James Pethokoukis

Politics and policy from inside Washington

Obama bails on ‘cap-and-trade thing’

Feb 3, 2010 16:07 UTC

President Barack Obama is now calling the carbon trading scheme that is supposed to heal the planet a “cap-and trade-thing.” That can’t be a good sign for the concept.

Here is the president in New Hampshire yesterday: “”The most controversial aspects of the energy debate that we’ve been having — the House passed an energy bill and people complained about, well, there’s this cap and trade thing. And you just mentioned, let’s do the fun stuff before we do the hard stuff. The only thing I would say about it is this: We may be able to separate these things out. And it’s conceivable that that’s where the Senate ends up.”

Whatever the impact on the environment, the probable demise of President Barack Obama’s cap-and-trade carbon plan would be a much bigger fiscal failure for the White House than the implosion of healthcare reform, at least over the near term. Taxing carbon was the hidden key to funding his administration’s policy agenda while limiting budget deficits. Now the White House is scrambling for a realistic Plan B.

For months, the Capitol Hill consensus has been that a legislative limit on carbon emissions isn’t going anywhere in 2010 or beyond. New job-killing regulations and taxes just aren’t popular when unemployment is in double digits. Now the White House seems to agree on the plan’s political prospects. But there already were hints of this in the new Obama budget proposal. Now Obama’s budget last year assumed auctioning emissions permits would generate $646 billion in revenue over 10 years. Of that amount, a fifth would have gone toward funding clean energy research, and four fifths to funding a worker income tax credit.

The administration’s new budget proposal simply contains an accounting line labeled “allowance for climate policy” followed by, well, nothing. Not a single dime of revenue is assumed for the years 2011 through 2020. The line item looks to be nothing more than a placeholder to keep hope alive for greener Democratic voters.

The near-term impact is that the worker tax credit won’t be renewed after 2011. But longer-term, the proposal’s failure would stymie administration efforts to get closer to balancing the federal budget.

Internal White House estimates predicted cap-and-trade auctions might generate two or three times as much revenue as forecast in last year’s budget, or up to $1.9 trillion. By contrast, proposed tax hikes on upper-income Americans would raise $678 billion. The extra money from cap-and-trade could have taken a big bite out of the $8.5 trillion 10-year deficit projected in the latest budget — just the kind of broad-based, if politically stealthy, tax that Obama’s economic advisers think is necessary to balance the books.

The administration’s healthcare plan was supposed to knock another $132 billion off the 10-year deficit, according to the Congressional Budget Office. With that on the back burner too, Democrat deficit hawks are left hoping Obama’s proposed fiscal commission can somehow create a menu of spending cuts and tax increases that could actually win congressional approval in 2011. Sadly for Obama, that’s about as likely as that “cap-and-trade thing” passing.


He is right, it is the latest ‘thing’ in hats, i.e. “de Bono hats”, and the speech writer better look for another job.

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Illinois Senate race … meh

Feb 3, 2010 15:49 UTC

Illinois voters are not too thrilled with their choices for US Senate, according to Public Policy Polling:

I think one of the most striking things about last night’s Illinois primary results for Senate is how poorly both Alexi Giannoulias and Mark Kirk closed.

In the December Chicago Tribune poll Giannoulias was at 31%, followed by Cheryle Jackson at 17%, and David Hoffman with 9%. There were 35% undecided. Giannoulias ended up with 39% to 34% for Hoffman and 20% for Jackson. That suggests that over the final seven weeks of the campaign Hoffman picked up more than 70% of those who had been undecided to 23% for Giannoulias and less than 10% for Jackson. Not too impressive and you have to wonder how far Hoffman’s momentum would have carried him if he’d had another week or two.

Kirk didn’t do all that well as the campaign heated up either though. In that December survey he had 41% to 3% for Patrick Hughes and a total of 10% for the variety of lower tier candidates in the race. Based on the final results he appears to have picked up about 37% of the undecideds from that point on to 35% for Hughes and 28% for the assortment of less serious candidates. Given how little money any of his opponents were spending that’s not too impressive.


Robert Zadek is the only option to the Status Qou.

Robert Zadek has worked with Ron Reagen, Henry Kissinger, has work form Warren Buffets office to solve a London Metals bankruptcy. Robert is also the only Independent Conservative for Illinois.

The Status Quo Robert Zadek

For Abortion Against Abortion
Against Guns For Guns
Career Politian Experienced Businessman For Cap and Trade Against Cap and Trade
For amnesty Illegal means Illegal
Raising taxes Flat Tax

Check out RobertZadek.com

The next Treasury secretary will be …

Feb 3, 2010 15:43 UTC

Well, Simon Johnson thinks it should be Tom Hoenig, president of the Kansas City Fed:

  1. He’s currently the only senior Fed official who has been outspoken (or even spoken out) against banks that are undoubtedly Too Big To Fail (TBTF).  Hoenig has been a beacon of clarity on this issue over the past year.  Compared with central bank officials – and almost everyone else – Hoenig stands out as a model of straight thinking and a proponent of tough action.  With his disarming but no nonsense approach, he is the perfect person to take on the likes of Lloyd Blankfein (Goldman Sachs) and Vikram Pandit (Citigroup) both in the corridors of power and in the nitty gritty of their rather sordid business models.  Hoenig is a career bank supervisor and nobody’s fool.  Blankfein and Pandit are just two more guys who run banks that have gone bad.  You know how that movie ends.
  2. Hoenig, who sits on the Federal Open Market Committee, is also an inflation hawk – at least by today’s standards.  This makes some would be supporters – including fans of his attitude on TBTF – rather wary of advancing his name (e.g., as chairman of the Fed Board).  This hesitation is understandable although likely mistaken; you don’t keep the federal funds rate essentially zero for long when nominal GDP is growing at more than a 6 percent annual rate.  In any case, the issue is irrelevant for the Treasury job.  The Treasury Secretary’s responsibility in a modern administration is to run financial sector policy, meaning bailouts and how to avoid them.  Peter Orszag has the budget and Ben Bernanke (gulp) holds the monetary tiller.  What we desperately need is someone who can sort out our largest banks.
  3. Tom Hoenig is almost certainly a Republican, although – as head of a regional reserve bank – the full range of his views, outside of banking and money, are not widely known.  Paul Krugman reasonably points out that if he (Krugman) were nominated for the Fed (or Treasury or anything else), this would likely run into trouble in the Senate.  Hoenig is a completely different kettle of fish, appealing to sensible Democrats and Republicans – yes, there are a few – who increasingly worry about massive banks and their electoral implications.  And while financial sector policy is job one, serious efforts to address the budget – led by people of all ilk with a strong grip on economic realities – also lie in our future.  Either that or the republic will perish.  Not a tough choice in the end, but it does need to involve at least a few Republicans.
  4. He’s a Republican.  See point 3 above, and remember that President Obama offered Senator Judd Gregg (R., New Hampshire) the position of Commerce Secretary at the beginning of his administration.
  5. The market will react negatively, because it will sense the era of unlimited bailouts is drawing to a close.  Sure, but that’s the point.
  6. He’ll be captured by Big Finance, just as Geithner was. Spend some time with Tom Hoenig before you jump to this conclusion.

There will be objections to be sure.

  • He’s just a regional Fed governor. True, but so was Tim Geithner.
  • He’ll be captured by Big Finance, just as Geithner was. Spend some time with Tom Hoenig before you jump to this conclusion.
  • The market will react negatively, because it will sense the era of unlimited bailouts is drawing to a close. Sure, but that’s the point.
  • He’s a Republican. See point 3 above, and remember that President Obama offered Senator Judd Gregg (R., New Hampshire) the position of Commerce Secretary at the beginning of his administration.

Obama and middle-class tax cuts

Feb 3, 2010 15:35 UTC

The Tax Foundation thinks the White House is too sensitive about charges that middle-class taxes are going up:

The Administration’s outrage is a bit overdone, though, for three reasons:

Democrats didn’t support most of the middle-class tax cuts in 2001. The only Bush tax cut provisions that enjoyed any Democratic Party support in 2001 were the 10% rate and the doubling of the child tax credit from $500 to $1,000. In running for president, Obama made the political calculation that the middle- and upper-middle income tax cuts (marriage penalty relief, cutting the 28% rate to 25%, and cutting the 31% rate to 28%) were unassailable; hence the $250K threshold promise. (Throw AMT relief in that basket.) In his progressive heart, Obama can’t really believe those cuts were virtuous. And now the Administration is desperate for big new sources of tax revenue, so there is suspicion that middle-class tax hikes are coming. As many commentators are pointing out, the new fiscal commission is exactly the vehicle that could deliver those tax hikes in a way that would look as if the President were being forced to do it, that he didn’t break his tax promise willingly.
Bush’s middle-class tax cuts were huge. Even now the President uses the phrase “mostly for the wealthy” in describing the Bush tax cuts as a package, which is false (at least by his own, new definition of wealthy — over $250K). Even the most anti-Bush tax think tank in town, Citizens for Tax Justice, can’t come up with numbers that portray the tax cuts for people over $250K as reaching 50% of the whole package.

So many shocking things have happened that rational expectations are shaken. No one thought this Congress and Administration would allow the estate tax to reach full repeal, as it did on January 1, a month ago. But they did, violating every premise of progressive tax policy. And quite aside from politics, it’s a nightmare for executors. Following that shocker was the health bill train wreck, resulting in a level of political and fiscal uncertainty that is almost unprecedented for a non-crisis situation.


Well it’s April 15th and middle class taxes went down. A lot.

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We are all Austrians now (when it comes to economics)

Feb 3, 2010 15:19 UTC

Or so says Ed Yardeni, who puts the current economic situation in a philosophical perspective:

We are all Austrians now. Over the past few weeks, in Los Angeles, San Francisco, Sacramento, New York City, and London, I’ve run into more and more institutional investors whose economic and financial views either knowingly or unknowingly reflect the influence of the Austrian School of Economics. I am in Zurich today and Geneva tomorrow.  … How do you know if you are an Austrian? Here is a simple test. Answer yes or no to the following question: “I believe that this will all end very badly.” If you agree, then you are probably worried that all the government policies that rescued us from a depression in 2008 and 2009 only postponed the coming wipe-out of debt and the collapse of asset prices–and will actually make the inevitable calamity even worse.

I share these concerns, but I believe that Globalization will save us from such an awful fate. The end of the Cold War marked the end of the greatest trade barrier of all times. The resulting proliferation of free trade liberated billions of people around the world from their lives of quiet desperation. Standards of living are rising rapidly, especially in emerging economies, as prosperity displaces subsistence. Previously immiserated people are less miserable. They are earning enough so that they can both save and have more discretionary income to improve their material well-being. In other words, Globalization is stimulating more growth in incomes, saving, and consumption. Such growth is the best antidote for the grim Austrian prescription of debt deflation.


Yes, we are all Austrians now…

http://www.youtube.com/watch?v=d0nERTFo- Sk

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