In the Democratic-controlled “blue” states, where 60% of the US population lives – and which account for 70% of national income and 80% of its wealth – implementation of the ACA is likely to be like that of RomneyCare in Massachusetts: a somewhat bumpy ride, but a clear success that nobody will wish to repeal after the fact. But no one knows what will happen in the “red states,” where the Republican political infrastructure is digging in its heels." J. Bradford DeLong in Project Syndicate.

PORTER: U.S. inequality data is sobering. "The United States remains among the richest countries in the world. National income per person trails only that of Norway, Luxembourg, Singapore, Switzerland and Hong Kong. Yet despite its riches, in many areas the United States looks surprisingly, depressingly backward...The gap between the top American scorers — at the 90th percentile of the distribution — and those in the middle is about as big as the gap between the average score in the United States and Azerbaijan." Eduardo Porter in The New York Times.

Philosophy class interlude: The ethics of robotic cars.

2) Larry Summers interested in Fed chair, and other understatements of the century

There's something about Larry. "Larry Summers appeared on the cover of Time magazine in 1999 as part of “The Committee to Save the World” from a global financial crisis. Nearly 15 years later, the former Treasury Secretary faces a loosely organized “Committee to Save the World from Larry Summers.” This committee has no official membership. It holds no formal meetings. But it includes a vocal mix of influential bloggers, The New York Times editorial page, women’s groups, financial-reform advocates and liberal members of the Senate Democratic caucus...Some of Summers’s detractors are angered by what they call his poor past treatment of women. But for many others, the gender issue is just a more easily wielded club to attack him. Their real complaint is that he is a centrist, Clinton-era retread ill-suited to steer an anemic economy back to health." Ben White and Patrick Reis in Politico.

Senate Democrats signal they won't stand Summers. "This should go a long way toward dissuading White House advisers that President Obama should nominate Larry Summers to be the next chairman of the Federal Reserve Board. “Given the level of opposition to Larry Summers within our caucus, confirming him would be a huge challenge and probably a pretty ugly process,” a Senate Democratic leadership aide tells TPM...Senate Democratic leaders have concluded that a confirmation fight over Summers would be a long, wasteful, divisive slog, and might ultimately fail." Brian Beutler in Talking Points Memo.

Summers hedges his doubts on the Fed's bond-buying. "Lawrence Summers, a leading candidate to be the next Federal Reserve chairman, likely wouldn't beat a rapid retreat from the easy-money policies pursued by Ben Bernanke if he gets the job. A close reading of Mr. Summers's columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed's huge bond-buying programs, known as "quantitative easing," but that he also has said he sees few harmful side effects stemming from them." Jon Hilsenrath in The Wall Street Journal.

The mistake that could cost Larry Summers the Fed chairmanship. "Larry Summers is among the most prominent public intellectuals on economic topics of our age. He writes columns for the Financial Times, testifies before Congress, and gives speeches before all sorts of groups. Want to hear the Summers take on fiscal policy? Trade? Education? Poverty reduction? He’ll talk about them all day long. On everything, that is, except the one responsibility that he wants to have for himself, of leading U.S. monetary policy as chairman of the Federal Reserve." Neil Irwin in The Washington Post.

Larry Summers did talk about monetary policy once. In 1991. "He participated in a panel discussion for the Journal of Money, Credit and Banking -- a top academic publication for monetary economists -- on the long-run goals a central bank should have. Since it is gated, I will summarize it. Here are his top 3 quotes: 1. He's practically in favor of NGDP targeting. "What should be the long-term objectives of the monetary authority?...What the monetary authority surely can control in the long run is the growth rate of nominal income."...3. He is dovish on inflation. [T]he optimal inflation rate is surely positive, perhaps as high as 2 or 3 percent...I would support having someone in charge of monetary policy who is more inflation averse than I." His arguments anticipate one Janet Yellen's in 1996: downward nominal rigidity of wages and the zero lower bound on the nominal interest rate." Evan Soltas on his blog.

Could Geithner end up the next Fed chairman? "As the Janet Yellen-Larry Summers competition to be the next chairman of the Federal Reserve intensifies, President Barack Obama has a third option, which is his first choice: former Treasury Secretary Tim Geithner. This alternative is unlikely, however, for two reasons: Geithner really doesn't want the job right now, and it has rarely been Obama's style to pressure or cajole anyone to take a post in his Cabinet. The president, according to people familiar with his thinking, believes Summers has the experience and expertise to succeed Ben Bernanke. No one doubts Yellen's credentials as an economist, but questions have been raised, mainly by those in the Summers camp, about whether she has the gravitas to manage a financial crisis." Albert R. Hunt in Bloomberg.

What the White House visitors’ log tells us about the Fed race. "[A] glance at the White House visitors’ logs reveals that even since Summers left, there is a big divide in who’s getting invited to 1600 Penn Ave. Yellen has visited exactly once, on Nov. 18, 2011. Summers, by contrast, has visited 15 times since leaving the NEC. Former Fed vice chairman Roger Ferguson, considered a dark horse possibility for Fed chair, has visited 14 times." Dylan Matthews in The Washington Post.

The sexist attacks on Janet Yellen. "The idea that Yellen somehow wouldn't be good in a crisis smacks of sexism. It's the implicit idea that leadership is shouting down your opponents, and that the markets need an alpha male to tame them...[It] ignores the most relevant point: Yellen was at the Fed during the crisis. She knows what to do. She was one of the few warning about the shadow banking system right before its crunch turned into a crash that almost ended the financial world as we knew it. I think she could manage just fine in another crisis." Matthew O'Brien in The Atlantic.

Why we shouldn’t think of central bankers as hawks and doves. "People who comment on monetary policy often use a convenient shorthand to refer to the different factions within the Federal Reserve and other central banks. There are the inflation hawks, who are more inclined to fight inflation through higher interest rates, and the inflation doves, who are less worried about inflation and more concerned about unemployment. But these labels may be all wrong, argues Standard & Poor’s chief economist Paul Sheard in a persuasive new report. Indeed, the traditional labels could even be pernicious in the way they frame things." Neil Irwin in The Washington Post.

Short films interlude: Rubix.

3) Senate finishes boatload of confirmations

Confirmations complete filibuster deal. "The Senate is racing to confirm as many of President Barack Obama’s nominees as it can before adjourning for a monthlong recess. On Tuesday, the chamber confirmed five nominees to the National Labor Relations Board, the final pieces of a bipartisan deal to avert a historic rules change via the filibuster nuclear option earlier this month. The successful round of votes on board members marks the first time the NLRB has had five Senate-confirmed members in a decade, said Senate Majority Leader Harry Reid." Burgess Everett in Politico.

Senate’s no-nukes deal yields approval of NLRB nominees. "Guess we can climb out of the fallout shelter now? As part of the deal struck earlier this month by Senate Republicans and Democrats to stave off the “nuclear” option, the Senate on Tuesday approved all five pending nominees to the National Labor Relations Board...Although there’s no nuclear fallout in the air, things could get testy when the Senate this week also takes up the nomination of B. Todd Jones, Obama’s pick to be the first permanent director of the Bureau of Alcohol, Tobacco and Firearms in seven years." Emily Heil in The Washington Post.

New EPA head McCarthy outlines ambitious agenda in Harvard speech. "In her first public speech since talking the helm of the Environmental Protection Agency two weeks ago, Administrator Gina McCarthy told an audience at Harvard Law School cutting carbon pollution will “feed the economic agenda of this country.”...“Climate change will not be resolved overnight,” she told the 310-person audience. “But it will be engaged over the next three years. That I can promise you.”" Juliet Eilperin in The Washington Post.

Lifehacks interlude: How to play piano without actually knowing how to play piano.

4) The costs and benefits of government in health care 

Obamacare mandate delay costs $12 billion, cuts insurance coverage. "Obamacare’s price tag has just gone up by $12 billion, due to the White House’s decision to delay the employer mandate until 2015. The vast majority of that increase ($10 billion) reflects a reduction in the penalties that the government would have collected from employers who did not comply with the requirement to provide health insurance. The Congressional Budget Office, which released the new estimate Tuesday, also expects more Americans to access federal subsidies purchasing coverage on the new marketplaces." Sarah Kliff in The Washington Post.

Montana's free state-run clinic sees early success. "A year ago, Montana opened the nation's first clinic for free primary healthcare services to its state government employees. The Helena, Mont., clinic was pitched as a way to improve overall employee health, but the idea has faced its fair share of political opposition. A year later, the state says the clinic is already saving money...That's the case for the Helena area's 11,000 state workers and their dependents. With an appointment, patients wait just a couple minutes to see a doctor. Visitation is more than 75 percent higher than initial estimates...The state contracts with a private company to run the facility and pays for everything — wages of the staff, total costs of all the visits. Those are all new expenses, and they all come from the budget for state employee healthcare. Even so, division manager Russ Hill says it's actually costing the state $1,500,000 less for healthcare than before the clinic opened." Dan Boyce in NPR.

A government shutdown won't stop Obamacare. "[L]et’s make the relatively bulletproof assumption that the White House isn’t on board with defunding Obamacare. The shutdown happens. And Obamacare implementation … well, it continues...The CRS report is another way to attack defunding: by pointing out that, even if the federal government shuts down, Obamacare can still continue pretty much apace." Sarah Kliff in The Washington Post.

Mythbusters: Obamacare edition. "No, the IRS isn’t going to be posting your medical tests all over the Internet. No, people’s premiums aren’t doubling in the crucial swing state of Ohio. And no, the Obamacare “data hub” isn’t like a new version of the NSA, spying on your hemorrhoids instead of your phone calls. Those are all claims that are muddying the waters as consumers get ready to sign up for Obamacare for the first time in October. On the other hand, not all of the stories that are swirling around the health care law these days are completely far-fetched. And the Obama administration is spinning some rosy scenarios of its own." David Nather in Politico.

White House: Obamacare not a job killer, we have a graph to prove it! "For months now, the White House has been vexed by news reports of employers reducing workers’ hourly work week to dodge the health law requirement to provide coverage to all full-time employees...The White House contends that these reports are noise: When you look at the work weeks in the restaurant industry, and a number of other sectors, the average hourly work week has inched upwards since the Affordable Care Act passed." Sarah Kliff in The Washington Post.

When it comes to abortion restrictions, geography matters. "Both polling and moves by legislatures across the country have made it clear that sharp regional differences, as well as partisan ones, help determine which states are rewriting their abortion laws and which ones aren’t. While Americans consistently support keeping abortion legal in all or most cases, these numbers change significantly depending on the state. And the partisan divide is even wider, which makes a major difference when one party controls the governorship and the legislature." Scott Clement and Juliet Eilperin in The Washington Post.

Music info interlude: How musicians make money, a graph.

5) GDP report time

With GDP numbers out this morning, growth may be low. "The economy isn't in a recession, but it will probably remain near what economists call "stall speed" following Wednesday's report on second-quarter gross domestic product. Economists polled by Dow Jones Newswires see annualized growth of just 0.9%—tied for the second-lowest level of the expansion. That follows growth of 1.8% and 0.4% in the previous two quarters. Growth below 2% for multiple quarters is thought to heighten the risk of recession...A Fed study in spring 2011 quantified the perils of stalling. It found a dip below 2% GDP growth—on a year-over-year basis rather than an annualized measure—was followed by a recession 70% of the time. But the economy dipped into the danger zone that very summer and, despite predictions of a recession by some, it regained altitude." Spencer Jakab in The Wall Street Journal.

Home prices jumped 12.2 percent. "Home prices jumped 12.2 percent in May compared with a year earlier, the biggest annual gain since March 2006. The increase shows the housing recovery is strengthening. The Standard & Poor’s/Case-Shiller 20-city home price index released on Tuesday also surged 2.4 percent in May from April. The month-over-month gain nearly matched the 2.6 percent increase in April from March — the highest on record. The price increases were widespread. All 20 cities showed gains in May from April and compared with a year earlier." The Associated Press.

Explainer: A quick-and-dirty guide to the housing finance reform battleLydia DePillis in The Washington Post.

...But headwinds build for housing. "The speed with which prices have risen over the past year has taken many economists by surprise. Gains have been fueled by record-low mortgage rates, a slowly improving economy that has released pent-up demand and strong appetites from investors converting homes into rentals. Some economists say the Case-Shiller index could overstate the magnitude of recent price increases because of how it counts foreclosures. Because foreclosures may be in greater disrepair than traditional homes, they tend to sell at a discount." Nick Timiraos in The Wall Street Journal.

End of potash cartel to boost US farmers. "For years, most of the world's potash has been sold by Belarusian Potash Co., or BPC, and Canpotex of Saskatoon, Saskatchewan. The Russian company said it was stopping sales through BPC because of disagreements over sales requirements. Uralkali said its move would likely result in potash prices tumbling 25%, to about $300 per ton, by the end of year. Such a price drop could save the average U.S. corn farmer about $10 an acre in production costs, which would cut total costs by 3% from around $330 an acre for many producers." Owen Fletcher in The Wall Street Journal.

No, Steven Cohen isn't a reason to allow insider trading. "With investment manager Steven A. Cohen charged with five counts of fraud, Dylan Matthews of the Washington Post thinks the U.S. should have never banned insider trading in the first place. It's not an outrageous view, in fact, and he raises some strong points. If insiders choose to hold their shares of stock on the basis of material nonpublic information, that's indeed as much a trade as actually buying or selling. Yet I think Matthews overstates a benefit he identifies (more efficient pricing) and overlooks costs that arise from asymmetric information among market participants. It's worth keeping the ban on the books...[W]idespread insider trading would do three things: (1) reduce the value of investments as buyers demand a penalty against the risk of insider selling, (2) reduce market liquidity, and (3) raise bid-ask spreads." Evan Soltas in Bloomberg.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

CrowdSourced: Here’s what Wonkblog readers are saying about the impact of shale gasNeil Irwin.

A quick-and-dirty guide to the housing finance reform battleLydia DePillis.

After Trayvon, black families are angry. They should beHarold Pollack.

This weird little policy is the key to Obama’s grand bargain on jobsEzra Klein.

Obamacare mandate delay costs $12 billion, cuts insurance coverageSarah Kliff.

Why we shouldn’t think of central bankers as hawks and dovesNeil Irwin.

The problem with covering policy as politicsEzra Klein.

White House: Obamacare not a job killer, we have a graph to prove itSarah Kliff.

The surprising mistake that could cost Larry Summers the Fed chairmanshipNeil Irwin.

A government shutdown won’t stop ObamacareSarah Kliff.

Et Cetera

House plan for food stamps would cut 5 million from programRon Nixon in The New York Times.

State wind-power efforts need a boost in construction of electric power linesJim Malewitz in The Washington Post.

Obama's no-Congress strategy. Edward Isaac-Dovere in Politico.

High-profile Republicans push Congressional GOP on immigration reform. David Nakamura in The Washington Post.

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

Wonkbook is produced with help from Michelle Williams.

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July 31, 2013

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.

(Photo by Hannah Foslien/AP)
(Photo by Hannah Foslien/AP)

“Get rid of the deductions that don’t affect me.” That's what Debbie Schaeffer, the owner of Mrs. G TV and Appliances, told Max Baucus and Dave Camp, the chairmen of the Senate and House committees charged with tax reform, when they asked for her advice.

This is the core problem with tax reform, a policy that Washington loves and the country mostly doesn't care about -- at least until Washington begins talking about taking away the deductions they use, and then they hate it. Everyone wants a simpler tax code. But they want it simplified by cutting somebody's else's tax breaks. Nobody is mad about filling out an extra box when it means they get $500 back.

Listen to the tax reform conversation for very long and you'll recognize it's developed a vocabulary that's exquisitely designed to obfuscate this reality.

Politicians love to talk about "revenue neutral" tax reform that "lowers rates." That's what the Obama administration wants on the corporate side (well, save for this part), and what Republicans want on both the corporate and individual sides. The "lowers rates" bit makes it sound like a tax cut. It isn't.

What "revenue neutral" means, in it's delightfully dull way, is that the tax code raises the same amount of money after reform as it did before. Those lower rates simply reflect fewer deductions. That means that on average, nobody gets a tax cut -- for every winner, there is an equal and opposite loser. And the loser will scream a lot louder.

Then there's "loopholes" and "tax breaks." These are the key ingredients of tax reform. They're the parts of the tax code everyone agrees need to be cut. After all, who wants a code filled with "loopholes" and "breaks"? Sounds terrible.

Of course, most Americans don't consider the deduction they get for state and local taxes a "break." Nor do corporations see the deductibility of interest as a "loophole." When you look closer, these "loopholes" and "breaks" -- at least the ones big enough to make a dent in the code -- were often added in for good reason and, whether they're still there for a good reason, remain the most popular parts of the tax code. It's only by keeping them vague that politicians can even talk about tax reform.

Want to know how unpopular cutting these deductions is? In the Senate, Max Baucus is promising his colleagues that any written ideas they contribute to tax reform will be kept held at the National Archives until the end of 2064. In other words, the only way he thinks he can get his colleagues to weigh in is offer to keep what they said secret for 50 years.

Of course, at some point, tax reform has to stop being polite and start getting real. The language has to become descriptive. And that's where the trouble always comes in.

To see why, Compare two sentences:

By the end of this year, we're going to pass revenue neutral tax reform that gets rids of wasteful loopholes and deductions and lowers your rates!

And the translated version:

By the end of this year, we're going to pass a tax-reform plan that doesn't save Americans any money but cuts things like the state and local tax deduction and the home-mortgage interest deduction and the depreciation rules for businesses in order to lower some of your rates!

Doesn't sound as good, does it?

Wonkbook's Number of the Day: $12 billion. That's how much it costs to delay the employer mandate until 2015, according to a new report from the Congressional Budget Office. Wonkblog's Sarah Kliff explains here.

Wonkbook's Quotation of the Day: “Get rid of the deductions that don’t affect me,” said Debbie Shaeffer, the owner of an appliance store in Lawrenceville, NJ, to Rep. Dave Camp and Sen. Max Baucus in a visit.

Wonkblog's Graphs of the Day: What the White House visitors’ log tells us about the Fed race.

Wonkbook's Top 5 Stories: 1) death, taxes, and tax reform; 2) Larry Summers as Fed chair; 3) Senate finishes roll of confirmations; 4) costs and benefits of government in health care; and 5) GDP report today!

1) Top story: Obama's tax reform offer

Obama’s plan to link corporate tax reform, jobs spending is quickly rejected by GOP. "President Obama on Tuesday proposed spending more on creating jobs in exchange for an overhaul of business taxes. But the idea quickly devolved into the type of partisan finger-pointing that shows why any agreement will be so difficult. With great fanfare, Obama and his aides promoted what they called a new “grand bargain” that would sidestep disagreements and focus on a longtime Republican goal: a rewrite of the business tax code to lower corporate rates...The overhaul, administration officials said, would generate new revenue that could be used to pay for Obama’s priorities, including hiring workers to build roads, bridges and other infrastructure." Zachary A. Goldfarb and David Nakamura in The Washington Post.

Details, details. "Administration aides said the White House proposal relies on the reality that a tax overhaul likely would generate higher revenues on a one-time basis from several areas of the tax code. One is the international area. Currently, U.S. businesses can largely avoid federal taxation on their overseas earnings, as long as they don't bring the money back to the U.S...Another possible change in corporate taxes would raise revenue by slowing the rate at which businesses can depreciate plant and equipment. Businesses likely would still get the full depreciation, just over a longer period of time. Still another possibility is doing away with a system of accounting for business inventory, known as "last in, first out," that benefits businesses facing rising prices...Mr. Obama has proposed allowing businesses, including small businesses, to expense up to $1 million in investments, a change that would provide certainty in an area where limits have changed frequently." John D. McKinnon and Colleen McCain Nelson in The Wall Street Journal.

This weird little policy is the key to Obama’s grand bargain on jobs. "What do you do with the $1.5-2 trillion in foreign earnings that’s sitting overseas because corporations don’t want to pay American tax rates?...Both the White House and House Republicans have settled on a different solution: A small, one-time fee on all deferred foreign earnings. This isn’t a tax cut for money corporations bring back. It’s a levy on all the money they have sitting overseas, and they pay it whether they bring it back or not. After paying the fee, that money is free and clear so far as the taxman is concerned — corporations can bring it back, leave it overseas, or set it on fire." Ezra Klein in The Washington Post.

Hey, finally people are paying attention to Dave Camp and Max Baucus. "Debbie Schaeffer, the owner of Mrs. G TV and Appliances, probably did not give the answer the two chairmen of Congress’s powerful tax-writing committees were looking for when they pressed her this week for ideas on a fairer, simpler tax code: “Get rid of the deductions that don’t affect me,” she said. As talk of tax reform caught Washington’s attention on Tuesday, the comment by Ms. Schaeffer illustrated the central challenge of those eager to overhaul the tax code: Even those who favor eliminating tax breaks want to hang on to the breaks that benefit them." Jonathan Weisman in The New York Times.

But their tax reform is now at risk. "Senate Finance Committee Chairman Max Baucus’s effort to cement his legislative legacy with an overhaul of the Tax Code is at risk of faltering. Senate Majority Leader Harry Reid is undercutting the Montana Democrat with warnings that tax reform should generate about $1 trillion in revenue — far more than Baucus is comfortable seeking...At the moment, the majority leader hardly seems interested in the type of tax reform Baucus is pursuing." Kelsey Snell in Politico.

Could these three tax tweaks help new and small businesses create a half million jobs? "In terms of jobs output, the most significant reform would come from a proposal to extend and expand a capital gains exclusion for the sale of what is known as qualified small business stock (QSBS)...The Senate Finance Committee, for example, has floated the idea of allowing individuals to carry forward any losses from investments in research-intensive small businesses and use them to offset gains for tax purposes in the future...A third proposal would reform the manner in which, in the case of an acquisition or ownership change, the net losses for a small, pre-profit company can be used by the acquiring company or new owners to offset their taxable revenue." J.D. Harrison in The Washington Post.

BERNSTEIN: A spurned offer on corporate taxes. "Given today’s political climate, one should not be surprised by senseless opposition to good ideas, but I must say I was a bit stunned by the Republican response to President Obama’s proposal to trade a corporate tax cut for a small jobs package. I choose the word “good” above carefully to mean an idea that is designed to appeal to Republicans who have long been clamoring for a corporate rate cut.  At this point, if the president came out in favor of breathing, they’d tell their caucus members to hold their breaths." Jared Bernstein in The New York Times.

KLEIN: The problem with covering policy as politics. "Here’s the problem with coming up with policy ideas in Washington: It’s not enough to go to the media and say, “Here’s an idea we think might make things better.” You have to come up with the reason that Congress might pass your idea to make things better, or else the media will ignore it as just one more DOA white paper...[T]here’s an alternative world on offer, one where the coverage of new policy ideas leaves their political future alone and focuses, at least at the outset, on whether they’re good ideas. If they’re bad ideas, then the conversation should end there. If they are good ideas, and people know that, then perhaps the knowledge will move a few Republican senators, or even — unlikely as it is — the public, and a policy that began with no evident path to passage will find a way forward." Ezra Klein in The Washington Post.

POSEN: The dangerous cult of homeownership. "Policies to increase home ownership do not necessarily improve the supply or distribution of housing, as the UK experience demonstrates, and often works against it. The Organization for Economic Cooperation and Development's (OECD) Better Life Index shows that no relationship exists between a country's home-ownership levels and its average housing satisfaction and quality. And there is no iron law that higher-income economies must have higher rates of home ownership." Adam Posen in The Financial Times.

Music recommendations interlude: Remy Zero, "Perfect Memory," 2009.

Top opinion

ORSZAG: Critics are wrong about IPAB. "[O]pposition to the Independent Payment Advisory Board -- created as part of the Affordable Care Act -- continues to mount. And opponents continue to mischaracterize the whole point of the board. What they seem not to understand is that the board is needed mostly so that that Medicare can continue to encourage slower growth in costs...The point of having such a board -- and here I can perhaps speak with some authority, as I was present at the creation -- is to create a process for tweaking our evolving payment system in response to incoming data and experience, a process that is more facile and dynamic than turning to Congress for legislation." Peter Orszag in Bloomberg.

BARTLETT: Should we keep the tax subsidy employer-sponsored health insurance? "One highly desirable result [for getting rid of it] would have been to delink health insurance from employment, which would improve labor mobility and aid small businesses that are less likely to be able to afford health insurance than large companies, as well as aiding part-time workers and others who tend to lack employer-provided health insurance. The proposal would also have improved fairness because the tax benefits would be the same regardless of one’s income or tax bracket." Bruce Bartlett in The New York Times.

FALLOWS: Why NSA surveillance will be more damaging than you think. "The real threat from terrorism has never been the damage it does directly, even through attacks as horrific as those on 9/11. The more serious threat comes from the over-reaction, the collective insanity or the simple loss of perspective, that an attack evokes. Our government's ambition to do everything possible to keep us "safe" has put us at jeopardy in other ways." James Fallows in The Atlantic.

LAZEAR: As an economic bellweather, stock market > GDP. "On Wednesday, the Bureau of Economic Analysis releases its estimates of U.S. gross domestic product for the second quarter of the year. The BEA bureau cautions that its numbers are estimates and are subject to significant revision. The reality is that the numbers BEA reports, which will be, as they always are, bandied about in the nation's news media, are not very good measures of what went on in the economy or is going on today, according to an analysis I've performed on U.S. economic performance from 1996 to 2012. They are even worse for forecasting the future. Instead, the stock market is a better leading economic indicator." Edward P. Lazear in The Wall Street Journal.

DELONG: America's healthcare divide. "In the Democratic-controlled “blue” states, where 60% of the US population lives – and which account for 70% of national income and 80% of its wealth – implementation of the ACA is likely to be like that of RomneyCare in Massachusetts: a somewhat bumpy ride, but a clear success that nobody will wish to repeal after the fact. But no one knows what will happen in the “red states,” where the Republican political infrastructure is digging in its heels." J. Bradford DeLong in Project Syndicate.

PORTER: U.S. inequality data is sobering. "The United States remains among the richest countries in the world. National income per person trails only that of Norway, Luxembourg, Singapore, Switzerland and Hong Kong. Yet despite its riches, in many areas the United States looks surprisingly, depressingly backward...The gap between the top American scorers — at the 90th percentile of the distribution — and those in the middle is about as big as the gap between the average score in the United States and Azerbaijan." Eduardo Porter in The New York Times.

Philosophy class interlude: The ethics of robotic cars.

2) Larry Summers interested in Fed chair, and other understatements of the century

There's something about Larry. "Larry Summers appeared on the cover of Time magazine in 1999 as part of “The Committee to Save the World” from a global financial crisis. Nearly 15 years later, the former Treasury Secretary faces a loosely organized “Committee to Save the World from Larry Summers.” This committee has no official membership. It holds no formal meetings. But it includes a vocal mix of influential bloggers, The New York Times editorial page, women’s groups, financial-reform advocates and liberal members of the Senate Democratic caucus...Some of Summers’s detractors are angered by what they call his poor past treatment of women. But for many others, the gender issue is just a more easily wielded club to attack him. Their real complaint is that he is a centrist, Clinton-era retread ill-suited to steer an anemic economy back to health." Ben White and Patrick Reis in Politico.

Senate Democrats signal they won't stand Summers. "This should go a long way toward dissuading White House advisers that President Obama should nominate Larry Summers to be the next chairman of the Federal Reserve Board. “Given the level of opposition to Larry Summers within our caucus, confirming him would be a huge challenge and probably a pretty ugly process,” a Senate Democratic leadership aide tells TPM...Senate Democratic leaders have concluded that a confirmation fight over Summers would be a long, wasteful, divisive slog, and might ultimately fail." Brian Beutler in Talking Points Memo.

Summers hedges his doubts on the Fed's bond-buying. "Lawrence Summers, a leading candidate to be the next Federal Reserve chairman, likely wouldn't beat a rapid retreat from the easy-money policies pursued by Ben Bernanke if he gets the job. A close reading of Mr. Summers's columns and speeches, as well as conversations with people familiar with his thinking and a June interview with him, show that Mr. Summers has been skeptical about the benefits of the Fed's huge bond-buying programs, known as "quantitative easing," but that he also has said he sees few harmful side effects stemming from them." Jon Hilsenrath in The Wall Street Journal.

The mistake that could cost Larry Summers the Fed chairmanship. "Larry Summers is among the most prominent public intellectuals on economic topics of our age. He writes columns for the Financial Times, testifies before Congress, and gives speeches before all sorts of groups. Want to hear the Summers take on fiscal policy? Trade? Education? Poverty reduction? He’ll talk about them all day long. On everything, that is, except the one responsibility that he wants to have for himself, of leading U.S. monetary policy as chairman of the Federal Reserve." Neil Irwin in The Washington Post.

Larry Summers did talk about monetary policy once. In 1991. "He participated in a panel discussion for the Journal of Money, Credit and Banking -- a top academic publication for monetary economists -- on the long-run goals a central bank should have. Since it is gated, I will summarize it. Here are his top 3 quotes: 1. He's practically in favor of NGDP targeting. "What should be the long-term objectives of the monetary authority?...What the monetary authority surely can control in the long run is the growth rate of nominal income."...3. He is dovish on inflation. [T]he optimal inflation rate is surely positive, perhaps as high as 2 or 3 percent...I would support having someone in charge of monetary policy who is more inflation averse than I." His arguments anticipate one Janet Yellen's in 1996: downward nominal rigidity of wages and the zero lower bound on the nominal interest rate." Evan Soltas on his blog.

Could Geithner end up the next Fed chairman? "As the Janet Yellen-Larry Summers competition to be the next chairman of the Federal Reserve intensifies, President Barack Obama has a third option, which is his first choice: former Treasury Secretary Tim Geithner. This alternative is unlikely, however, for two reasons: Geithner really doesn't want the job right now, and it has rarely been Obama's style to pressure or cajole anyone to take a post in his Cabinet. The president, according to people familiar with his thinking, believes Summers has the experience and expertise to succeed Ben Bernanke. No one doubts Yellen's credentials as an economist, but questions have been raised, mainly by those in the Summers camp, about whether she has the gravitas to manage a financial crisis." Albert R. Hunt in Bloomberg.

What the White House visitors’ log tells us about the Fed race. "[A] glance at the White House visitors’ logs reveals that even since Summers left, there is a big divide in who’s getting invited to 1600 Penn Ave. Yellen has visited exactly once, on Nov. 18, 2011. Summers, by contrast, has visited 15 times since leaving the NEC. Former Fed vice chairman Roger Ferguson, considered a dark horse possibility for Fed chair, has visited 14 times." Dylan Matthews in The Washington Post.

The sexist attacks on Janet Yellen. "The idea that Yellen somehow wouldn't be good in a crisis smacks of sexism. It's the implicit idea that leadership is shouting down your opponents, and that the markets need an alpha male to tame them...[It] ignores the most relevant point: Yellen was at the Fed during the crisis. She knows what to do. She was one of the few warning about the shadow banking system right before its crunch turned into a crash that almost ended the financial world as we knew it. I think she could manage just fine in another crisis." Matthew O'Brien in The Atlantic.

Why we shouldn’t think of central bankers as hawks and doves. "People who comment on monetary policy often use a convenient shorthand to refer to the different factions within the Federal Reserve and other central banks. There are the inflation hawks, who are more inclined to fight inflation through higher interest rates, and the inflation doves, who are less worried about inflation and more concerned about unemployment. But these labels may be all wrong, argues Standard & Poor’s chief economist Paul Sheard in a persuasive new report. Indeed, the traditional labels could even be pernicious in the way they frame things." Neil Irwin in The Washington Post.

Short films interlude: Rubix.

3) Senate finishes boatload of confirmations

Confirmations complete filibuster deal. "The Senate is racing to confirm as many of President Barack Obama’s nominees as it can before adjourning for a monthlong recess. On Tuesday, the chamber confirmed five nominees to the National Labor Relations Board, the final pieces of a bipartisan deal to avert a historic rules change via the filibuster nuclear option earlier this month. The successful round of votes on board members marks the first time the NLRB has had five Senate-confirmed members in a decade, said Senate Majority Leader Harry Reid." Burgess Everett in Politico.

Senate’s no-nukes deal yields approval of NLRB nominees. "Guess we can climb out of the fallout shelter now? As part of the deal struck earlier this month by Senate Republicans and Democrats to stave off the “nuclear” option, the Senate on Tuesday approved all five pending nominees to the National Labor Relations Board...Although there’s no nuclear fallout in the air, things could get testy when the Senate this week also takes up the nomination of B. Todd Jones, Obama’s pick to be the first permanent director of the Bureau of Alcohol, Tobacco and Firearms in seven years." Emily Heil in The Washington Post.

New EPA head McCarthy outlines ambitious agenda in Harvard speech. "In her first public speech since talking the helm of the Environmental Protection Agency two weeks ago, Administrator Gina McCarthy told an audience at Harvard Law School cutting carbon pollution will “feed the economic agenda of this country.”...“Climate change will not be resolved overnight,” she told the 310-person audience. “But it will be engaged over the next three years. That I can promise you.”" Juliet Eilperin in The Washington Post.

Lifehacks interlude: How to play piano without actually knowing how to play piano.

4) The costs and benefits of government in health care 

Obamacare mandate delay costs $12 billion, cuts insurance coverage. "Obamacare’s price tag has just gone up by $12 billion, due to the White House’s decision to delay the employer mandate until 2015. The vast majority of that increase ($10 billion) reflects a reduction in the penalties that the government would have collected from employers who did not comply with the requirement to provide health insurance. The Congressional Budget Office, which released the new estimate Tuesday, also expects more Americans to access federal subsidies purchasing coverage on the new marketplaces." Sarah Kliff in The Washington Post.

Montana's free state-run clinic sees early success. "A year ago, Montana opened the nation's first clinic for free primary healthcare services to its state government employees. The Helena, Mont., clinic was pitched as a way to improve overall employee health, but the idea has faced its fair share of political opposition. A year later, the state says the clinic is already saving money...That's the case for the Helena area's 11,000 state workers and their dependents. With an appointment, patients wait just a couple minutes to see a doctor. Visitation is more than 75 percent higher than initial estimates...The state contracts with a private company to run the facility and pays for everything — wages of the staff, total costs of all the visits. Those are all new expenses, and they all come from the budget for state employee healthcare. Even so, division manager Russ Hill says it's actually costing the state $1,500,000 less for healthcare than before the clinic opened." Dan Boyce in NPR.

A government shutdown won't stop Obamacare. "[L]et’s make the relatively bulletproof assumption that the White House isn’t on board with defunding Obamacare. The shutdown happens. And Obamacare implementation … well, it continues...The CRS report is another way to attack defunding: by pointing out that, even if the federal government shuts down, Obamacare can still continue pretty much apace." Sarah Kliff in The Washington Post.

Mythbusters: Obamacare edition. "No, the IRS isn’t going to be posting your medical tests all over the Internet. No, people’s premiums aren’t doubling in the crucial swing state of Ohio. And no, the Obamacare “data hub” isn’t like a new version of the NSA, spying on your hemorrhoids instead of your phone calls. Those are all claims that are muddying the waters as consumers get ready to sign up for Obamacare for the first time in October. On the other hand, not all of the stories that are swirling around the health care law these days are completely far-fetched. And the Obama administration is spinning some rosy scenarios of its own." David Nather in Politico.

White House: Obamacare not a job killer, we have a graph to prove it! "For months now, the White House has been vexed by news reports of employers reducing workers’ hourly work week to dodge the health law requirement to provide coverage to all full-time employees...The White House contends that these reports are noise: When you look at the work weeks in the restaurant industry, and a number of other sectors, the average hourly work week has inched upwards since the Affordable Care Act passed." Sarah Kliff in The Washington Post.

When it comes to abortion restrictions, geography matters. "Both polling and moves by legislatures across the country have made it clear that sharp regional differences, as well as partisan ones, help determine which states are rewriting their abortion laws and which ones aren’t. While Americans consistently support keeping abortion legal in all or most cases, these numbers change significantly depending on the state. And the partisan divide is even wider, which makes a major difference when one party controls the governorship and the legislature." Scott Clement and Juliet Eilperin in The Washington Post.

Music info interlude: How musicians make money, a graph.

5) GDP report time

With GDP numbers out this morning, growth may be low. "The economy isn't in a recession, but it will probably remain near what economists call "stall speed" following Wednesday's report on second-quarter gross domestic product. Economists polled by Dow Jones Newswires see annualized growth of just 0.9%—tied for the second-lowest level of the expansion. That follows growth of 1.8% and 0.4% in the previous two quarters. Growth below 2% for multiple quarters is thought to heighten the risk of recession...A Fed study in spring 2011 quantified the perils of stalling. It found a dip below 2% GDP growth—on a year-over-year basis rather than an annualized measure—was followed by a recession 70% of the time. But the economy dipped into the danger zone that very summer and, despite predictions of a recession by some, it regained altitude." Spencer Jakab in The Wall Street Journal.

Home prices jumped 12.2 percent. "Home prices jumped 12.2 percent in May compared with a year earlier, the biggest annual gain since March 2006. The increase shows the housing recovery is strengthening. The Standard & Poor’s/Case-Shiller 20-city home price index released on Tuesday also surged 2.4 percent in May from April. The month-over-month gain nearly matched the 2.6 percent increase in April from March — the highest on record. The price increases were widespread. All 20 cities showed gains in May from April and compared with a year earlier." The Associated Press.

Explainer: A quick-and-dirty guide to the housing finance reform battleLydia DePillis in The Washington Post.

...But headwinds build for housing. "The speed with which prices have risen over the past year has taken many economists by surprise. Gains have been fueled by record-low mortgage rates, a slowly improving economy that has released pent-up demand and strong appetites from investors converting homes into rentals. Some economists say the Case-Shiller index could overstate the magnitude of recent price increases because of how it counts foreclosures. Because foreclosures may be in greater disrepair than traditional homes, they tend to sell at a discount." Nick Timiraos in The Wall Street Journal.

End of potash cartel to boost US farmers. "For years, most of the world's potash has been sold by Belarusian Potash Co., or BPC, and Canpotex of Saskatoon, Saskatchewan. The Russian company said it was stopping sales through BPC because of disagreements over sales requirements. Uralkali said its move would likely result in potash prices tumbling 25%, to about $300 per ton, by the end of year. Such a price drop could save the average U.S. corn farmer about $10 an acre in production costs, which would cut total costs by 3% from around $330 an acre for many producers." Owen Fletcher in The Wall Street Journal.

No, Steven Cohen isn't a reason to allow insider trading. "With investment manager Steven A. Cohen charged with five counts of fraud, Dylan Matthews of the Washington Post thinks the U.S. should have never banned insider trading in the first place. It's not an outrageous view, in fact, and he raises some strong points. If insiders choose to hold their shares of stock on the basis of material nonpublic information, that's indeed as much a trade as actually buying or selling. Yet I think Matthews overstates a benefit he identifies (more efficient pricing) and overlooks costs that arise from asymmetric information among market participants. It's worth keeping the ban on the books...[W]idespread insider trading would do three things: (1) reduce the value of investments as buyers demand a penalty against the risk of insider selling, (2) reduce market liquidity, and (3) raise bid-ask spreads." Evan Soltas in Bloomberg.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

CrowdSourced: Here’s what Wonkblog readers are saying about the impact of shale gasNeil Irwin.

A quick-and-dirty guide to the housing finance reform battleLydia DePillis.

After Trayvon, black families are angry. They should beHarold Pollack.

This weird little policy is the key to Obama’s grand bargain on jobsEzra Klein.

Obamacare mandate delay costs $12 billion, cuts insurance coverageSarah Kliff.

Why we shouldn’t think of central bankers as hawks and dovesNeil Irwin.

The problem with covering policy as politicsEzra Klein.

White House: Obamacare not a job killer, we have a graph to prove itSarah Kliff.

The surprising mistake that could cost Larry Summers the Fed chairmanshipNeil Irwin.

A government shutdown won’t stop ObamacareSarah Kliff.

Et Cetera

House plan for food stamps would cut 5 million from programRon Nixon in The New York Times.

State wind-power efforts need a boost in construction of electric power linesJim Malewitz in The Washington Post.

Obama's no-Congress strategy. Edward Isaac-Dovere in Politico.

High-profile Republicans push Congressional GOP on immigration reform. David Nakamura in The Washington Post.

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

Wonkbook is produced with help from Michelle Williams.

SECTION: {section=business, subsection=null}!!!
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UGC FROM ARTICLE: !!!

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Comments
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UGC FROM ARTICLE: !!!

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Lydia DePillis | July 30, 2013