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Wonkbook's Number of the Day: $1.6 trillion. That's President Obama's opening bid for the amount he wants to raise more in tax revenues on corporations and the wealthy over the next decade, according to a story by Zachary A. Goldfarb and Lori Montgomery in The Washington Post. It's twice what Boehner offered him in their private negotiations in 2011. You'll find much more on the topic in Wonkbook's special austerity crisis section today.
California set to hold its first emissions auctions tomorrow. "California’s fledging market-based system for reducing greenhouse gas emissions makes its formal debut on Wednesday with its auction of state-issued pollution allowances. More than six years in the making, the state’s so-called cap-and-trade program sets limits on carbon dioxide emissions for virtually all sectors of California’s economy, the ninth-largest in the world. Emissions allowances are allotted to polluters, and companies whose emissions exceed their allocations must either obtain extra allowances or buy credits from projects that cut greenhouse gas emissions." Felicity Barringer in The New York Times.
@Amy_NJ: E&E things Obama has on his plate now/still/again: Keystone XL pipeline, EPA regs (GHG rules, boiler, etc.), ethanol mandate waiver & more.
And research might be nearing a breakthrough in cellulosic biofuels. "For years, scientists and engineers have been juggling various combinations of acids, steam, bacteria, catalysts and the digestive juices of microorganisms to convert agricultural waste and even household garbage into motor fuel...Officials at two companies that have built multimillion-dollar factories say they are very close to beginning large-scale, commercial production of these so-called cellulosic biofuels, and others are predicting success in the months to come." Matthew L. Wald in The New York Times.
@Ben_German: IEA: "Energy renaissance in the U.S. is redrawing the global energy map." Notes shale oil/gas boom, bio energy, CAFE.
How all this changes global energy markets. "[T]he big story in the 2012 outlook is the change in the demand for and supply of energy...[N]ew exploration and technology—mostly the technique for obtaining unconventional oil and gas known as hydraulic fracturing, or 'fracking' -- will make America a net exporter of energy within a few decades. Patterns of energy trade will shift significantly as a result." Ryan Avent in The Economist.
American energy independence? Don't pop the cork yet! "American presidents have [long] pledged to end the country’s dependence on foreign oil by drilling more at home and increasing energy efficiency...Now, suddenly, the dream looks to be in reach...At first look, the changing energy panorama seems implausibly fortuitous, and it is no doubt a strategic game-changer. But the report also warns that the global energy future is still full of challenges, and many energy experts say any celebrations should remain muted. Even if the United States were no longer dependent on oil from the tumultuous Middle East and North Africa, vital American trading partners like China, India, Japan and Europe would continue to import increasing amounts of oil from the region. Future price shocks at the pump would still be likely as long as the world depended on unsteady producing nations like Venezuela, Nigeria, Iraq, Libya and Iran, where politics often mixes inharmoniously with crude." Clifford Krauss in The New York Times.
The oil industry is taking notice at the U.S.'s production revival. "The forecast by the International Energy Agency that U.S. oil production would exceed that of Saudi Arabia within about five years has caught the oil and gas industry’s attention." Stanley Reed in The New York Times.
@RameshPonnuru: Hey, did anyone track how "energy voters" behaved? Kept hearing on tv there were a lot of them in all demographic categories.
Treasury official: Administration open to carbon tax if GOP takes lead. "A senior Treasury Department official said Tuesday that the Obama administration could back carbon taxes as part of a wider fiscal reform deal, but with a big caveat: Republicans would have to show that they want to play ball. 'If this is going to be an issue that is part of discussions, there will have to be some interest shown by Republicans if we are going to make any progress,' Gilbert E. Metcalf, the Treasury Department’s deputy assistant secretary for environment and energy, told reporters." Ben German in The Hill.
@Ben_German: Bottom line from Metcalf re carbon tax in fiscal cliff talks: GOP would need to show initiative, express interest.
But what would a carbon tax swap actually look like? "A paper in August by MIT’s Sebastian Rausch and John M. Reilly -- which [Wonkblog's] Brad [Plumer] highlighted upon release — asks how much you could cut various taxes if you imposed a carbon tax, starting at $20 per ton in 2013 and increasing by 4 percent every year thereafter. The answer: not that much...In 2015, a 100 percent swap would only allow income tax rates to fall 0.59 percentage points, relative to all the Bush tax cuts expiring...The situation is a bit more promising for tax and corporate taxes. A full swap would finance a 1.59 point reduction in the payroll tax in 2015, almost as much as the two point cut in place for the past two years. Alternately, it would allow the corporate income tax rate to drop below 33 percent from its current level of 35 percent." Dylan Matthews in The Washington Post.
@grossdm: another sign of u.s. non-decline: by 2017 U.S. could become world's largest producer of really important commodity: oil
Rep. Upton: 'I'm not a carbon tax guy.' "House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) threw cold water Tuesday on supporting a carbon tax, hours after a Treasury Department official said the administration could consider the idea if Republicans lead the effort. A tax on greenhouse gas emissions has won increased attention in recent weeks as a way to combat climate change and simultaneously raise revenues. But Upton (R-Mich.) said Tuesday he is 'not a carbon tax guy.'" Zack Colman in The Washington Post.
@bencasselman: IEA: Within a decade, U.S. oil imports will fall to 4mm bbls/day from 10mm currently. OPEC imports to drop below 2mm.
Conservatives don't sound so keen on it either. "Conservatives including anti-tax activist Grover Norquist are trying to ensure that a carbon tax doesn’t gain any political momentum. Norquist, the president of Americans for Tax Reform (ATR), said a carbon tax or a consumption tax would violate the ATR pledge against tax increases that a majority of Republicans have signed...Norquist appeared to be backing off comments he made to National Journal in a story published Nov. 12. He told the publication that he opposes a carbon tax, but said that coupled with income tax cuts it could be structured in a way that didn’t violate the pledge." Ben German in The Hill.
KLEIN: Why would the White House even think of appointing John Kerry to Defense? "In 2010, Scott Brown won a special election in Massachusetts to take Sen. Ted Kennedy’s seat. In 2012, he lost that seat in a close race to Elizabeth Warren. Elevating Kerry to Defense Secretary would trigger another special election — and given that the demographics of special elections tilt Republican, and that Brown is popular statewide, he might well win it. And given that Democrats are defending 20 Senate seats in 2014 and Republicans are defending only 13, that may be the difference between Harry Reid as majority leader and Mitch McConnell as majority leader." Ezra Klein in The Washington Post.
BLANKFEIN: A business plan for America. "Relations between the Obama administration and large segments of the business community have been strained and unproductive. But the election offers an important opportunity to forge a more productive relationship...A spirit of compromise and reconciliation would do wonders for the economy if government and business resolved together to address the following priorities."Lloyd Blankfein in The Wall Street Journal.
GLAESER: Where are the Republican guardians of the welfare state? "If the Republicans become the party of smart financial probity, they will have a decent chance of convincing Americans of every race that they will be better guardians of the nation’s finances. Although diversity may be breaking down America’s anti- welfare consensus, there is little reason to think that a more- diverse country naturally leads to a larger central government. The more standard view is that diversity reduces the demand for central control, which can never produce the diversity of policies to accommodate extremely different preferences. The Republican penchant for localism, at least if it is intelligently managed and linked to a competently run centralized safety net, might appeal to a diverse America." Edward Glaeser in Bloomberg.
BARTLETT: Our long-term fiscal future isn't as bad as it looks. "Despite Republican propaganda to the contrary, the long-term fiscal problem of the United States is principally that revenues are too low...Revenues are just 15.8 percent of gross domestic product, compared with a postwar average of 18.5 percent, which even Mr. Norquist accepts as a long-term goal. The sooner we get there, the sooner we can get the national finances on track toward sustainability." Bruce Bartlett in The New York Times.
Top long reads
Benedict Carey profiles the social-science academics that got President Obama re-elected: "This election season the Obama campaign won a reputation for drawing on the tools of social science...Less well known is that the Obama campaign also had a panel of unpaid academic advisers. The group -- which calls itself the 'consortium of behavioral scientists,' or COBS -- provided ideas on how to counter false rumors, like one that President Obama is a Muslim. It suggested how to characterize the Republican opponent, Mitt Romney, in advertisements. It also delivered research-based advice on how to mobilize voters...In addition to Dr. [Craig] Fox of [University of California, Los Angeles], the consortium included Susan T. Fiske of Princeton University; Samuel L. Popkin of the University of California, San Diego; Robert Cialdini, a professor emeritus at Arizona State University; Richard H. Thaler, a professor of behavioral science and economics at the University of Chicago’s business school; and Michael Morris, a psychologist at Columbia."
Tumblring away interlude: The morbid humor of the 'Windows 95 tips' blog.
Got tips, additions, or comments? E-mail me.
The austerity crisis
How even a short austerity crisis would be, well, a crisis. "The question of 'What will happen if the United States goes off the fiscal cliff,' allowing a self-induced austerity crisis, has a pretty simple answer. There will be a recession, and probably a pretty deep one. The Congressional Budget Office said last week it figures that the suite of tax increases and spending cuts scheduled to take effect Jan. 1 absent an agreement between Congress and President Obama, would subtract 2.9 percentage point from the gross domestic product by the end of 2013, and cost 3.4 million jobs. But that isn’t really the most urgent economic question to ask; no one in government is advocating for all that austerity to take effect permanently. The fundamental question for next year is: 'What will happen if we go off the cliff just a little bit.' If we have one, or two, or four weeks of automated austerity, would it really matter?" Neil Irwin in The Washington Post.
$1.6T: The amount Obama wants in additional tax revenues over ten years. "President Obama is taking a hard line with congressional Republicans heading into negotiations over the year-end fiscal cliff, making no opening concessions and calling for far more in new taxes than Republicans have so far been willing to consider. Obama plans to open talks using his most recent budget proposal, which sought to raise taxes on corporations and the wealthy by $1.6 trillion over the next decade, White House press secretary Jay Carney said Tuesday. That’s double the sum that House Speaker John A. Boehner (R-Ohio) offered Obama during secret debt negotiations in 2011." Zachary A. Goldfarb and Lori Montgomery in The Washington Post.
And Geither says the White House wants tax rates to increase, not just revenues. "Treasury Secretary Timothy Geithner on Tuesday said higher tax rates on upper-income Americans were a central part of the White House's deficit-reduction proposal because there was no way to raise enough revenue by only limiting tax breaks. Mr. Geithner's comments, made at The Wall Street Journal's CEO Council meeting in Washington, marked the White House's most forceful defense since last week's election of its tax proposal...Mr. Geithner said there was a lot of 'magical thinking' about the amount of revenue that could be raised by capping or eliminating tax deductions and exemptions. " Damian Paletta in The Wall Street Journal.
That said, entitlement cuts are already on the table. ". The fact is that Mr. Obama, during his 'grand bargain' negotiations with the House speaker, John A. Boehner, in the summer of 2011, had already signed off on painful cuts to Medicare, Medicaid and Social Security, even if he never once mentioned that during his re-election campaign...In his opening bid, after the rough framework of a grand bargain was reached, Mr. Boehner told the White House he wanted to cut $450 billion from Medicare and Medicaid in the next decade alone, with more cuts to follow. He also proposed raising the retirement age for Social Security and changing the formula to make benefits less generous. Mr. Obama wasn’t willing to go quite that far. But in his counteroffer a few days later, he agreed to squeeze $250 billion from Medicare in the next 10 years, with $800 billion more in the decade after that. He was willing to cut $110 billion more from Medicaid in the short term. And while Mr. Obama rejected raising the retirement age, he did acquiesce to changing the Social Security formula so that benefits would grow at a slower rate." Matt Bai in The New York Times.
How the alternative minimum tax, or AMT, is going to create a massive austerity-crisis problem. "Nearly half of U.S. taxpayers would be unable to file their 2012 returns -- or receive their refunds -- until at least late March if Congress fails to enact legislation by the end of this year to restrain the alternative minimum tax, the head of the Internal Revenue Service said Tuesday...Since that legislation expired in December, the AMT is in line to affect about 33 million households in the 2012 tax year, the letter said -- hitting about 28 million of those families with an unexpectedly large tax bill." Lori Montgomery in The Washington Post.
And how stimulus could avert an austerity crisis. "[N]ot all of the parts of the pending austerity crisis are created equal in terms of economic impact. So if the goal is to soften that blow to the economy, it’s worth looking at which parts would be the most effective stimulus...[I]n terms of the biggest bang for the buck, the most effective stimulus wouldn’t come from any of the Bush tax cuts: Extending federal unemployment benefits, the payroll tax holiday and the 2009 stimulus’ tax cuts for low-income Americans would all be better at boosting the economy and avoiding an austerity crisis come January 2013...[Moody’s Analytics chief economist Mark] Zandi calculates that emergency unemployment benefits have a [Keynesian fiscal] multiplier of 1.52 — one of the most effective forms of any stimulus that we’ve passed since the recession." Suzy Khimm in The Washington Post.
Bank of America says austerity crisis is already biting. "[Its] Chief Executive Brian Moynihan said Tuesday that he believes the impacts of the fiscal cliff are already emerging in the economy, though he remains hopeful policy makers will find a resolution before the package of tax increases and government spending cuts kicks in." Christian Berthelsen in The Washington Post.
Why the problems with Romney’s tax plan could come back to haunt us. "New hope for a tax compromise is starting to spring up around the idea of capping or eliminating tax deductions to raise revenues without hiking rates. In recent days, John Boehner and Glenn Hubbard have suggested that they’d be open to the idea, with the assumption that the Bush tax cuts would stay in place...The problem is that it doesn’t raise all that much revenue, relatively speaking: According to the Tax Policy Center, Obama’s deduction cap would generate $164.2 billion over ten years if the Bush tax cuts stay. By comparison, letting the Bush tax cuts expire for income above $250,000 would generate close to $1 trillion in revenue over 10 years." Suzy Khimm in The Washington Post.
Conservative small firms worry about big-biz sellout on austerity plans. "Advocates for small and mid-size businesses are increasingly challenging the motives of a select group of chief executives from major U.S. firms who are meeting Wednesday with President Obama to discuss efforts at averting the fiscal cliff. In public and private communications, conservative lobbyists for small businesses worry that the chief executives -- who run companies such as General Electric, Honeywell and IBM -- may sell them out. The lobbyists say they are concerned that the corporate leaders are recommending policies that protect big companies while leaving small ones exposed to a major tax increase if Obama gets his way in negotiations with Republicans over a debt deal." Tom Hamburger in The Washington Post.
Regulation, regulation, regulation
Regulators seek changes in how money-market funds operate. "The government Tuesday inched closer to tightening its oversight of the $2.6 trillion money-market industry when a panel of top financial regulators put forward options for addressing the industry’s vulnerabilities...Under the recommendations put forward Tuesday by the Financial Stability Oversight Council (FSOC), the funds would have to set aside reserves as a buffer for times of crisis, restrict how quickly investors can redeem their money or allow the value of a fund’s shares to fluctuate. Currently, one share of a money market fund is generally valued at $1." Dina ElBoghdady in The Washington Post.
Are small banks getting squeezed by finreg? "Community banks say they may be pushed out of the residential mortgage market, leaving it in the hands of a few lending giants, because of an effort by global regulators to make banks hold more in their reserves in the event of a crisis. The move will hit smaller banks harder than big ones, lessening their ability to provide mortgages and other loans to consumers, community bank advocates say" Danielle Douglas in The Washington Post.
Music recommendations interlude: "Proud Mary," Creedence Clearwater Revival, 1969.
Wonkblog update: Meet Neil Irwin, Wonkblog's new economics editor.
The Fed wants clearer guidance. "The Federal Reserve is inching closer to revamping its communication strategy by stating more explicitly than before what would get officials to start raising short-term interest rates. Under a new approach being considered by senior officials, the Fed would state how high inflation would have to rise or how low unemployment would have to fall before it would begin moving rates, which have been near zero since late 2008." Jon Hilsenrath and Kristina Peterson in The Wall Street Journal.
Global economic growth: slowing? "In its Global Economic Outlook, to be released Tuesday, the Conference Board projects that world economic growth will slow next year to 3% from 3.2% in 2012. The deceleration, which follows a 3.8% rate in 2011, reflects that emerging markets no longer are picking up the slack [from developed nations]." Matthew Walter in The Wall Street Journal.
Data you didn't know existed interlude: Court verdicts season-by-season in 'Law & Order'.
Some question administration’s ability to set up state insurance exchanges. "With a growing number of state leaders saying they will leave it to the federal government to handle a crucial element of President Obama’s health-care law, even supporters of the statute are wondering if the administration is up to the job. So far, the administration has released few details about the complex computer systems needed to operate exchanges for states that don’t want to run them. The exchanges -- online marketplaces for consumers and small businesses to buy insurance -- are supposed to be up and running by Oct. 1, 2013, for coverage that begins in January 2014." N.C. Aizenman and Sarah Kliff in The Washington Post.
Poll: Support for Obamacare repeal is plummeting. "The Kaiser Family Foundation polled Americans last week, right after the election, asking what they want to see happen next with the health-care law. Most notably, they saw support for repeal plummet to an all-time low...In a lot of ways, this reflects larger shifts in thinking about the health-care law in the wake of President Obama’s reelection. There’s a general acknowledgement that the law, whose main components roll out in 2014, is here to stay." Sarah Kliff in The Washington Post.
Medicare changes needed in any long-term fiscal deal. "If Republicans make concessions on taxes, Democrats and the president say, they’ll move on entitlements, such as Medicare and Medicaid, as part of a larger deal to reduce the federal deficit...Lawmakers are wrestling with finding a balance between asking beneficiaries to pay more for Medicare services and reducing payments to Medicare providers, such as hospitals and nursing homes...Here's a look at some of the Medicare changes that could be in the mix." Mary Agnes Carey in Kaiser Health News.
How conservatives began pushing for prison reform. "Traditionally, prison reform has been a liberal issue, associated with civil rights activists troubled by the extreme racial disparities in the U.S. criminal justice system, and with drug decriminalization advocates who emphasize the high cost of drug prohibition. But without much notice, that picture has begun to change. These days, the right is leading the charge to reduce the U.S. prison population...[T]he U.S. prisoner population has declined for two years in a row, the first such decline since 1972." Dylan Matthews in The Washington Post.
Meanwhile, the U.S. is still awash in coal. "Coal is America’s mighty rock. Because coal burns at a slow rate for a long time, it’s more efficient as an energy source than other fossil fuels. And the United States is naturally well-endowed with coal resources—25 percent of the world’s coal reserves are within our borders. Coal has been the leading electricity source worldwide, and over the past 10 years it has supplied one-half of the increase in global energy demand, growing even faster than renewables." Lisa Palmer in Slate.
Meet GOP governors want the wind credit axed. "Republican governors are putting pressure on GOP lawmakers from their states to support the renewal of a tax incentive for the wind industry. The wind production tax credit is one of the hot-button energy issues for the lame-duck session of Congress. Scheduled to expire Dec. 31, it gives wind companies a tax credit of 2.2 cents for every kilowatt-hour they produce. Republicans from states with a heavy wind presence, such as Iowa, generally champion the incentive and want to see it renewed. But a handful of Republicans from Midwestern states oppose the credit on fiscal grounds, arguing it’s something the deficit-strapped government can no longer afford. That bloc of opposition could prevent an extension of the incentive from clearing the GOP-led House." Zack Colman in The Hill.
Wonkbook is produced with help from Michelle Williams.