We don't have a payroll tax deal. Over the past week, Harry Reid and Mitch McConnell had been negotiating a two-month extension under the tacit understanding that whatever they agreed on, John Boehner would sign onto. They agreed on a two-month extension of the payroll tax. And whether Boehner wanted to sign onto it or not, his members rebelled, and Boehner quickly got in line with them.

Speaker of the House, Rep. John Boehner, R-Ohio, appears on NBC's "Meet the Press" in Washington on Dec. 18. (William B. Plowman/AP)

House Republicans have a point. Making tax policy two months at a time is no way to make tax policy. But House Republicans are the reason the Senate was opting for a two-month extension of the payroll tax cut. If they agreed to a clean, year-long extension of the payroll tax cut, the bill could pass in the next 10 minutes. Instead, they've opted to tie it to the Keystone XL Pipeline. And as bad as it is to make tax policy in two-month increments, it's even worse to make controversial energy and environmental decisions using unrelated tax-policy measures -- and their deadlines -- as cover.

But I'm having trouble getting excited about this. I still can't believe that Republicans will ultimately allow the payroll tax cut to expire. It's simply too difficult a discussion to have with their constituents. The likelier outcome is that we're headed for that beloved Washington Christmastime tradition: the stroke-of-midnight deal.

What I am excited about is the administration's new regulations on essential benefits in the health-reform law. Well, "excited" may be to strong a word. But these rules are important. Really important. As I wrote back in January:

"This is the judgment that underlies the whole project. If you're an individual and you have coverage that meets essential health benefits, you don't need to worry about the individual mandate. If you're a mid-sized company and you offer coverage that meets the definition, you're similarly in the clear. But if you don't have coverage that's good enough, you either need to buy it, or upgrade what you've got. Everything the insurers offer in the exchanges has to be as good as or better than whatever counts as essential health benefits. Everything that mid-sized employers offer has to meet the standard, too. The question is, what's the standard?"

"If you've read Section 1302 of the legislation -- and you have, right? -- it'd be easy to think that benefits had been defined. And they have -- sort of. The legislation mentions nine specific categories of care that have to be included (pediatric, hospital, etc.), and specifies different levels of comprehensiveness (as defined by the percentage of annual health-care costs the policy is expected to cover) that the exchanges will offer. But those elements give shape to the discussion over essential health benefits, they don't conclude it. The same paragraph that ticks off those categories also instructs that 'the Secretary shall define the essential health benefits.'"

On Friday, that definition got released. And it was, in essence, a punt. The administration left the definition of essential benefits up to the states. That won't make insurers very happy, as it means they'll have to deal with 50 different standards. It won't make patient-advocates very happy, as it means they'll have to fight on 50 different fronts. But it protects the administration politically. They're no longer to blame for the benefit decisions people dislike, and perhaps even better, they don't look like they're trying to take every opportunity to increase government control over the health-care system.

This is, in essence, defensive implementation of the health-care law. It's implementation meant to avoid potential political problems for the administration rather than push the policy forward. There are obvious reasons for the administration to opt for that path. But it's another sign that if the Affordable Care Act does make it to 2014, it will do so by operating cautiously, tentatively, at half or three-quarters speed. That may help the law survive. But it won't allow it to thrive.

Top stories

1) The House opposes the payroll tax deal that passed the Senate, reports Felicia Sonmez: "The fate of a payroll tax cut extension backed by the White House and overwhelmingly passed by the Senate is uncertain after a restive House Republican conference expressed displeasure with the two-month deal. Faced with the uprising on his right flank, House Speaker John A. Boehner (R-Ohio) retreated Sunday from his previous support for the package, saying the House does not expect to approve that plan on Monday night after it returns to Washington...The move sets up the latest game of brinkmanship on Capitol Hill, in which a failure by lawmakers to pass a deal before New Year’s Day will result in a two percentage-point payroll tax increase on 160 million workers, the termination of unemployment benefits for some jobless Americans and a reduction in reimbursement rates for doctors who treat Medicare patients."

@NancyPelosi: "Only thing standing in way of payroll tax cut is tea party GOP in House with their latest made-up crisis just days before Xmas"

2) Not renewing the payroll tax cut would likely hurt the recovery, reports Annie Lowrey: "The tax cut, part of a late 2010 deal between the White House and Congress, will save the average American household $934 in 2011, according to the Tax Policy Center in Washington. Although the precise impact of the cut this year is impossible to know, analysts generally say it lifted spending and helped the economy cope with Europe’s troubles as well as rising food and gasoline prices early this year. If the cut expires early next year, forecasters predict that economic growth and hiring will slow, and some say the economy could even be pushed back into recession. The expiration would effectively amount to a 2 percent tax increase on all of America’s 160 million wage earners. 'If the Europe mess weren’t there, there would be a good case for letting taxes go back up,” said Joel Prakken, the chairman of Macroeconomic Advisers, a major forecasting firm. “But a combination of a big tax increase plus the threat from Europe, when the economy is still in the doldrums — why take that risk?'"

3) Republicans are blocking recess appointments, report Maya Jackson Randall and Melanie Trottman: "Senate Republicans are taking steps to try to block President Barack Obama from using his power to make appointments while lawmakers are away for the holidays. But the president could hold a trump card or two. Senate Minority Leader Mitch McConnell took the first shot on Saturday, saying he would allow Senate votes on Obama nominees only if the president dropped the idea of using his recess appointment powers. Republicans also moved to keep the Senate technically in session through late January, when senators plan to return to Washington, the same tactic they used during a break in May. The main target has been former Ohio Attorney General Richard Cordray, the president's pick to head the new--and contentious--Consumer Financial Protection Bureau."

4) Only nine nations need to approve a new Europe treaty, reports Stephen Castle: "A new treaty to impose tighter discipline among the 17 nations in the European Union that use the euro will come into force once nine countries approve it, according to a draft released Friday. That potentially reduces the threat that disapproval by one nation could scuttle the pact. The treaty is intended to help improve confidence in the euro by tightening the coordination of the 17 euro zone economies, requiring nations to balance their budgets and cut debt. The outline of the plan was agreed to by most European leaders a week ago, with the exception of Britain. European officials hope to reach agreement on the eight-page draft of the treaty within weeks, with Britain being offered observer status in discussions."

Sad fact: "Before the financial crisis first began to bite three years ago, Greece had the lowest suicide rate in Europe at 2.8 per 100,000 inhabitants. It now has almost double that number, the highest on the continent, despite the stigma in a nation where the Orthodox church refuses funeral rights for those who take their lives. Attempted suicides have also increased."

5) The White House is leaving the definition of "essential" health care to the states, reports Sarah Kliff: "Under the health reform law, every insurance plan will be required to cover a set of 'essential health benefits.' The Affordable Care Act defines 10 broad categories that must be included, such as 'professional services of physicians and other health professionals' and 'hospitalizations.' What fits within those categories is up to the Obama administration. Any plan that wants to sell on the new insurance marketplace will have to cover the benefits...What Health and Human Services created today wasn’t really an essential health benefits package at all. Instead, the department announced that every state will have the option to determine essential health benefits themselves, by using standards that already exist in their states."

Wonkbook's take: The "essential benefits" question is a very, very big deal for health-care reform. It's where the law balances insurer innovation and consumer protection. And the administration, in a move that's likely politically smart but frudtrating to advocates, has punted it to the states. Here's more from Timothy Jost.

Top op-eds

1) China's economy could be the next to implode, writes Paul Krugman: "The most striking thing about the Chinese economy over the past decade was the way household consumption, although rising, lagged behind overall growth. At this point consumer spending is only about 35 percent of G.D.P., about half the level in the United States. So who’s buying the goods and services China produces? Part of the answer is, well, we are: as the consumer share of the economy declined, China increasingly relied on trade surpluses to keep manufacturing afloat. But the bigger story from China’s point of view is investment spending, which has soared to almost half of G.D.P. The obvious question is, with consumer demand relatively weak, what motivated all that investment? And the answer, to an important extent, is that it depended on an ever-inflating real estate bubble."

2) Financial crises need not be death sentences for the economy, writes Christina Romer: "The Reinhart-Rogoff study emphasizes common patterns across crises. It eschews complicated statistical techniques, relying instead on simple graphs and averages...But study their charts more closely and you’ll find that those averages mask remarkable variation. Norway had only a slight decline in per capita G.D.P. -- around 1 percent -- after its 1987 crisis, and output was back to its previous level in just three years. By contrast, real per capita G.D.P. in Argentina fell more than 20 percent in conjunction with its 2001 crisis, and took eight years to recover...What explains the variations? Crises don’t happen in isolation. They’re often accompanied by other factors...But an even larger determining factor is the policy response."

3) We should tax inequality itself, write Ian Ayres and Aaron Edlin: "Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners -- a tax that would limit the after-tax incomes of this club to 36 times the median household income...If the average 1-percenter made more than 36 times the income of the median American household, then the I.R.S. would create a new tax bracket for the highest 1 percent of income and calculate a marginal income tax rate for that bracket sufficient to reduce the after-tax Brandeis ratio to 36. This new tax, if triggered, would apply only to income in excess of the poorest 1-percenter -- currently about $330,000 per year. Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a 'claw back' tax. It merely assures that things don’t get worse."

4) Modern capitalism won't be around forever, writes Ken Rogoff: "I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism. It is a curious question, because it seems to presume that there is a viable replacement waiting in the wings. The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism...Perhaps the real point is that, in the broad sweep of history, all current forms of capitalism are ultimately transitional. Modern-day capitalism has had an extraordinary run since the start of the Industrial Revolution two centuries ago, lifting billions of ordinary people out of abject poverty. Marxism and heavy-handed socialism have disastrous records by comparison. But, as industrialization and technological progress spread to Asia (and now to Africa), someday the struggle for subsistence will no longer be a primary imperative, and contemporary capitalism’s numerous flaws may loom larger."

Motown interlude: Jimmy Ruffin sings "What Becomes of the Brokenhearted".

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

Still to come: Failing to renew the payroll tax cut could hurt the recover; the administration is leaving the definition of "essential benefits" up to the states; Newt Gingrich promises to defy Supreme Court rules; the EPA is finalizing power plant rules; and pandas play in the snow.


More regulators than just Richard Cordray are being blocked in the Senate, report Kristina Peterson and Alan Zibel: "Republicans have opposed Mr. Obama's attempts to appoint former Ohio Attorney General Richard Cordray to lead the controversial new Consumer Financial Protection Bureau and are trying to ensure he can't do so freely during a recess to bypass Senate approval. Mr. Cordray's nomination has met intense opposition from Republicans who want to alter the consumer bureau's structure. The stalemate prevented the Senate from approving nominees to lead two bank regulators: the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. The FDIC insures deposits of up to $250,000, manages failed banks and is the primary federal overseer of state-regulated banks. The OCC regulates national banks and savings associations."

Republicans are defunding Dodd-Frank, reports Suzy Khimm: "The White House managed to squeeze out some concessions from Republicans on funding Wall Street reform in the 2012 budget agreement that the House passed this afternoon. But Democrats ultimately failed to obtain an overall funding increase for one of the main financial watchdogs whose responsibilities will be massively expanded under Dodd-Frank. Under the new deal, the Commodities Futures Trading Commission will get $10 million more for staffing, thus making layoffs for the agency less likely in 2012. But that money won’t come through a funding increase: In the end, Republicans refused to budge on the overall funding level for the agency, which will stay at $205 million...The overall level of funding falls significantly short of President Obama’s own request for the CFTC."

The SEC has charged former Fannie and Freddie execs with fraud, report David Hilzenrath and Zachary Goldfarb: "The SEC charged six former executives of Fannie Mae and Freddie Mac with securities fraud Friday, saying they misled the public about the companies’ exposure to subprime loans during the mortgage meltdown. The executives charged in the civil suits include Daniel H. Mudd, former chief executive of Fannie Mae, and Richard F. Syron, who was chairman and chief executive at Freddie Mac. The executives are among the most prominent individuals the Securities and Exchange Commission has accused of wrongdoing related to the financial crisis...The SEC accused the companies of understating their vulnerability to the housing downturn by concealing the amount of risky mortgages on their books."

Adorable animals enjoying the season interlude: Pandas frolic in the snow.

Health Care

The federal health exchange is falling behind, reports Julie Appleby: "With many states unwilling or unable to get insurance exchanges operational by the health-care law’s deadline of Jan. 1, 2014, pressure is growing on the federal government to do the job for them. But health-care experts are starting to ask whether the fallback federal exchange called for in the 2010 law will be operational by the deadline in states that will not have their exchanges ready...The federal exchange -- like the state models -- would be a one-stop Web site where individuals and small businesses could compare insurance policy offerings on price, coverage and quality. The exchanges also will assist applicants in determining whether they are eligible for Medicaid or for federal subsidies or tax credits to help offset premiums."

Domestic Policy

Newt Gingrich promises to ignore Supreme Court decisions he disagrees with, report Jess Bravin and Neil King: "Republican presidential candidate Newt Gingrich came out swinging Saturday against the nation's legal system, pledging if elected to defy Supreme Court rulings with which he disagrees and declaring that a 200-year-old principle of American government, judicial review to ensure that the political branches obey the Constitution, had been 'grossly overstated.' Courts 'are forcing us into a constitutional crisis because of their arrogant overreach,' Mr. Gingrich told reporters in a Saturday conference call. He repeatedly blasted federal judges for imposing 'elitist opinion' on the rest of the country. Politicians often attack the judiciary for decisions they perceive as unpopular...But Mr. Gingrich, a former House speaker, has gone further than any major candidate in recent memory."

The White House is increasing labor standards for home care workers, reports Steven Greenhouse: "The Obama administration proposed regulations on Thursday to give the nation’s nearly two million home care workers minimum wage and overtime protections. Those workers have long been exempted from coverage. Labor unions and advocates for low-wage workers have pushed for the changes, contending that the 37-year-old exemption improperly swept these workers, who care for many elderly and disabled Americans, into the same 'companion' category as baby sitters. The administration’s move calls for home care aides to be protected under the Fair Labor Standards Act, the nation’s main wage and hour law...These workers, according to industry figures, generally earn $8.50 to $12 an hour, compared with the federal minimum wage of $7.25 an hour."

Congress will take up its own insider trading next year, reports Brody Mullins: "The House will take up legislation early next year to explicitly ban members of Congress from trading stocks based on information they gather on Capitol Hill, according Majority Leader Eric Cantor of Virginia. An effort to ban insider-trading in Congress was sidetracked a few weeks ago when the House Financial Services Committee called off a scheduled vote. Mr. Cantor said at the time that the legislation was flawed and that the House should have more time to study the issue. But in an interview with CBS's '60 Minutes' that is scheduled to air Sunday evening, Mr. Cantor said he wants to revive the issue in the first few months of next year. He also said he wants to expand the legislation so it applies to more than congressional stock trading. Mr. Cantor said he wants to 'address the situation and take care of it once and for all.'"

Unless Washington acts, labor law will be moot on New Year's, writes William Gould: "Unless something changes in Washington, American workers will, on New Year’s Day, effectively lose their right to be represented by a union. Two of the five seats on the National Labor Relations Board...are vacant, and on Dec. 31, the term of Craig Becker, a labor lawyer whom President Obama named to the board last year through a recess appointment, will expire. Without a quorum, the Supreme Court ruled last year, the board cannot decide cases. What would this mean? Workers illegally fired for union organizing won’t be reinstated with back pay. Employers will be able to get away with interfering with union elections. Perhaps most important, employers won’t have to recognize unions despite a majority vote by workers. Without the board to enforce labor law, most companies will not voluntarily deal with unions."

Late night interlude: Louis CK on "The Tonight Show".


The payroll tax bill could delay the Keystone pipeline, reports Dan Frosch: "Payroll tax cut legislation that would force President Obama to speed up a decision on the controversial Keystone XL pipeline would likely keep the project from moving forward because it would cut short the necessary environmental review, Obama administration and State Department officials said on Saturday. The two-month extension of the payroll tax cut, which cleared the Senate on Saturday, includes a Republican provision that would compel the president to decide the fate of the pipeline within 60 days. It would also allow any changes to the pipeline route to bypass the National Environmental Policy Act, which subjects major federal projects to review...A senior administration official said Saturday that the shortened time frame...meant that a permit for the pipeline would almost certainly be rejected."

The EPA finalized new powerplant rules, report Juliet Eilperin and Steven Mufson: "The Obama administration finished crafting tough new rules Friday curbing mercury and other poisons emitted by coal-fired utilities...As part of last-minute negotiations between the White House and the Environmental Protection Agency, the regulations give some flexibility to power plant operators who argued they could not meet the three-year deadline for compliance outlined by the EPA...The new rules will cost utilities $10.6 billion by 2016 for the installation of control equipment known as scrubbers, according to EPA estimates. But the EPA said those costs would be far offset by health benefits. The agency estimates that as of 2016, lowering emissions would save $59 billion to $140 billion in annual health costs, preventing 17,000 premature deaths a year along with illnesses and lost workdays."

Congress passed a pipeline safety bill, reports Dan Frosch: "A bill doubling the maximum fines that pipeline operators face for violations easily cleared the House and Senate this week, along with other provisions intended to strengthen rules on oil and gas pipeline safety that critics have faulted as weak. The pipeline safety measures were drafted in response to a series of high-profile spills and accidents in recent years...Yet some safety experts, while acknowledging that the legislation was an improvement over the much-faulted current regulations, said it did not go far enough. They pointed out that the National Transportation Safety Board recently recommended that operators be required to install automated shutoff valves on all existing pipelines as well as new ones."

Chinese solar companies aren't doing too great, reports Steven Mufson: "China was mentioned 59 times when Energy Secretary Steven Chu testified last month before a House subcommittee on the U.S. loan guarantee program for renewable-energy projects. 'Countries like China are playing to win in the solar industry,' Chu said. 'My big thing is that I worry about China,' said Rep. Brian P. Bilbray (R-Calif.). 'The Chinese are eating our lunch,' said Rep. John D. Dingell (D-Mich.). Yet if Chinese solar companies are eating our lunch, they’re also choking on it. Growth in global solar manufacturing capacity is outpacing global demand, and prices of solar energy products are plunging. And while U.S. politicians portray Chinese firms as heavily subsidized rivals gobbling up global market share, Chinese solar companies are suffering from some of the same ills afflicting their U.S. competitors."

Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.