Dec. 16, 2011

There won't be a government shutdown this year. After some minor, last-minute compromises on both sides, congressional leaders signed off on a $1 trillion deal to fund the government through 2012 -- beating the deadline by a full 27 hours.

It also looks like the payroll tax is likely to get extended. Senate Democrats have dropped their demands to fund it through a surtax on millionaires. And though House Republicans haven't yet dropped their demands to tie it to the Keystone XL pipeline, Senate Republicans are negotiating to fund it through some mixture of tax cuts, war savings, and, if Democrats have their way, tax loopholes. The expectation is that if the two sides can come to a deal in the Senate, there will be enough Democrats who will join the Republicans to carry it through in the House.

But that deal is less certain. So Senate negotiators are also working on a stopgap that will extend the payroll tax cut, unemployment insurance, and sundry other provisions for two months. That's not good for the vaunted "policy certainty" that politicians claim to care so much about, but it's better than letting the policies expire. It's also worth clarifying that the payroll tax cut they're looking to extend is the same one that's been in effect through 2011, not the expanded version that the Obama administration proposed for 2012. Congress isn't doing more for the troubled economy, but at this point, it doesn't look like they'll end up doing much less, either.

Finally, some sad news: Christopher Hitchens died last night. He was 62. You can find his Slate columns here, his Vanity Fair pieces here, and his Atlantic work here. I found this remembrance by Andrew Sullivan particularly affecting.

Top Stories

1) We have a spending deal, report Paul Kane and Rosalind Helderman: "Congressional negotiators signed off Thursday evening on a $1 trillion spending agreement for 2012 for federal agencies, barely 27 hours before a deadline that could have led to a government shutdown. After dropping minor policy prescriptions that President Obama opposed, members of the House and Senate Appropriations Committees gave final approval to the plan after a four-day standoff related to Obama’s demands to extend the payroll tax holiday for 160 million workers. That negotiation, lawmakers and aides said, also could be headed toward an agreement, with lawmakers considering extending the $120 billion tax break for two months to buy more time to determine how they offset the benefit’s cost so it does not add to the federal deficit."

2) The two sides are about $90 billion apart on a payroll tax deal, reports Alexander Bolton: "Senate Majority Leader Harry Reid (D-Nev.) and Republican leaders are about $90 billion apart on a deal to extend the payroll tax holiday, the centerpiece of President Obama’s jobs agenda, according to a senior Senate aide. In case they fall short of a larger deal, Reid and Senate Republican Leader Mitch McConnell (R-Ky.) are also working on a two-month backstop to save average middle-class families from a $1,000 tax increase and keep unemployment benefits from running out. The fail-safe measure would also protect doctors from scheduled cuts in Medicare reimbursements...Reid and Republican leaders agree that $100 to $120 billion of the cost of the package -- more than half -- should be paid for by 'consensus cuts' agreed to by the deficit-reduction supercommittee earlier this year, according to a senior aide familiar with the talks."

3) The payroll tax break's impact on Social Security is becoming a sticking point, reports Jackie Calmes: "For all of the partisan brawling over President Obama’s call to extend a temporary payroll tax cut for 160 million Americans, one concern is bipartisan: a significant minority of Democrats and Republicans say that cutting the taxes that finance Social Security benefits will further undermine the program. The Obama administration, many budget experts (but not all) and the chief actuary for the Social Security Administration say the proposal will do no such thing. But some conservative Republicans and liberal Democrats who agree on little else are just as adamant that it will...Critics predict that one extension will lead to another as politicians balk at raising taxes to their former level, especially if unemployment remains high."

4) Mario Draghi is the man holding all the cards in Europe, reports Neil Irwin: "Mario Draghi is playing a high-stakes game of poker, and leaders from Europe’s biggest economies are trying to decide whether to call his bluff -- or whether he’s bluffing at all. Draghi, who became president of the European Central Bank less then two months ago, has placed a bet, declaring that the mighty ECB will not print money to arrest the debt crisis facing the continent. In a speech Tuesday, he warned that there will be no 'external savior' for deeply indebted governments, urging them instead to put their financial affairs in order...Draghi has played a delicate game, hinting at but not promising more ECB bond purchases if European leaders commit to restraining future budget deficits. On one hand, Draghi has sought to disabuse European leaders and financial markets of the idea that the ECB will use its ability to create money from thin air to finance government debt."

Top Op-eds

1) Ron Paul's economic views are bonkers, writes Paul Krugman: "Mr. Paul identifies himself as a believer in 'Austrian' economics -- a doctrine that it goes without saying rejects John Maynard Keynes but is almost equally vehement in rejecting the ideas of Milton Friedman. For Austrians see 'fiat money,' money that is just printed without being backed by gold, as the root of all economic evil, which means that they fiercely oppose the kind of monetary expansion Friedman claimed could have prevented the Great Depression -- and which was actually carried out by Ben Bernanke this time around...After Lehman Brothers fell, the Fed began lending large sums to banks...Austrians, and for that matter many right-leaning economists, were sure about what would happen as a result: There would be devastating inflation...Mr. Paul’s supporters continue to claim, somehow, that he has been right about everything."

2) Inequality hurts the economy, writes David Lynch: "Societies that manage a narrower gap between rich and poor enjoy longer economic expansions, according to research published this year by the International Monetary Fund. Income trends in the U.S. mean that future U.S. expansions could last just one-third as long as in the late 1960s, before the income divide began widening, says economist Jonathan D. Ostry of the IMF...Expansions fizzle sooner in less equal societies because they are more vulnerable to both financial crises and political instability. When such countries are hit by external shocks, they often stumble into gridlock rather than agree to tough policies needed to keep growth alive. Raghuram G. Rajan, the IMF’s former chief economist, says political systems in economically divided countries become polarized and immobilized by the sort of zero-sum politics now gripping Washington."

3) Ryan-Wyden makes sense as part of a grand compromise but Republican won't let that happen, writes Jonathan Cohn: "In this compromise, Democrats would go along with transforming Medicare into a premium support system, the kind conservatives have long coveted. In return, Republicans would drop their objections to the Affordable Care Act and open up Medicare to people of all ages, effectively turning it into the public option liberals have sought all along. The end result could be a seamless, competitive insurance market for people of all ages, but with a strong public option upon which young and old alike could depend. But nothing like that will happen until both sides are willing to make an equal sacrifice. They clearly aren't yet. Wyden is embracing premium support and, in the process, lending respectability to Ryan and the House Republicans. Ryan although distancing himself from his former proposal, still isn’t coming to terms with the Affordable Care Act."

4) Bank owners need to be fully liable, writes Jonathan Berk: "To avoid future banking meltdowns, we must change bankers’ incentives today. Instead of motivating bankers to take bets that increase the likelihood of us getting into a crisis, we need to reward the opposite behavior. One way to align incentives requires a credible government commitment not to bail out banks. That would require strict limits on banks’ size to insure that no institution’s failure would threaten the financial sector’s stability. Of course, bankers would immediately object to this proposal...Luckily, there is another way to align incentives: requiring all bank equity holders to have full liability. Currently, equity holders lose only their investment if banks are bailed out. Unlimited-liability equity ensures that before the government steps in, every shareholder would need to first declare personal bankruptcy."

Portland punk interlude: Wild Flag plays "Romance" on the Late Show with David Letterman.

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

Still to come: The IMF could send billions to Italy; Democrats hate the Ryan-Wyden Medicare proposals but Republicans like it; the House markup of an anti-piracy bill got heated; the spending deal would block a light bulb efficiency rule; and the lead singer for Wilco does the weather.

Economy

The IMF could send billions to Italy, reports Howard Schneider: "The International Monetary Fund could pour more than $100 billion in short-term loans into Italy under a program recently expanded as part of an effort to ramp up the fund’s crisis fighting. But a broader bailout of the country remains problematic as European, IMF and other international officials debate how extensively the burden of Europe’s rescue should be spread around the globe. For example, it remains unclear how the IMF can use $270 billion in pending loans from European central banks. The money can’t simply be recycled back through a special fund to aid Italy or other indebted European countries. European officials worry that would violate euro-region treaties. But funneling it into the IMF’s general account poses problems -- including restrictions on its use, and a growing sense that a more expansive IMF involvement in Europe exposes the fund to risks the region can and should bear on its own."

China is growing more slowly, reports Keith Richburg: " top Chinese government economist confirmed Thursday what a slew of recent economic data had already shown -- that China’s long-booming economy has slowed dramatically, and the era of double-digit growth is now officially a thing of the past...The slowdown here, although not a surprise to economists who have been studying recent statistics, nonetheless comes as another body blow to a global economy already in crisis, with some countries, particularly in Europe, facing the possibility of a double-dip recession. China had been seen as a possible engine for re-starting the global economy, a role it played to some extent three years ago, when strong growth here -- backed by a $586 billion stimulus program -- helped the world avert the worst of the global recession."

Jon Corzine testified before Congress again, reports David Hilzenrath: "Former U.S. senator Jon S. Corzine, who presided over the collapse of commodities brokerage MF Global, returned to Capitol Hill Thursday and rebutted an allegation that he knew about loans the firm made using customers’ money. For the third time in a week, the New Jersey Democrat and former governor testified before lawmakers probing how an estimated $1.2 billion of customers’ money ended up missing. As he did in prior appearances, Corzine said he did not know. He also countered testimony that might have undermined that position. At a hearing before a Senate committee Tuesday, Terrence A. Duffy, executive chairman of the commodities exchange operator CME Group, said a CME auditor participated in a phone call with senior MF Global employees in which one of those employees 'indicated that Mr. Corzine knew' about loans from customer accounts."

The Volcker rule as currently written doesn't go far enough, writes Simon Johnson: "The Volcker Rule has some good points, including a requirement that trader compensation not be tied to speculative risk-taking, and that firms collect and report some essential data to regulators. But the current draft does too little to actually stop the banks’ risky practices. The main problem is that the rule as drawn does not set out the clear, bright lines that banks and regulators need, nor does it provide for meaningful enforcement...The proposed rule mandates that firms write many of the rules themselves. There is some good news. At this point, it is only a proposed rule, and the public is able to comment. Organizations like Better Markets that promote the public interest within the regulatory process will be in there fighting to strengthen the proposed rule...Everyone who cares about real financial reform should do the same."

Adorable animals being seasonal interlude: A Bernese mountain dog puppy frolicks in the snow.

Health Care

Republicans love Ryan-Wyden and Democrats hate it, reports Brian Beutler: "Two White House spokesmen -- Jay Carney and Dan Pfeiffer -- rejected the plan outright. Carney claimed the plan would 'end Medicare as we know it.' Leaving Wyden’s name out of it, House Minority Leader Nancy Pelosi said, '[Paul] Ryan’s latest Medicare plan is another example of GOP’s desire for Medicare, as Gingrich described, to “wither on the vine.'...Compare that to the fairly warm response Ryan’s received from leading members of his own party. House Speaker John Boehner called it 'a bipartisan idea that’s worthy of our consideration...a step in the right direction.' 'The Wyden-Ryan bipartisan Medicare reform plan is a major breakthrough with Democrats and Republicans working together to solve big problems,' tweeted Newt Gingrich, who has criticized his GOP primary rival Mitt Romney for proposing a plan very similar to Wyden-Ryan."

There's a lot for GOPers to dislike in Newt Gingrich's health care record, report Jim Rutenberg and Mike McIntyre: "Shortly before the passage of President Obama’s stimulus bill in 2009, Newt Gingrich’s political committee put out a video of Mr. Gingrich denouncing it as a 'big politician, big bureaucracy, pork-laden bill.' As a candidate, Newt Gingrich, second from front, is criticizing some of the same programs that he supported as a consultant. 'It should be stopped,' he said. But at the same time, Mr. Gingrich was cheering a $19 billion part of the package that promoted the use of electronic health records, something that benefited clients of his consulting business...During the Bush administration, he was a leading Republican advocate for the costly expansion of Medicare, which many in his party now regret."

Medicare's "SGR" formula has grown into a huge budget expense, reports N.C. Aizenman: "It was adopted by Congress in 1997 almost as an afterthought -- a new formula to keep Medicare spending on doctors from growing faster than the economy as a whole. But like a snowball that swells in size as it rolls down a mountain, the rate-setting formula has transformed into a budget-busting juggernaut that will hit doctors with a 27.4 percent pay cut for their Medicare patients in January unless legislators step in. The cost of congressional intervention has ballooned just as formidably: Postponing the cuts -- the solution Congress has turned to every year since 2003 -- would cost $21 billion for a one-year delay and $38.6 billion for two years. Fully repealing the formula would add nearly $300 billion to the deficit, according to the Congressional Budget Office."

The White House is denying Florida a health reform waiver, reports Sarah Kliff: "While it won’t get as much attention as the Wyden-Ryan Medicare proposal, another health policy development this afternoon that stands to have wide-ranging implications: The Obama administration has denied Florida’s request to waive a key health reform regulation. The regulation at hand is the new medical loss ratio, which requires insurance companies to spend at least 80 percent of subscriber premiums on medical costs. The other 20 percent can go to administration and profits. Insurance companies that don’t hit the target have to send their subscribers rebates for whatever they should have spent on health costs. But health insurers also see another option. Over the past year, the Obama administration has begun issuing waivers from the medical loss ratio requirement to lower the required medical spending."

Domestic Policy

The House markup of the Stop Online Piracy Act got heated, reports Cecilia Kang: "In a raucous House debate on Thursday over a bill to stop piracy on the Internet, lawmakers representing the interests of old media and new media drew their swords in passionate attacks and counterattacks over the controversial proposal. The circus atmosphere of the hearing on the Stop Online Piracy Act, introduced by Rep. Lamar Smith (R-Tex.), reflected the high-stakes, emotional nature of the debate over how to protect copyrighted movies, songs or books online without trampling on the free speech of individuals and companies...It has drawn the ire of Silicon Valley types, including founding Internet engineers such as Vint Cerf and Web giants Yahoo and Facebook, who worry that the bill gives law enforcement too much power to shut down their sites."

Regulators are halting chimp research, reports Brian Vastag: "The National Institutes of Health has placed a temporary moratorium on new studies using chimpanzees, it announced Thursday in response to a report that marks nearly all medical research on the great apes as scientifically unjustified. 'Effective immediately, NIH will not issue any new awards for chimpanzee research' as the agency puts in a place a committee to review research proposals, NIH Director Francis Collins said during a press briefing. Chimpanzee research that does not meet rules established by the report will be phased out, Collins said. He estimated that about half of the 37 current NIH-funded chimp studies would not rise to standards proposed in Thursday’s report from the Institute of Medicine, part of the National Academy of Sciences."

The administration is citing an Arizona sheriff for anti-Hispanic discrimination, reports Jerry Markon: "The Justice Department on Thursday accused a controversial Arizona sheriff known for tough immigration enforcement of widespread discrimination against Hispanics, saying Sheriff Joe Arpaio’s department illegally detained Hispanic residents and denied them critical services in jail. That report was followed hours later by a Department of Homeland Security announcement that it was terminating the sheriff’s participation in a federal-state program to enforce immigration laws. The actions against America’s self-styled 'toughest sheriff' highlighted the Obama administration’s increasingly aggressive enforcement of civil rights laws in areas including police brutality and voting rights. The Justice Department’s Civil Rights Division is conducting 20 probes of police and sheriff departments -- the most in its 54-year history."

We should ban cell use while driving, writes Deborah Hersman: "We are still learning what the human brain can -- and cannot -- handle. We know that there are four types of driver distraction -- visual, aural, manual and cognitive -- and that the use of portable electronic devices involves several, if not all. Studies published in 2008 in the journal Brain Research as well as in the Journal of Experimental Psychology show that it is more distracting to engage in a cellphone conversation than it is to talk with a passenger. Studies published as early as 1997 and 2005 have shown that there is little difference between hands-free technology and handheld devices when it comes to cognitive distraction...A Virginia Tech Transportation Institute study of commercial drivers published in September 2010 found that a safety-critical event is 163 times more likely if a driver is texting, e-mailing or accessing the Internet."

Musician cameo interlude: Wilco's Jeff Tweedy does the weather for WGN Chicago.

Energy

The spending deal blocks new light bulb standards, reports Darren Samuelsohn: "The shutdown-averting budget bill will block federal light bulb efficiency standards, giving a win to House Republicans fighting the so-called ban on incandescent light bulbs. GOP and Democratic sources tell POLITICO the final omnibus bill includes a rider defunding the Energy Department's standards for traditional incandescent light bulbs to be 30 percent more energy efficient. DOE's light bulb rules -- authorized under a 2007 energy law authored signed by President George W. Bush -- would start going into effect Jan. 1. The rider will prevent DOE from implementing the rules through Sept. 30. But Democrats said they could claim a 'compromise' by adding language to the omnibus that requires DOE grant recipients greater than $1 million to certify they will upgrade the efficiency of their facilities by replacing any lighting to meet or exceed the 2007 energy law's standards."

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

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