Earlier this week, the news was that Sen. Jon Kyl, the second-ranking Senate Republican, would oppose an extension of the payroll tax cut. Today, the news is that Mitch McConnell, the highest-ranking Senate Republican, will not. “There's a lot of sentiment in our conference — clearly a majority sentiment — for continuing the payroll-tax relief," he says.
On almost every measure you can think of, extending unemployment insurance makes more sense then extending the payroll tax cut. Over at TaxVox, for instance, Howard Gleckman writes that if you extend the payroll tax cut, "many relatively high-income workers—who are more likely to save rather than spend some of this windfall—would benefit. And if the idea is to boost the economy by increasing demand for goods and services, giving the money to savers isn’t helpful." Not so for unemployment insurance, which is targeted to people who are unemployed, and need the money to stay afloat.
Sen. Jon Kyl worries that "you can't keep extending the payroll tax holiday and have a secure Social Security." Well, unemployment insurance has nothing to do with Social Security's trust fund.
Sen. Jim DeMint agrees that the payroll tax cut isn't a perfect tax cut, but says, "I just don't think it's a good time to raise any taxes." But what raising taxes does is take money out of the pockets of people who pay taxes. Letting unemployment benefits lapse takes money out of the pocket of the unemployed. So surely, if it's not a good time to take money out of anyone's pockets, it's a horrible time to take it out of the pockets of the unemployed.
And yet, the consensus view is that the payroll tax cut is likely to get extended and the expanded unemployment benefits -- which are more stimulative, more targeted, and do more to help a population in need -- will lapse. That's certainly what the market assumes. In a Tuesday note to investors, Goldman Sachs told its clients that the investment banks believes the payroll tax cut will be extended, but warned that "we do not assume an extension of emergency unemployment compensation."
1) The GOP is likely to back extending the payroll tax cut, but they'll demand a different way to pay for it, reports Naftali Bendavid: "Republican leaders said Tuesday they would join Democrats in supporting an extension of the 2011 payroll-tax cut despite some reluctance within the GOP, virtually assuring that American wage-earners will continue to receive the benefit next year. Republicans still oppose Democrats' plan to pay for the tax break with a tax on people earning more than $1 million a year. GOP leaders said they would find another way to pay for the tax break and predicted it would pass. 'I think at the end of the day, there's a lot of sentiment in our conference--clearly a majority sentiment--for continuing the payroll-tax relief that we enacted a year ago in these tough times,' Senate Minority Leader Mitch McConnell (R., Ky.) said."
2) Europe is turning to the IMF for help, report Howard Schneider and Michael Birnbaum: "European officials said Tuesday that they plan to appeal for deeper involvement by the International Monetary Fund in addressing the region’s debt crisis, an acknowledgment that their efforts to date have fallen short. With international investors continuing to press on weak links in the euro currency union, European finance ministers said they would turn to the IMF to help supplement their emergency bailout fund. At the latest in a series of late-night meetings, the euro-zone ministers approved efforts to expand the financial effect of the existing bailout fund. But they recognized that it was unlikely to attract enough private investment to provide emergency financing to large countries such as Italy and Spain, which must raise hundreds of billions of dollars in coming months."
3) But it's moving forward with a Greek bailout, reports Stephen Castle: "With the euro zone debt crisis worsening by the day, finance ministers from the 17 countries that use the currency approved more loans on Tuesday to stave off a Greek default and agreed to bolster their bailout fund. Speaking after the meeting, Jean-Claude Juncker, who heads the euro zone finance ministers, said they had agreed to release their portion of an 8 billion-euro loan to Greece. The International Monetary Fund is expected to sign off on its share -- roughly one third -- early next month, making the loans available by the middle of December. The ministers also agreed on rules to increase the firepower of their bailout fund, the European Financial Stability Facility, and will be able to offer insurance to those buying the bonds of nations like Spain and Italy."
4) The federal mortgage relief program is expanding, reports Motoko Rich: "The government is expanding the Home Affordable Refinance Program, which was meant to help homeowners whose mortgages are backed by the government and whose home values have declined sharply, even below what the borrowers owe...When the Treasury Department announced the program, referred to as HARP, two years ago, it said it could help four million to five million homeowners whose home values had plunged. Yet just 900,000 borrowers...have successfully refinanced through the program...The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, carefully eased expectations, suggesting about 900,000 more homeowners would be helped, roughly doubling the size of the program to date."
1) The US has plenty going for it that Europe lacks, writes Martin Feldstein: "The US is effectively a single labor market, with workers moving from areas of high and rising unemployment to places where jobs are more plentiful. In Europe, national labor markets are effectively separated by barriers of language, culture, religion, union membership, and social-insurance systems...the US has a centralized fiscal system...Eeach dollar of GDP decline in a state like Massachusetts or Ohio triggers changes in taxes and transfers that offset about 40 cents of that drop, providing a substantial fiscal stimulus. There is no comparable offset in Europe, where taxes are almost exclusively paid to, and transfers received from, national governments...The third important difference is that all US states are required by their constitutions to balance their annual operating budgets."
2) Economic mobility isn't the only thing that matters, writes Reihan Salam: "The income distribution in the United States is a bit like an accordion that keeps stretching out as the highest earners do better and better. The accordion is stretching out in most rich countries, but America, and a few other rich countries like Britain and Israel, is at the stretchier end of the spectrum. Though this stretchiness has troubled many observers, it is far from obvious that encouraging well-off Americans to earn less money would somehow strike a blow for social justice...Perhaps the biggest reason why Americans at the bottom get stuck in relative terms is that those who are better off do everything they can to better the lives of their children and to protect them against economic risk. Increasing relative mobility doesn’t just mean that more kids at the bottom will work their way to the top. It also means that more kids at the top will tumble down the economic ladder."
3) Only a cultural shift can save Congress, write Amy Gutmann and Dennis Thompson: "Allowing independents to vote in all party primaries could elect candidates with more compromising attitudes. Publicly financed campaigns would lessen the pressures of fund-raising that distract politicians from governing. Even rules that require members to spend more time interacting in Washington instead of rushing home to raise money from like-minded supporters could help. These are all worthy reforms, but there is a Catch-22: Institutional reforms themselves require a change in the mind-sets of our political leaders, and they will not happen without compromise. Either legislators adopt a compromising attitude, in which case the reforms are not essential, or they do not adopt it, in which case they will not be able to agree on the reforms. There is no deus ex machina that will save Congress from itself."
4) The payroll tax cut isn't the best stimulus available, writes Howard Gleckman: "The payroll tax break has big problems. Because it is so badly targeted, many relatively high-income workers--who are more likely to save rather than spend some of this windfall--would benefit. And if the idea is to boost the economy by increasing demand for goods and services, giving the money to savers isn’t helpful. At the same time, the Democrats’ proposal would halve the employer share of the Social Security tax for the first $5 million of each firm’s taxable payroll and eliminate the levy entirely for many new hires. Prior attempts to use a payroll tax cut to encourage firms to boost employment suggest that many businesses will take the subsidy for hiring they would have done anyway. And then there is the not insignificant matter of what this means for Social Security."
5) Congress should play by the same rules as the rest of us, writes Luigi Zingales: "the problem is not simply Congress’s exemption from insider-trading law. The real issue is that the US Congress - like many countries’ legislatures - lives by rules that are very different from those imposed on ordinary citizens. In particular, the accounting, transparency, and fraud rules that govern businesses do not apply to elected representatives. It is a problem that goes well beyond insider trading. If corporate executives lie during a conference call, they can be sued. Politicians, on the other hand, lie during electoral campaigns and once in office, with few or no consequences. If the US government had been compelled to abide by the same accounting rules as the private sector does, it would have been forced to consolidate Fannie Mae and Freddie Mac...and to report all contingent liabilities at market value."
Anti-rap interlude: Das Racist play "Michael Jackson" on Conan.
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Still to come: Janet Yellen is looking east for ways to grow the US economy; Democrats are making Medicare a campaign issue; the House moved to make it easier for skilled immigrants to settle permanently; Senate Republicans are getting involved in the Keystone pipeline dispute; and a corgi tries to play fetch with a baby.
A top Fed official thinks Asia's the US's best bet for a recovery, reports Neil Irwin: "Americans are weighed down by debt, and Europe is in crisis. So Asian nations need to step up and encourage their citizens to spend so that they can help drive global economic growth, a senior Federal Reserve official said Tuesday. With consumer demand in the United States and other advanced economies hampered by economic troubles, 'I believe it is crucial for emerging market economies, particularly in Asia, to take further steps to boost domestic demand, providing support for their own growth and that of the global economy,' Fed vice chairman Janet L. Yellen said in a speech at the Federal Reserve Bank of San Francisco’s annual Asia Economic Policy Conference. The Fed’s No. 2 official also said that the central bank still has options to help boost the U.S. economy, though she gave no hints that any new action is imminent."
Dodd-Frank is being tested in court, reports Josh Boak: "The biggest hazard for President Barack Obama’s hallmark Wall Street reforms may not lurk in the halls of Congress or on the campaign trail, but rather in the courts. Obama has repeatedly underscored that the Dodd-Frank law will protect consumers and end taxpayer bailouts, while Republicans, including their presidential contenders, claim the avalanche of new regulations is squelching economic growth. Now, emboldened by a District of Columbia circuit court ruling last summer that found the Securities and Exchange Commission 'acted arbitrarily and capriciously here because it neglected its statutory responsibility to determine the likely economic consequences' of a new rule, opponents are preparing to challenge Dodd-Frank in a flurry of legal briefs."
Gingrich has one complicated, regressive flat tax, reports Suzy Khimm: "Gingrich one-ups Perry, however, and makes both individual and corporate tax rates even lower: The individual flat rate would be 15 percent, and the corporate rate would be just 12.5 percent -- about a third of its current level of 35 percent. (Both rates would be 20 percent under Perry. By contrast, many Republicans have discussed lowering the corporate rate to around 25 percent.)...Gingrich preserves deductions for corporations and rich individuals that Perry eliminates: He preserve deductions for charitable giving and mortgage interest to all Americans, whereas Perry only keeps them for families earning less than $500,000...Gingrich keeps the child tax credit, the Earned Income Tax Credit, and the deduction for purchasing health insurance."
Rating agencies failed to see Greece's crisis coming, report Julie Creswell and Graham Bowley: "When it comes to Greece, critics say Moody’s should have been tougher a lot earlier. Until two years ago, the ratings agency took a relatively lax approach to growing signs of troubles in Greece, epicenter of the current crisis, even as the country plowed ahead with a borrowing binge that jeopardized its fiscal condition. Moody’s held off dropping its strong A rating of Greece’s bonds despite growing political turmoil and economic woes through 2009. Investor fears over Greece’s short-term financing needs were 'misplaced,' Moody’s said in a report in early December 2009. Twenty days later, after a review, the agency downgraded the nation’s debt, the last of the major ratings agencies to do so."
Corgis are excellent interlude: A corgi has a hard time getting a baby to play fetch with him.
Democrats are starting to use Medicare to hammer the GOP, reports Peter Wallsten: "The Democratic Party will begin a campaign on Wednesday to attack Republican lawmakers for pushing cuts to Medicare benefits during the latest round of failed federal deficit talks, a new turn in a drama that not long ago featured top Democrats expressing a willingness to tinker with the popular entitlement program...GOP officials are girding for the Medicare attacks, which they concede come with a history of success for Democrats. The offensive will begin Wednesday with a flurry of automated phone calls to voters in 30 Republican-held congressional districts, accusing the GOP of 'forcing' a supercommittee failure because they wanted to protect tax breaks for the wealthy by cutting Medicare."
States are making progress on health exchanges, reports NC Aizenman: "Thirteen states were awarded nearly $220 million in federal grants Tuesday to help them erect the private health-insurance marketplaces that are at the heart of the 2010 health-care law -- including eight led by Republican governors who opposed the legislation. The announcement by the Obama administration brings the number of states that have received such grants to 29. It also highlights the dual path that many Republican state leaders have been following when it comes to the law -- petitioning the Supreme Court to strike it down, even as they ready their states for implementation in the event that the justices uphold the statute. Six of the states granted funding Tuesday are party to the challenge to the law: Alabama, Arizona, Idaho, Michigan, Maine and Nebraska."
A study suggests companies will dump their sickest workers on health exchanges, reports Elizabeth Stawicki: "A loophole in the federal health care overhaul could allow employers to game the system by getting their sicker employees to opt into buying coverage on the health insurance exchanges, according to two University of Minnesota law professors. They say the loophole could have dire consequences for the financial health of the exchanges, which are a key part of President Barack Obama's health care law. The online marketplaces are intended to make it easier to comparison shop for health plans and also to expand access to coverage for the uninsured...They discovered the law gives many large employers an opportunity to squeeze the most expensive workers out of their health plans. The loophole applies to companies that self-insure; that is, design and cover the cost of their own plans."
The House passed a bill making it easier for skilled workers to get green cards, reports Miriam Jordan: "The House of Representatives passed a bill Tuesday to make it easier for skilled workers to get green cards, a measure that particularly affects employers who want to hire Chinese and Indian nationals. The bill eliminates a limit on the proportion of employment-based visas allocated each year to a particular country. Under current law, the total number of family-sponsored and employment-based green cards available to individuals from any single country cannot exceed 7% of the total number of green cards issued by the U.S. government each year. Natives of China and India, from where many skilled workers originate, sometimes face year-long waits for green cards--the right to reside in the U.S. permanently."
The NLRB is scaling back its organizing rule, reports Melanie Trottman: "The chairman of the National Labor Relations Board on Tuesday unveiled a scaled-back version of a plan that would speed union-organizing elections, a measure slated for a contentious board vote Wednesday. The new plan, proposed by NLRB Chairman Mark Pearce, aims to prevent employers from filing lawsuits that could stall workers from voting to form a union. Like the original plan, it would defer legal challenges to elections until after workers vote. The new plan cuts out many other proposed changes to union-election procedures that the agency has said would modernize the process. For instance, it leaves out an earlier provision that would require employers to provide the union with email addresses of employees who would be eligible to vote. Mr. Pearce has said he wants to pursue more of the original proposal later."
Lawmakers are trying their best to get around the earmark ban, reports Kimberly Kindy: "Members of the House and the Senate attempted to pack hundreds of special spending provisions into at least 10 bills in the summer and fall, less than a year after congressional leaders declared a moratorium on earmarks, congressional records show. The moratorium, announced last November in the House and in February in the Senate, is a verbal commitment by the Republican leadership to prohibit lawmakers from directing federal funds to handpicked projects and groups in their districts. Lawmakers have tried to get around the moratorium by promising to allow other groups to compete for the funds. But the legislative language is so narrowly tailored that critics consider the practice to be earmarking by another name."
The AT&T/T-Mobile merger hit yet another snag, reports Cecilia Kang: "The Federal Communications Commission said AT&T’s internal analysis and past practices contradict the company’s claims that its merger with T-Mobile would create jobs, according to an agency report released Tuesday. The FCC’s 109-page document also offers a harsh assessment of AT&T’s other arguments for the blockbuster deal. The company, for instance, tried to show how consumers would benefit. But an analysis by the FCC found those arguments 'unreliable and, at a minimum, raise substantial and material questions of fact.' The report dealt another blow to AT&T and T-Mobile as the wireless giants work to salvage their $39 billion merger. The two companies already were facing a court battle with Department of Justice antitrust officials when the FCC also moved to block the deal last week, saying the deal would harm consumers."
Adorable babies being adorable interlude: A baby takes a nap on his dad's face.
Senate Republicans may move to back the Keystone pipeline, reports Ben Geman: "Senate Republicans are floating legislation to speed up federal action on the proposed Keystone XL oil sands pipeline, a controversial project that the White House doesn’t currently plan to make a decision on until after the 2012 election. Six senators including Minority Leader Mitch McConnell (R-Ky.) have crafted a plan that requires a State Department permit for the Alberta-to-Texas pipeline within 60 days unless the president publicly determines that it is not in the national interest, according to a summary. The Senate bill to be introduced Wednesday is sponsored by GOP Sens. Dick Lugar (Ind.), John Hoeven (N.D.), David Vitter (La.), Lisa Murkowski (Alaska) and Mike Johanns (Neb.). It comes after the State Department recently delayed a final decision until 2013 at the earliest."
Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.