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Washington Update

What Congress Might Do to Defuse Tax Time Bomb
August 31, 2010 | Wall Street Journal
President George W. Bush left behind a ticking time bomb that is set for Dec. 31, 2010. If Congress does nothing, taxes on wages, capital gains and dividends will leap, the estate tax will be resurrected at a 55% rate and the pesky alternative minimum tax will hit an additional 21 million taxpayers on 2010 returns. So what happens? Political gridlock, wavering Senate Democrats, deficit angst and a gnawing sense that the tax code is due for an overhaul could combine to make a one- or two-year extension of the Bush tax cuts—perhaps all of them, perhaps only those Mr. Obama likes—likely.
The Great Stimulus Debate
August 31, 2010 | Round Up in International Economy

For some months, there has been an intense debate over the appropriate fiscal stance going forward. Does economic weakness require more fiscal stimulus? Are large budget deficits holding back growth? Is it possible for fiscal consolidation—the latest preferred term for deficit reduction—to be expansionary? What follows is a selection of analyses and commentaries underlying the debate from the White House, CBO, Mark Zandi, John Taylor, Robert Barro, Jean-Claude Trichet, Paul Krugman, and Edward Glaeser.

Administration Releases Report on Options for Tax Code Overhaul
August 30, 2010 | Congressional Quarterly

The White House released a long-awaited report on Friday that outlines options for overhauling the tax code. The 126-page document, created by an offshoot of the President’s Economic Recovery Advisory Board, does not endorse any of the listed options and does not represent official White House policy. Instead, the group, led by former Federal Reserve Chairman Paul A. Volcker, tries to set out options for upcoming debates on taxes, including a long list of suggestions that would simplify the tax system, improve compliance and revamp the corporate tax code.

An Autopsy of Fannie Mae and Freddie Mac
August 27, 2010 | Economix
Fannie's and Freddie's regulator released a report yesterday on the financial condition of the government sponsored enterprises. There are a few key points. First, Fannie and Freddie did not cause the housing bubble. Second, the companies bought and guaranteed bad loans with reckless abandon. Their underwriting standards jumped off the same cliff as every other participant in the mortgage market.
Lawmaker Want Deficit Commission Co-Chair Ousted
August 26, 2010 | Congressional Quarterly
Two lawmakers called Wednesday for the ouster of the top GOP member of President Obama’s fiscal commission over controversial comments he made about Social Security. Sen. Bernard Sanders, I-Vt., and Peter A. DeFazio, a Democratic House member from Oregon, complained in an Aug. 25 letter to President Obama that former Republican Senator Alan Simpson has failed to meet a responsibility to be “serious, deliberate, and sober” when he compared, in an e-mail message, Social Security to a “milk cow” on which 310 million Americans feed.
2011-2012: Can You Spell Federal Budget Gridlock?
August 26, 2010 | Capital Gains and Games

Assuming there are no big changes between now and election day (that is over just 10 more weeks), Republicans either will have narrow majorities in one or both houses of Congress or the Democrats will have smaller majorities in the House and Senate than they have now. In general, that's not a situation conducive to compromises, cooperation, and large changes.

CBO
August 25, 2010 | Estimated Impact of the Stimulus Package on Employment and Economic Output
CBO estimates that in the second quarter of calendar year 2010, ARRA’s policies: (1) raised the level of real gross domestic product by between 1.7 percent and 4.5 percent, (2) lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points, (3) increased the number of people employed by between 1.4 million and 3.3 million, and (4) increased the number of full-time-equivalent jobs by 2.0 million to 4.8 million.
Court Orders Fed to Disclose Lending Information
August 24, 2010 | Congressional Quarterly

Efforts to pry open the workings of the Federal Reserve are gaining ground more than a month after President Obama signed a financial overhaul bill into law that left the central bank’s response to the financial crisis largely secret from the public. The U.S. Court of Appeals ruled in March that the Fed must hand over wide swaths of information about its lending activities during the depths of the financial crisis. In a decision filed Aug. 20 and publicized Monday, the court refused to reconsider the ruling, making it likely the Fed would appeal the ruling to the Supreme Court.

Notes from the Treasury GSE Conference
August 23, 2010 | Phillip Swagel in Greg Mankiw's Blog
I took away four main points from Tuesday's Treasury-HUD GSE conference. First, Treasury Secretary Timothy Geithner said that the administration supported fundamental GSE reform but with still a government guarantee for housing finance in some form. The GSE portfolios, however, would disappear. Second, industry participants love government guarantees. Third, the White House is terrified of blowback from the left. And finally, this is going to be a long process; the wheels of GSE reform are turning, but the vehicle is moving forward at a crawl.
South Korea Trade Pact Back on Agenda
August 23, 2010 | Washington Post
The agreement would eventually eliminate tariffs between the two countries. Because those levies are typically higher on the South Korean side, administration officials estimate the deal could mean more than $10 billion annually in increased U.S. exports to Seoul and tens of thousands of new U.S. jobs. The fundamental dispute is over free trade itself. Presidents Bill Clinton and George W. Bush had aggressively promoted it. Yet the appeal of free trade has waned amid large U.S.