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Top story: The fiscal cliff comes into focus

Senate Democrats have a plan to get around the the GOP anti-tax pledge for a fiscal cliff fix. "Senate Democrats -- holding firm against extending tax cuts for the rich -- are proposing a novel way to circumvent the Republican pledge not to vote for any tax increase: Allow all the tax cuts to expire Jan. 1, then vote on a tax cut for the middle class shortly thereafter. The proposal illustrates the lengths lawmakers are going to in an effort to include new federal revenues in a fix for the 'fiscal cliff,' the reckoning in January that would come when all Bush-era tax cuts expire and automatic spending cuts to military and domestic programs kick in. Virtually every Republican in Congress has taken the pledge, pushed by Grover Norquist’s Americans for Tax Reform, never to vote for a tax increase -- a pledge both parties see as a serious impediment to a tax compromise. But if tax rates snap back to the levels of the Clinton presidency on Jan. 1, any legislation to reinstate some of those tax cuts -- but not all of them -- would be considered a tax cut." Jonathan Weisman in The New York Times.

@sam_baker: Budget solution is easy: No need to repeal sequester, just delay it. Then, in a year, do it again. Works great for Medicare!

@KateNocera: congress should come up with some sort of bipartisan, bicameral working group to find a plan to replace sequestration. That'll work.

The fiscal cliff is displacing Europe as the top economic threat facing the U.S. "The main threat to the economy is shifting from what others may do to us to what we are doing to ourselves. For much of the year, economists worried about the impact of the slowdown in Europe on the U.S. economy. Now, analysts say anxiety about the impact of the fast-approaching fiscal cliff -- the series of federal spending cuts and tax hikes set to take effect at the beginning of 2013 if Congress and the Obama administration do not act -- is displacing Europe as the primary threat to the nation’s sputtering economy. Morgan Stanley said this week that concerns about the fiscal cliff are reaching new heights across a wide range of industries. It is already seeing reductions in business orders and hiring, among other areas." Michael Fletcher and Zachary Goldfarb in The Washington Post.

Everything you need to know about the fiscal cliff in one post: http://wapo.st/Q58Ryn.

Ben Bernanke urged lawmakers to act to avoid the fiscal cliff. "Federal Reserve Chairman Ben Bernanke pleaded with lawmakers Tuesday to take action swiftly to avoid taking the nation’s economy over a 'fiscal cliff.' In testimony to the Senate Banking Committee, Bernanke said the economy has leveled off, and he warned Congress it will add to economic instability if it does not take action to avoid steep tax hikes and spending cuts set to begin in January...Addressing the cliff is the 'most effective way Congress could help to support the economy right now.'...If lawmakers fail to act, Bernanke said, they could see a repeat of the drama from last summer, when stocks plunged amid uncertainty over whether Congress would raise the nation’s debt limit." Peter Schroeder in The Hill.

Congressional Republicans are facing the reality of the sequester they voted for. "The looming across-the-board budget cuts that could put scores of Americans out of work next year are all President Barack Obama’s fault. That’s according to congressional Republicans -- the majority of whom voted for the deal that laid the groundwork for the cuts in the first place. But Republicans who backed the sequester arrangement then aren’t making any apologies now. Staving off the catastrophic sequester cuts is on Obama and Senate Democrats, they say -- even if they knew the developing standoff was a distinct possibility when they signed off on the sequester deal. It may have seemed like a fine idea at the time, but now that the reality of steep cuts to the military are coming into focus, Republican lawmakers don’t like what they see. Rep. Buck McKeon, the chairman of the House Armed Services Committee...is one of the few members to admit he now regrets voting for the Budget Control Act." Kate Nocera and Austin Wright in Politico.

@NickTimiraos: Why does Congress and the W.H. act as if the fiscal cliff is some prescheduled biannual event, like the Olympics, that they didn't create?

Some liberals and Republicans doubt Democrats will follow through. "Democrats are talking tough heading toward a year-end showdown over the Bush-era tax rates, but some liberals and Republicans are skeptical they will back up their rhetoric with action. President Obama and Democratic leaders took a similar stance ahead of the 2010 midterm election and then backed down in December of that year by extending virtually all of the George W. Bush-era tax rates in return for a payroll tax holiday and unemployment benefits. Many rank-and-file Democrats were outraged by the deal and vowed they would not let it happen again, but some liberals and Republicans see a possible repeat of history." Alexander Bolton in The Hill.

Neither party has proposed extending a payroll tax cut that's set to expire. "As the two parties close in on the climax of a decade-long clash over Bush-era tax cuts, neither party has proposed preventing a looming $120 billion yearly payroll tax hike. Last year, President Barack Obama had Republicans over a barrel, accusing them of wanting to raise taxes on the middle class unless they extended his payroll tax cut -- worth 2 percent of a worker’s salary. The GOP caved on this year’s extension, but there has been nary a peep since from the White House, presumptive Republican nominee Mitt Romney or Congressional leaders in either party about extending it again. And Senators on today expressed doubt that it would be extended. The payroll tax cut actually costs the Treasury more than the Bush tax cuts for those making more than $250,000 a year, which have become the subject of the titanic struggle on Capitol Hill. On its own, its expiration will result in one of the largest tax increases in history." Steven Dennis in Roll Call.

A new campaign pushing debt-reduction was launched. "A coalition of business leaders, budget experts and former politicians launched a $25 million campaign Tuesday to build political support for a far-reaching plan to raise taxes, cut popular retirement programs and tame the national debt. With anxiety rising over a major budget mess looming in January, the campaign -- dubbed 'Fix the Debt' -- is founded on the notion that the moment is finally at hand when policymakers will be forced to compromise on an ambitious debt-reduction strategy." Lori Montgomery in The Washington Post.

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Top op-eds

1) ORSZAG: Summer means weight gain and learning loss for kids. "After spending the summer away from the classroom, children return to school one month or more, on average, behind where they were when the previous year ended. Kids also tend to put on weight in the summer two to three times faster than they do during the school year...So what can we do to fight summer learning loss and weight gain and restore the season’s halcyon reputation? Let’s start with the most ambitious option: lengthening the school year. I have written previously about the benefit of extending the hours of the school day. A similar argument applies to extending the academic year: More time at task helps children learn, and it would be worth the extra expense involved." Peter Orszag in Bloomberg.

2) PORTER: Unions need to change to regain strength. "The future labor movement may have to give up organizing work site by work site. Its biggest political fight in the last few years -- pushing a law to make it easier to organize a workplace -- may be irrelevant. And fighting to create new barriers to foreign competition is probably a lost cause. Instead of negotiating for their members only, unions might do better pulling for better wages and conditions for all workers. Some scholars, like the economist Richard B. Freeman of the National Bureau of Economic Research, suggest the labor movement could take a page from the AARP’s playbook and become a lobbying group. German-like worker councils could discuss workplace issues with management, without negotiating over pay. Maybe unions don’t have to entirely give up collective bargaining but broaden it. A model might be the alliance between the A.F.L.-C.I.O. and the Domestic Workers Alliance of New York City to push for a bill of rights for nonunionized nannies and maids." Eduardo Porter in The New York Times.

3) WINSTON: Government should focus on driverless cars, not high-speed rail. "It is already possible to imagine a world in which you could predict exactly how long it would take to drive in your car from one point to another. No worries about rush hour, vacation congestion, bad drivers, speed traps and accidents. You could also text while you drive with no safety implications. All this may be possible thanks to a 'driverless' car that does a human driver's normal job and much more...Building highways that separate cars and trucks by directing them to lanes with the appropriate thickness would save taxpayers a bundle. It would also favor the technology of driverless cars because they would not have to distinguish between cars and trucks and to adjust speeds and positions accordingly." Clifford Winston in The Wall Street Journal.

4) HUBBARD: Policy needs to focus on growth. "While a growth-focused agenda would have many parts, two fiscal policy issues stand out - getting our fiscal house in order and reforming the tax code. The US is on an unsustainable fiscal trajectory, with a debt-to-gross domestic product ratio projected to rise to second world war levels in the coming years. High and rising debt burdens are a structural impediment to growth. They raise expected future tax burdens, discouraging investment and limiting productivity growth. Some recent estimates of this adverse effect suggest our debt-to-GDP levels would reduce expected growth by half a percentage point per year over the next decade." Glenn Hubbard in The Financial Times.

5) MACEY: The CFPB's mortgage disclosure forms are a bust. "The Consumer Financial Protection Bureau's 'Mortgage Disclosure Team' just came out with two proposed forms that are supposed to make things easier for borrowers...Do the new rules expand consumer choice? They would forbid many borrowers from making smaller payments every month, followed by a single, one-time balloon payment to retire the principal at the end. They also would cap late fees--which means borrowers would be unable to get a lower interest rate on a loan by agreeing to pay a penalty if they don't make their payments on time...Oddly, hidden on the new disclosure forms is the Annual Percentage Rate. For decades the APR was front and center on government-mandated disclosure documents. It is the single number that shows borrowers the cost of borrowing including such factors as the interest rate, certain fees, and the maturity structure of the loan." Jonathan Macey in The Wall Street Journal.

Top long reads

Gabriel Thompson goes inside the blue-collar temp industry:"It's still dark when I show up at the Labor Ready storefront in downtown Oakland, California, just a few blocks from the plaza where the Occupy crowd threw up its tents against the one percent. From the sidewalk, the place looks vaguely illicit, with minimal signage and floor-to-ceiling shades that remain drawn 24/7. Later, I will come to think of this as the company 'look'--unwelcoming and easy to miss--often tucked alongside a check-cashing business or payday lender. The office opens at 5:30 a.m., but job seekers start appearing an hour early, hoping to snag a top spot on the sign-in sheet. By the time I arrive, 20 people, all but one of them men, are already inside--the space is essentially a waiting room with a long counter--standing or slouching in white plastic chairs. Behind the counter sits an African American woman with short hair and a bearing that suggests a low tolerance for bullshit. 'I can't remember the last time I got eight hours sleep,' a bleary-eyed man behind me announces to no one in particular."

Cover interlude: Deer Tick plays Harvey Danger's "Flagpole Sitta" for the AV Club.

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

Still to come:Bernanke meets the Senate; another attempt to defund Obamacare; cybersecurity legislation may have hope; the White House watered down a soot proposal; and it takes a lot of pieces to build a LEGO jet engine.


Ben Bernanke said further Fed action would depend on upcoming job numbers. "The Federal Reserve chairman, Ben S. Bernanke, said Tuesday that the Fed was seeking greater clarity about the health of the recovery...Mr. Bernanke repeated the Fed’s June assessment that economic growth has slowed, and is likely to remain slow...Rather than committing to new steps, Mr. Bernanke told the Senate Banking Committee that the decision would turn on the judgment of Fed officials about the pace of job growth in the coming months. The major issue, he said, is 'whether or not there is in fact a sustained recovery going on in the labor market, or are we stuck in the mud?' Mr. Bernanke added a wrinkle, saying the central bank 'would certainly want to react against any increase in deflation risk.' With the unemployment rate stalled above 8 percent and some measures of inflation expectations falling, some analysts read Mr. Bernanke’s remarks as indicating action was likely in the coming months." Binyamin Appelbaum in The New York Times.

@steveliesman: Bernanke keeps Fed on track to meet current mkt expectations for Sept. easing. Only better data in July/Aug can derail the train

@ryanavent: In a just world, testimony that "the economy is crummy and we could make it less so and we might" would get him hooted out of the bldg.

States will face fiscal woes long after the economy rebounds. "The fiscal crisis for states will persist long after the economy rebounds as they confront rising health care costs, underfunded pensions, ignored infrastructure needs, eroding revenues and expected federal budget cuts, according to a report issued here Tuesday by a task force of respected budget experts. The problems facing states are often masked by lax budget laws and opaque accounting practices, according to the report, an independent analysis of six large states released by the State Budget Crisis Task Force." Mary Williams Walsh and Michael Cooper in The New York Times.

@BCAppelbaum: Not that the economy is in any danger of rebounding.

House GOP leaders want to avoid a government shutdown in September. "Top congressional Republicans are plotting ways to avoid a government shutdown fight when the fiscal year ends Sept. 30, believing the partisan brinkmanship that defined last year’s budget battles would be devastating to their party heading into the November elections. In early September, House Republican leaders want to pass a three-month temporary funding measure that sticks to last year’s debt-limit agreement, according to aides involved with the planning. But that could spark a fight with some House and Senate conservatives who yearn for the lower funding numbers in Rep. Paul Ryan’s budget...But while higher spending levels might irk conservatives who are itching for a funding fight, it’s aimed at comforting Republicans in both chambers who see political peril in drawing attention away from the economy with a battle that could shut down the government." Jake Sherman and Manu Raju in Politico.

Some Democrats want the CFPB to give banks legal protection against borrowers. "The agency is tasked by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act with reshaping the home loan industry to prevent another flood of the sure-to-fail home loans that set off the financial crisis. But doing so means rewriting the rules for community banks as well as their larger competitors, and that has Congress nervous. A group of House Democrats has joined Republicans in a push led by the lending industry to get the agency to provide banks with maximum legal protection against borrower lawsuits as it drafts new standards for home loans." Patrick Reis in Politico.

Some companies are planning to bring manufacturing back to the U.S.. "About 14% of U.S. companies surveyed by a Massachusetts Institute of Technology professor definitely plan to move some of their manufacturing back home--the latest sign of growing interest among executives in a strategy known as 'reshoring.' David Simchi-Levi, an engineering professor at MIT who runs a program for supply-chain executives, said he surveyed 108 U.S.-based manufacturing companies with multinational operations over the past two months." James Hagerty in The Wall Street Journal.

Legos are excellent interlude: It takes over 152,000 LEGO pieces to build a half-sized model of the Rolls-Royce Trent 100 jet engine.

Health Care

House Republicans released a new bill to defund Obamacare. "Next up in the summer 'Obamacare' reruns: more votes to defund the law. A week after the House voted to repeal the law completely, the House Appropriations Committee released a Labor-HHS spending bill for next year that would block the use of any of its funds to 'implement, administer, enforce or further' the provisions of the Affordable Care Act. And in case that isn’t enough, the bill picks apart components of the law, cutting off funding for its major programs. Due for subcommittee markup Wednesday, the bill would rescind $3 billion intended for the Consumer-Owned and -Oriented Plan program, $1.6 billion for the Center for Medicare & Medicaid Innovation, $1 billion for the Prevention and Public Health Fund, $300 million for community health centers and $150 million for the Patient-Centered Outcomes Research Trust Fund." Kyle Cheney in Politico.

Moving employees into exchanges would hurt workers. "In the health reform debate, we do a lot of crystal ball gazing over whether employees will keep offering health insurance in 2014, or send employees to the new health insurance marketplaces where some could purchase subsidized coverage. The companies would face a $2,000 per employee fine for not providing coverage, but that’s a whole lot less than the cost of providing health insurance. Truven Health Analytics recently took a deep dive into the financial decision employers face. It looked at health plan data for 33 large companies, including universities, retailers, those in financial and manufacturing industries. It found that moving employees into the exchanges would save employers a little - but also cost workers a lot." Sarah Kliff in The Washington Post.

Domestic Policy

The cybersecurity bill still may hit the Senate floor before August recess. "Key lawmakers are racing to broker a compromise on a Senate cybersecurity bill, insisting that floor action is still possible as early as next week. The major players recognize they aren’t likely to find a deal that will resolve all lawmakers’ concerns before the real debate begins. But with limited time until the August recess, Sen. Joe Lieberman (I-Conn.) signaled he could introduce a new cybersecurity measure that includes a middle-of-the-road compromise on critical infrastructure while he and others reiterated a hope that members could work out remaining disagreements while a bill is on the floor. Lieberman also told POLITICO on Monday that the message from Senate Majority Leader Harry Reid (D-Nev.) during a closed-door meeting of some lawmakers last week was that members shouldn’t count out tackling cybersecurity reform in the coming days." Tony Romm in Politico.

Middle-aged Americans are struggling the most with student loans. "Student debt is rising sharply among all age groups, but middle-aged Americans appear to be struggling the most with payments, according to new data released Tuesday by the Federal Reserve Bank of New York. The delinquency rate--or the percentage of debt on which no payment has been made for 90 days--was 11.9% for debt held by borrowers aged 40 to 49 as of March. That compares with a rate of 8.7% for borrowers of all ages. " Josh Mitchell in The Wall Street Journal.

Republicans are protesting Obama administration changes to welfare. "A move by the Obama administration to give states more latitude in running federal welfare-to-work programs has set off a firestorm among Republicans, who say it undercuts the work requirements set forth in the 1996 overhaul of welfare policy. The Department of Health and Human Services announced last week that it would grant states waivers to experiment with how they administer the Temporary Assistance for Needy Families program, which distributes aid to the poorest Americans while they look for work. The directive results from a broader effort by the Obama administration to peel back unnecessary layers of bureaucracy and allow states to spend federal money more efficiently. But Republicans, who characterize the move as a power grab by the executive branch, have criticized the waivers, saying they prove that the president and Democrats support providing welfare money without encouraging the recipients to find work." Rebecca Berg in The New York Times.

The internet is strange interlude: A cat turns into a... flying robot?


The White House weakened the EPA's soot proposal. "The White House recently modified an Environmental Protection Agency proposal to limit soot emissions, according to documents obtained by The Washington Post, inviting public comment on a slightly weaker standard than the agency had originally sought. The behind-the-scenes tweaking of the proposed soot standards, which affect particles measuring less than 2.5 micrometers in diameter, sparked criticism that the White House was interfering with science-based decisions. Fine particles, which come from oil refineries, factories and other operations, rank among the most deadly widespread air pollutants. EPA had originally wanted to tighten the annual exposure to fine-particle soot from 15 micrograms per cubic meter of air to 12 micrograms per cubic meter, according to an e-mail between Office of Management and Budget and EPA officials. But OMB directed the EPA to make the limit between 12 and 13 micrograms per cubic meter of air." Juliet Eilperin in The Washington Post.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.