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Wednesday, March 28, 2012

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Economic Events of the Week

Wednesday – Supreme Court arguments conclude, Durable Goods
Thursday – Q4 GDP Final
Friday – Personal Income

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Story of the Day
On Last Day of Health Care Hearing, Supreme Court Considers Severability (Washington Post)

Washington Update
Contingency Plans Are Few if Court Strikes Down Insurance Requirement (New York Times)
Bowles-Simpson Being Debated by House Today? Really? (Capital Gains and Games)

Market Talk
Fed Prevented ‘Total Meltdown’ Bernanke Says (Wall Street Journal)

Editorials & Opinions
Individual Mandate Masks an Ugly Deal (Avik Roy in USA Today)
A Constitutional Awakening (Wall Street Journal Editorial)
Demand for US Debt is Not Limitless (Lawrence Goodman in Wall Street Journal)
The Case for Raising Top Tax Rates (Eduardo Porter in New York Times)

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Story of the Day

On Last Day of Health Care Hearing, Supreme Court Considers Severability (Washington Post)

The Supreme Court will complete its review of President Obama’s health care law Wednesday by considering whether all of the law must fall if part of it is found unconstitutional, and whether the law’s proposed Medicaid expansion violates the federal-state partnership. The Medicaid expansion decision might have the most lasting impact on the federal government’s ability to use its spending power to pressure state action. The Supreme Court has said there is a limit to what the government can force states to do in order to receive federal funds — a condition cannot be “so coercive as to pass the point at which pressure turns into compulsion.” But the court has yet to find a case where the federal government has gone too far.


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Washington Update

Contingency Plans Are Few if Court Strikes Down Insurance Requirement (New York Times)

After a day punctuated by seeming skepticism from Supreme Court conservatives about the constitutionality of requiring Americans to buy health insurance, the justices will turn their attention on Wednesday to how much of the 2010 health care law might survive if they strike down that mandate. If the court invalidates the insurance requirement, the White House and a divided Congress would be left to pick up the pieces. Their first steps toward finding alternatives to reduce the number of uninsured in the country — nearly 50 million, or one in six Americans — would depend heavily on how far the Supreme Court goes, and on the balance of power in Washington after the November elections.

Bowles-Simpson Being Debated by House Today? Really? (Capital Gains and Games)

Today, Reps. Jim Cooper (D-TN) and Steven LaTourette (R-OH) will offer the B-S plan as substitute for the Ryan budget Ryan that was approved last week by the House Budget Committee. I know Jim Cooper. He is a smart, thoughtful, hard-working member of Congress who throughout his career has cared deeply about the budget. His involvement in this effort is anything but surprising. But B-S has no chance whatsoever of being agreed to by the House. Republicans will oppose it because of its more than a $1 trillion in new revenues; Democrats will oppose it because of its big Social Security changes. Camp and Ryan will still against it and will likely argue forcefully that their colleagues should vote no. In other words, this will this be a waste of time.

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Market Talk

Fed Prevented ‘Total Meltdown’ Bernanke Says (Wall Street Journal)

The Federal Reserve's response to the 2008 financial crisis prevented a more severe recession, Chairman Ben Bernanke said in a comprehensive defense of the central bank's actions. The Fed's efforts prevented a "total meltdown" of the financial system at a time when fears of a second Great Depression were "very real," Mr. Bernanke said Tuesday at the third of his four lectures at George Washington University in Washington. "I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could've had a much worse outcome in the economy," he said. The Fed chief defended the central bank's intervention to stop investment bank Bear Stearns Cos. and insurer American International Group Inc. from collapsing, saying the Fed's moves prevented greater shocks to the global financial system.


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Editorials & Opinions

Individual Mandate Masks an Ugly Deal (Avik Roy in USA Today)

Most people who oppose the Affordable Care Act's individual mandate do so because it's such a grave affront to our constitutional tradition of limited government. After all, a Congress that can force you to buy health insurance can also force you to buy solar panels, newspaper subscriptions and gym memberships. But let's be real. The reason the ACA forces every American to buy health insurance is that the law makes it a raw deal for people to buy it on their own. Of the 50 million people in America without health insurance, according to the U.S. Census, 55% — nearly 28 million — are under the age of 35. Thanks to decades of unwise government subsidies, regulations and mandates, these young Americans are forced to pay far more for health insurance than they consume in health care.

A Constitutional Awakening (Wall Street Journal Editorial)

Tuesday's two hours of Supreme Court oral arguments on ObamaCare's individual mandate were rough-going for the government and its assertions of unlimited federal power. Several Justices are clearly taking seriously the Constitution's structural checks and balances that are intended to protect individual liberty. Solicitor General Donald Verrilli faced aggressive questioning from Justices Anthony Kennedy and Antonin Scalia and Chief Justice John Roberts, the trio pegged as possible swing votes in favor of the mandate to buy insurance or pay a penalty. But they failed to elicit from Mr. Verrilli some limiting principle under the Commerce Clause that distinguishes a health plan mandate from any other purchase mandate that would be unconstitutional. The exchanges recalled the famous moment in Citizens United when the government claimed it could ban books to regulate political speech.

Demand for US Debt is Not Limitless (Lawrence Goodman in Wall Street Journal)

The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance. The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits. Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, "If you look at the markets, they're practically falling over themselves to lend money to the federal government." Sadly, that's no longer accurate.

The Case for Raising Top Tax Rates (Eduardo Porter in New York Times)

The wealthy are feeling defensive about their taxes. Most Americans may think the rich pay too little but, not surprisingly, only 30 percent of the rich agree. More than two-thirds of families earning a quarter of a million dollars a year or more tell Gallup’s pollsters that their taxes are too high. It is true that high-income Americans carry the biggest tax burden. While fewer than 1 in 20 families make more than $200,000, they pay almost half of all federal taxes. However they feel about the tax man, there is a case to be made that they can pay much more. The reason has nothing to do with fairness, justice or ideology. It is about economics and math. The math is easy: the federal budget over the next decade cannot be made to square without raising a lot more money.


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