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Wonkbook's Number of the Day: 37 percent. That's a compromise top marginal federal tax rate on income under consideration in discussions of an austerity-crisis deal, according to a story by Jake Sherman and Steven Sloan of Politico. Such a deal would mean that Republicans and Democrats would meet in the middle between the Clinton rate of 39.6 percent and the current rate of 35 percent.
Wonkblog's Graph of the Day: Americans buying more fuel- efficient cars, polluting less.
Today in Wonkbook: Natural gas exports get support from Energy Information Administration; the austerity crisis, compromise, and talking; where the economy is headed; rolling out Obamacare; environmental protection in the U.S. and abroad.
A government report gave a thumbs-up to natural gas exports. "Shipping some of the newly abundant U.S. natural gas overseas would benefit the nation's economy more than keeping it all at home, according to a long-awaited government study that has the potential to reshape the global energy market...The administration had said the study would be central to its decision on approving exports. It analyzed more than a dozen scenarios for U.S. production and exports of natural gas. It found that 'across all these scenarios, the U.S. was projected to gain net economic benefits' from liquefying and then exporting natural gas." Keith Johnson and Tennille Tracy in The Wall Street Journal.
How natural gas exports could have a huge impact on American energy. "Higher exports could also raise costs to manufacturers that now benefit from the nation’s glut of cheap gas, like chemical and fertilizer manufacturers. But the huge gas export terminals, which cost billions of dollars to set up, would also generate thousands of construction jobs, spur further development of natural gas fields and generate lucrative export earnings." Clifford Krauss in The New York Times.
Hugs interlude: The nicest place on the Internet.
The Austerity Crisis
The 37 percent tax rate solution? "Could the solution to the fiscal cliff impasse lie between current tax rates and Clinton-era rates? It’s so simple -- a 37 percent rate -- it just might work. If Republicans split the difference between current top rates -- 35 percent -- and Clinton-era rates -- 39.6 percent -- Obama will get his tax rate increase on the rich, and Republicans can say they stopped him from hiking rates as far as he originally wanted. Some Republicans think it’s not such a bad idea to press Obama to accept a 37 percent top rate, getting him to agree to massive entitlement reform, spending cuts and tax reform." Jake Sherman and Steven Sloan in Politico.
Obama and Boehner spoke last night, for the first time in a week. "President Obama and House Speaker John A. Boehner (R-Ohio) spoke by telephone Wednesday evening to discuss the path forward on negotiations to avoid the year-end fiscal cliff. It was their first conversation since last Wednesday, when Boehner called Obama and the two had a 28-minute conversation that Boehner described as direct and frank. Since then, the two sides have exchanged deficit reduction packages that each dismissed as non-starters. Wednesday’s call is the first sign of movement this week." Rosalind S. Helderman in The Washington Post.
...And the House GOP wants to start negotiations. "House Republican leaders on Wednesday implored President Obama to sit down with them and begin negotiating in earnest to head off a fiscal crisis, but with flattery and displaying aggravation, they made it clear they are now playing on his turf." Jonathan Weisman in The New York Times.
Wonkblog explains: What the rest of the world thinks of our 'fiscal cliff'.
The austerity-crisis doomsday plan. "Republicans are seriously considering a Doomsday Plan if fiscal cliff talks collapse entirely. It’s quite simple: House Republicans would allow a vote on extending the Bush middle class tax cuts (the bill passed in August by the Senate) and offer the President nothing more: no extension of the debt ceiling, nothing on unemployment, nothing on closing loopholes...Two senior Republican elected officials tell me this doomsday plan is becoming the most likely scenario." Jonathan Karl in The Washington Post.
If the GOP folds on taxes, what would Dems give up in return? "One thing is certain: President Obama won’t be willing to give Republicans any leverage over the next debt ceiling...What’s less clear is whether Democrats would be willing to go along a deal that raised individual taxes on the wealthy and raised the debt-limit but didn’t include any stimulus that the president has asked for (an payroll tax extension, unemployment benefits); kept Bush tax rates for estate taxes and capital dividends; and/or included entitlement reforms like raising the Medicare age and reducing Social Security benefits, all of which Republicans have also demanded." Suzy Khimm in The Washington Post.
Sen. Coburn: Let rates rise; wait on deduction fixes. "'Personally, I know we have to raise revenue; I don’t really care which way we do it,' the conservative senator told MSNBC. 'Actually, I would rather see the rates go up than do it the other way, because it gives us greater chance to reform the tax code and broaden the base in the future.'" Rachel Weiner in The Washington Post.
How Boehner united the fractious House GOP. "With a daunting fiscal crisis looming and conservatives outside the House torching him at every turn, Speaker John A. Boehner might be assumed to have a shaky hold on his gavel. Instead, it appears he is enjoying the broadest support of his tumultuous two-year speakership from House Republicans. As Mr. Boehner digs in for a tense fiscal confrontation with President Obama, the strong embrace from a broad spectrum of the rank and file may empower him as he tries to strike a deal on spending cuts and tax increases that spares the country a recession, without costing Republicans too much in terms of political principle." Jennifer Steinhauer in The New York Times.
Is it time to axe special tax treatment for 401k contributions? "For many Americans, it’s the first order of business when they visit the HR department at a new job: enrolling in the 401(k) plan. The tax-deferred savings plans have been promoted as one of the best ways to prepare for retirement, as traditional pensions become a thing of the past. But the tax-free part is coming under greater scrutiny, as Congress looks under every couch cushion for the dollars needed to strike a deal on the looming fiscal cliff, and possibly re-write the tax code next year." Lauren French in Politico.
...And charities see a real threat to their deduction looming. "Proposals to cap or otherwise limit deductions in order to raise tax revenue from the wealthy are gaining bipartisan support in Washington -- and making charities and nonprofits very worried." Annie Lowrey in The New York Times.
The battle of the budget baselines. "What you need to know here is that there are two baselines competing for the hearts and minds of legislators. The normal baseline -- the one that stems from the 1974 legislation -- is called the current law baseline, and its key feature, at the moment, is that it shows the tax cuts expiring, the sequester beginning, and Medicare taking big cuts. The reason it shows all this is that that’s what’s written into law. And so, under this baseline, deficits are projected to drop dramatically and taxes are projected to rise sharply -- which means that any effort to keep taxes at or near current levels is scored, under the budget rules, as a huge, deficit-busting tax cut." Ezra Klein in The Washington Post.
Even if we avoid the fiscal cliff, the middle class will likely take a hit, still. "Obama appears to be making progress in the legislative debate on the central issues of renewing George W. Bush-era tax cuts for the middle class and increasing tax rates on the wealthy. But victories over the GOP on those issues, some congressional aides and economists say, would probably come at the expense of other priorities, such as a payroll tax cut or infrastructure spending, that Obama says are important in a weak economy." Zachary A. Goldfarb in The Washington Post.
Fiscal cliff or not, defense spending is going down, and fast. " The Defense Department faces steep cuts in the next decade regardless of whether the government goes off the fiscal cliff, speakers at a defense forum in Washington said Wednesday. The main impact of automatic cuts that would be triggered by sequestration is that the cuts would be made more quickly and in a more indiscriminate fashion, several said." Steve Vogel in The Washington Post.
Obama's still trying to win over businesses on the fiscal cliff. "White House officials have been encouraged by what they describe as a more positive reaction than expected. Many chief executives who met with Mr. Obama privately at the White House last week told him they would go along with his proposal to raise taxes on the wealthy. And several have come out publicly for the plan as long as there is also an effort to tame the growth of entitlement spending." Peter Baker in The New York Times.
IRWIN: If we go over the fiscal cliff, the Fed can't save us. "For a variety of reasons, monetary policy is not well suited to address the kind of economic challenge that would likely result from the tax hikes and spending cuts scheduled to take place at the start of 2013 -- and that’s not to mention that the Fed’s powers to combat economic weakness may be exhausted after five years of fighting financial crisis and its sluggish aftermath." Neil Irwin in The Washington Post.
KLEIN: Why 18 percent of GDP won't cut it. "Since 1950, federal revenue has averaged about 18 percent of gross domestic product -- 17.8 percent of GDP, to be exact. A neat bit of trivia, but who cares?...The average of our past revenue isn’t sufficient to sustain our future. In fact, it wasn’t even enough to support our past...Projected deficits are driven by two factors: health-care costs and old people. The coming years will bring more of both. Today, the elderly make up 13 percent of the U.S. population. By 2050, they’re expected to be 20 percent. There’s no way that the tax receipts of the 1980s will support the demographics of the 2020s or 2030s." Ezra Klein in Bloomberg.
MILBANK: The Republicans have waved the white flag. "[Boehner] is hoping to lead his fractious GOP to an orderly surrender. The question is no longer whether Republicans will give on taxes; they already have. All that remains to be negotiated is how they will increase taxes, and whether they will do it before or after the government reaches the 'fiscal cliff.'" Dana Milbank in The Washington Post.
WILL: The fiscal cliff bewitching. "The shrillness of 'cliff' talk bewitches minds that should be skeptical about the supposed point of all this -- deficit reduction. Conservatives, many of whom are such because they understand government’s metabolic urge to metastasize, believe that spending cuts will be chimeras." George F. Will in The Washington Post.
Wonkbook's holiday gift recommendations interlude: The list of the best presidential biographies.
Where the economy is headed
Check out the latest job numbers. "The ADP National Employment Report, which is closely watched as it comes two days ahead of the government’s monthly national employment report, showed on Wednesday that the private sector added 118,000 jobs during the month, below expectations for a gain of 125,000. The report largely reinforced economists’ forecast for a weak reading in the Labor Department’s payrolls report on Friday. Economists expect the economy added 93,000 jobs in November, down from 171,000 the month before, according to a Reuters survey." Reuters.
New IMF study analyzes economic impacts of tax increases, spending cuts. "Given current circumstances, with a U.S. economy that is growing but still trying to make up lost ground from the 2008 crisis, a one dollar change in government spending could knock as much as $1.80 in output from the economy...[T]he growth impact of a tax hike is estimated to be negligible. The list of measures that automatically become law absent an agreement include both spending reductions and tax increases. While the spending cuts would comprise a heavy drag on growth, the fund paper suggests that a one percent rise in tax revenue would knock just 0.1 percent from gross domestic product." Howard Schneider in The Washington Post.
BERNSTEIN: A slow growth rate, our true nemesis. "With the budget-and-tax showdown dominating headlines, most Americans probably missed an even more ominous story: according to a report by the Congressional Budget Office, America’s underlying growth rate -- that is, the best the economy could do, under optimal conditions, without driving up inflation -- has slowed from just under 4 percent a year in 2000 to just under 2 percent today." Jared Bernstein in The New York Times.
IGNATIUS: The coming U.S.-E.U. free trade agreement. "[A] big idea is taking shape that could revitalize the U.S.-European partnership for the 21st century. It was the talk of Berlin and Hamburg when I was there a week ago, and there’s a similar buzz in Washington. The idea is free trade -- specifically, a trans-Atlantic free-trade agreement -- which I’ll optimistically call 'TAFTA.'...Clinton is said to envision an 'economic NATO' -- a comprehensive agreement covering trade in goods, services, investment and agriculture. Indeed, a joint working group of U.S. and E.U. officials is about to release a final report arguing for such a comprehensive deal." David Ignatius in The Washington Post.
Car crashes interlude: Driving in Russia, 13 minutes of wreckage.
Rolling out Obamacare
Meet the interest groups trying to get their health services called "essential." "The chiropractors were out in force, lobbying for months to get their services included in every state’s package of essential health benefits that will be guaranteed under the new health care law...The acupuncturists were modest by comparison, ultimately focusing on a few states, like California, where they had the best odds of being included." Abby Goodnough in The New York Times.
Why $1.5 billion in Obamacare's consumer savings are bad for insurers. "The health-care law has a rule requiring insurers to spend at least 80 percent of health-care premiums on medical care. The good news: It’s saved consumers $1.5 billion in one year! The not-so-good news: Some insurers are operating at a loss. First, a bit on this regulation, the 80/20 rule. It requires insurers to spend at least 80 percent of subscriber premiums on medical care, rather than profits or administration. If insurers don’t hit that target, they must rebate the difference to consumers...The lion’s share of the change happened in the individual market." Sarah Kliff in The Washington Post.
Study: Health care law's insurance tax will raise premium costs. "Insurance premiums could increase by thousands of dollars because of a new tax in President Obama's healthcare law, according to a study commissioned by the insurance industry. The healthcare law imposes several new taxes, including a tax on the insurance industry. The amount the government will collect will rise each year, and is expected to raise $100 billion over 10 years. The health insurance tax will raise families' insurance costs by as much as $7,000 over a decade, according to a study conducted by the firm Oliver Wyman on behalf of America's Health Insurance Plans." Sam Baker in The Hill.
The managed-care experiment which could save billions. "The California experiment, now in its second year, has national significance. Federal officials have begun to roll out a similar, but larger effort required by the Affordable Care Act. That program will move up to 2 million of the nation's sickest and most expensive patients into managed care. Twenty-five states have applied to be part of the managed care experiment for so-called 'dual-eligibles,' people who qualify for both Medicare and Medicaid. All dual-eligibles are poor, two-thirds of them are over 65, and many of them suffer from multiple chronic illnesses like diabetes and heart disease. Massachusetts and Washington, the first states to be approved, will start their programs April 1. Patient advocates around the country, and some lawmakers in Congress, warn that managed care plans -- some run by for-profit, publicly traded companies -- are ill-equipped to deal with the complex health needs of those who are elderly, mentally ill or disabled." Mary Agnes Carey and Sarah Varney in Kaiser Health News and USA Today.
YGLESIAS: Don't raise the Medicare eligibility age. "When economists and policymakers worry about the long-term fiscal crisis, what they’re mostly worried about is Medicare. That’s why a persistent idea during this fiscal cliff season is raising the Medicare eligibility age from 65 to 67...The Kaiser Family Foundation has found that lifting the eligibility age from 65 to 67 would reduce federal spending by about $5.7 billion in its first year of full implementation. But that would be offset by $11.4 billion in spending by other parties." Matthew Yglesias in Slate.
RIVKIN AND CASEY: The opening for another challenge to Obamacare in the courts. "Policy problems aside, by transforming the mandate into a tax to avoid one set of constitutional problems (Congress having exceeded its constitutionally enumerated powers), the court has created another problem. If the mandate is an indirect tax, as the Supreme Court held, then the Constitution's 'Uniformity Clause' (Article I, Section 8, Clause 1) requires the tax to 'be uniform throughout the United States.' The Framers adopted this provision so that a group of dominant states could not shift the federal tax burden to the others. It was yet another constitutional device that was simultaneously designed to protect federalism and safeguard individual liberty." David B. Rivkin and Lee A. Casey in The Wall Street Journal.
Musical recommendations interlude: Dave Brubeck, "Kathy's Waltz," 1920-2012.
Protecting the environment
EPA taps new transportation emissions regulator. "The Environmental Protection Agency (EPA) has named a new vehicle emissions regulator. Christopher Grundler will head the EPA Office of Transportation and Air Quality, EPA told The Hill on Wednesday...Grundler has served as the office’s deputy director and currently heads the National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mich. He also has worked in the Energy Department, where he helped create its first environmental audit program." Zack Colman in The Hill.
How climate negotiations are going in Doha. "The United Nations climate conference here has settled into its typical doldrums, with most major questions unresolved as a Friday evening deadline for concluding the talks approaches. One of the thorniest issues is money, which has often bedeviled these affairs." John M. Broder in The New York Times.
Pixar in real life interlude: The famous lamp, created with technology.
Long reads: The United States of subsidies, a 3-part series. Louise Story in The New York Times.
House approves resolution to keep Internet control out of UN hands. Jeanne Whalen in The Wall Street Journal.
Stem cell research gets a big boost with new large repository. Pete Kasperowicz in The Hill.
Federal court hears challenge to recess appointments. Melanie Trottman in The Wall Street Journal.
Major turnover at the SEC. Dina ElBoghdady in The Washington Post.
It's no secret: Way too much is deemed "classified." Scott Shane in The New York Times.
17 bills that likely would have passed the Senate if it didn’t have the filibuster. Brad Plumer in The Washington Post.
How Planned Parenthood won 98 percent of its races in 2012. Sarah Kliff in The Washington Post.
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Wonkbook is produced with help from Michelle Williams.