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Wonkbook: Fed considering growth measures; cap and trade cuts deficit; CEOs vs. Obama

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Ezra Klein
Thursday, July 8, 2010; 7:16 AM

The economy's continued weakness is forcing the Federal Reserve to consider taking further measures to spur additional economic growth. But not, you know, very fast, or very aggressively. Meanwhile, the Congressional Budget Office has scored the Senate climate bill, and says it'll cut the deficit, campaign finance reformers are preparing a push this Congress for public financing, and what's really at the root of the executive class's anger at Barack Obama?

Did you know there's reggae music in Aspen? I did not. At least until last night. Anyway, welcome to Wonkbook.

Top Stories

The Fed is considering doing more -- though not, as of yet, much more -- to spur the economy, reports Neil Irwin: "With Congress tied in political knots over whether to take further action to boost the economy, Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns -- massive infusions of cash, such as those undertaken during the depths of the financial crisis -- but would reconsider if conditions worsen."

Want to know what it would look like for the Fed to commit to economic growth? Read this from economist Scott Sumner. Or this from former Federal Reserve official Joseph Gagnon.

CBO says the American Power Act would cut $19 billion from the deficit over the next decade, reports Darren Samuelsohn: "The CBO analysis of the American Power Act, championed by Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) found that government revenues would grow by about $751 billion from 2011 to 2020 if the bill became law. By contrast, the legislation would create direct spending of $732 billion over the same 10-year period."

Christopher Edley proposes a way for Treasury to rescue struggling state governments without making it easy on them: "Congress should pass legislation that would allow a state to simply get an 'advance' on these future federal dollars expected from entitlement programs. The advance could then be used for regional stimulus, to continue state services and to hasten our recovery. The Treasury Department, which writes the checks to the states, could be assured of repayment (with interest) by simply cutting the federal matching rate by the needed amount over, say, five years....What would this cost the federal government? Nothing."

David Wessel argues that CEOs don't trust Obama because Obama doesn't trust them: "Reversing a 30-year trend, the pendulum has swung against trust in business and in markets. Like it or not, the public and their elected politicians have concluded that banks, business and unfettered markets got us into this mess. The response is more rules and more regulation. In health care, in finance and--probably, soon--in energy and environment, business will face more constraints. And, perhaps most alarming of all to CEOs, they have realized the president is trying to keep his campaign promise to raise their taxes, both on CEO-level pay and on profits of U.S. multinationals."

OutKast interlude: Big Boi's "Follow Us".

Still to come: Another round in the Manzi/Plumer climate-change debate; A couple of rounds in the Berwick-debate; Matt Miller leverages his deficit credentials; Medicaid outsourcing is harming care in many states; and Lady Gaga just chills.

Energy

A panel has cleared climate scientists of wrong-doing in "climate-gate", report David Fahrenthold and Juliet Eilperin: "The commission, chaired by a Scottish university administrator, was the latest to find no evidence that researchers embroiled in the 'Climate-gate' scandal had violated academic standards. After examining e-mails and research from the University of East Anglia's Climatic Research Unit, the commission said, 'we find that their rigor and honesty as scientists are not in doubt.'"

Transocean is under investigation for everything from tax evasion to ties to state sponsors of terrorism: http://nyti.ms/bRFOqu

The Department of Energy is expanding funding for carbon capture technology, reports Tom Zeller: "The government is providing about $52 million, with an additional $15 million in cost-sharing funds coming from non-federal sources. Most of the projects are at the laboratory level, although three involve large-scale pilots."

The DOE itself can be glaringly energy inefficient: http://nyti.ms/dfRXo7

Jim Manzi continues to make the case that action on climate change isn't worth the costs: "The average person living in the developing world is better off in money terms with more economic development and more climate change damage, on net. A lot better off in fact: $66,500 is more than 65% higher than $40,200." Read Manzi's original post: http://bit.ly/a69G52 Read Brad Plumer's reply: http://bit.ly/9ClZIA

Documentary interlude: "Skimming the Surface", on the effect of the oil spill on Gulf fishing.

Economy/ FinReg

Matt Miller puts his deficit credentials on the line to argue for further job spending: "I got into policy journalism in the late 1980s and government in the early 1990s because of my worries about debt and deficits. I was a warrior for "generational equity" back when I was still (sigh) a member of the younger generation. And I'm as fearful as the next fiscal scold of long-term damage from the gap between federal spending and revenue, not to mention the trillions in unfunded liabilities in public employee pensions at the state and local level. I come before you, in other words, a deficit hawk to the core. But it is the height of economic folly -- and socially dangerous, in my view -- to elevate deficit reduction as a goal today over boosting jobs and growth."

Obama has put together a team of CEOs to boost exports, reports Edward Luce: ""Simply put, export growth leads to job growth and economic growth," said Mr Obama. 'This isn't just about where American jobs are today. This is where American jobs will be tomorrow.' Mr Obama's new Export Council will be headed by James McNerney, chief executive of Boeing, and Ursula Burns, chief executive of Xerox."

Obama is pushing for trade pacts with Panama, Colombia, and South Korea to be approved: http://nyti.ms/b15kYt

US returns from TARP may shrink, report Marshall Eckblad and Erik Holm: "The government is 'still going to make a nice return,' said Fred Cannon, co-director of research at Keefe Bruyette & Woods. 'But I'm not sure the 10% will hold up.' Here's why: While the government got a 5% dividend on preferred stock it received under TARP, its ultimate return depends in part on where that company's stock is trading when the government gets paid for warrants that were also part of the TARP investments. And lately, the market for bank stocks has belonged to skeptical buyers."

The EU is prepping its "stress tests" for European banks: http://bit.ly/aeB5jc

A Fed official is proposing taxing banks on their risk level, reports Michael Derby: "'A financial institution should be taxed for the amount of risk it creates that is borne by taxpayers,' Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said. 'Once the firm faces the correct tax, it will choose to produce that risk with a cost-minimizing mix of capital, liquidity, incentive compensation and other factors,' the official said."

In the wake of FinReg, the banking industry's top lobbyist is retiring: http://bit.ly/d5YpKF

Donald Marron explains why taxes must rise in coming years: "First, the economy will recover, lifting revenues from currently depressed levels. Second, the 2001 and 2003 tax cuts will expire, as will tax cuts enacted in the 2009 stimulus. Third, the Alternative Minimum Tax, which is not indexed for inflation, will boost taxes for millions more taxpayers. Fourth, the new taxes that helped pay for the recent health legislation will go into effect. Fifth, retiring baby boomers will make more taxable withdrawals from tax-deferred retirement accounts. Finally, in a phenomenon known as bracket creep, growing incomes will push taxpayers into higher brackets and reduce their eligibility for various credits."

Theme blog interlude: Lady Gaga in everyday situations.

Domestic Policy

Keith Hennessey explains why he objects to the Donald Berwick appointment: "The Berwick recess appointment is extraordinary because the confirmation process didn't even begin and because Republicans cannot be held responsible for the delay. In the eleven weeks since the nomination Chairman Baucus never held a hearing on Dr. Berwick. While some Senate Republicans threatened a future filibuster, no Senate Republican has yet had an opportunity to delay or block the confirmation process so far. No member of the Finance Committee had any opportunity to question Dr. Berwick on either his fitness as a nominee or on his policy views."

Conservatives are making a serious mistake by attacking Berwick, writes Ezra Klein: "Ultimately, what weakens Berwick weakens them, as Berwick, whether they know it or not, is one of the best friends they could have in the administration. That's because insofar as Berwick is a radical, he's a radical in favor of a patient-centered health-care system -- a position that has traditionally been associated with conservatives, not liberals."

Jonathan Bernstein thinks it all comes back to the filibuster: "Everything is filibustered in the current Senate, successfully or not. Hennessey talks about bypassing "the normal Senate confirmation process," but then talks about a possibility of a filibuster. In the current Senate, filibusters are not a possibility; they are certain, on everything. Given that, it's probably the right move to make for the president to use his power for recess appointments at a time of his choosing, to maximize his own interests (including, of course, his interest in getting the administration fully staffed). The real question is whether Republicans are willing to strike a deal that would free up more nominees."

Senate Finance chairman Max Baucus is upset at the Berwick appointment: http://nyti.ms/9pO88s

Common Cause and other groups are pushing for a vote on public financing this Congress, reports Dan Eggen: "Supporters say they hope to get a House floor vote on the legislation this summer, with timing less certain in the Senate. Edgar and others say their chances are improved by separate legislation now under consideration in the Senate aimed at countering a Supreme Court decision allowing unlimited spending by corporations, unions and nonprofit groups on political ads."

Some states that outsourced their Medicaid services aren't seeing care provided, reports Alec MacGillis: "A recent report found that 2.7 million children on Medicaid in nine states, most of them states that outsource Medicaid, are not receiving required screenings and immunizations....Today, 70 percent of the 48 million Medicaid enrollees are in a managed plan. States typically pay insurers a per-person rate, and the insurers, or HMOs, negotiate rates with doctors and hospitals."

Over 40 major cabinet department posts are still unfilled: http://bit.ly/ckWnWA

The IRS is worried about health care reform's new requirements, reports David Hilzenrath: "In addition, a tax reporting requirement in the health-care law 'may impose significant burdens on businesses, charities, and government agencies,' the advocate service reported. Those burdens 'may turn out to be disproportionate as compared with any resulting improvement in tax compliance,' the head of the advocate service, Nina E. Olson, said in the release."

Tanning salons allege that the new tanning tax in health care reform will cripple their industry: http://bit.ly/aBV9qo C

losing credits: Wonkbook is compiled with the help of Dylan Matthews and Mike Shepard.


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