Money in the Morning

TAX CUTS -- Centrist Republican senators veered slightly from the GOP line on tax cuts Tuesday, a day after centrist Dem senators did the same with their party's leaders.

Sen. Olympia Snowe (R-Maine) said she wants an tax cut extension but also signaled she could back a deal that didn’t make the cuts permanent. "Where we start is to extend all the tax cuts. I think that's important," she told reporters Tuesday. She added, "I'm not drawing lines in the sand.”

Sen. George Voinovich (R-Ohio), who has made the $13.4 trillion national debt his top issue, said he’s leaning against voting for an extension of any of the cuts, including those for the middle class. “My gut is probably no,” Voinovich told The Hill when asked about the cuts. “I think I would probably not vote, period, for it.”

Sen. Susan Collins (R-Maine) said she “hopes we could agree” on a two-year extension of all the cuts.

Their statements came on the same day Senate GOP Leader Mitch McConnell rolled out his plan: extend all the 2001 and 2003 cuts permanently, limit the alternative minimum tax and cap the estate tax to estates worth more than $5 million for individuals and $10 million for couples.

While the package hasn’t received a cost estimate, WaPo’s Lori Montgomery says it’s nearly as pricey as Congressional Budget Office budget scenario that cost $3.9 trillion over the next decade. “That's more than four times the projected deficit impact of President Obama's health-care overhaul and stimulus package combined.”

Here’s McConnell pitching his proposal Tuesday: "We have a spending problem. We spend too much. We don't have a taxing problem. We don't tax too little. And if we want to begin to get ourselves out of this economic trough that we're in, the only way to do that is to grow the private sector."

Dems leaders are trying hold fast against an extension of cuts for the wealthy. Senate Finance Chairman Max Baucus (Mont.) said a one-year extension of all the Bush tax cuts would be bad idea.

THE HOUSE -- Speaker Nancy Pelosi (D-Calif.) urged Dems during a Tuesday night caucus to stand for the middle class by extending their tax breaks but not the ones for the rich. TPM:

Liberals urge vote on Obama plan: A trio of House Dems -- Reps. Mary Jo Kilroy (Ohio), Raul Grijalva (Ariz.) and Alan Grayson (Fla.) -- are circulating a letter for colleagues to sign that calls for a vote on the president's plan: make permanent the middle-class cuts and let the ones for upper-income taxpayers elapse.

Excerpt: "Please join me in the following letter urging Speaker Pelosi to bring to the floor, before Congress adjourns in October, a vote on President Obama’s recently proposed tax plan... During the past decade, President Bush rammed through Congress a multi-billion dollar giveaway for the wealthiest Americans on the backs of our nation’s middle-class.  In the process, the aforementioned Bush tax cuts eviscerated an unprecedented budget surplus and weakened our nation’s fiscal health... It is critical that we pass the Obama middle-class tax cuts – not provide an even greater lift for the wealthiest Americans who don’t need it."

Pundits are reminding us of the tax cuts’ budget impact...

U. Wisconsin econ Prof. Menzie Chinn has graphs suggesting that any economic boost from permanently extending all the tax cuts would be smaller than the boost that would give to the deficit. Econbrowser:

Megan McArdle says letting the Bush tax cuts for the wealthy expire will deter small business productivity and investment, but she notes that extending them won’t help our unsustainable budget situation.

Jon Chait finds that making the middle-class tax cuts permanent will unaffordable.

BIG IDEA -- The Atlantic’s Michael Kinsley proposes a universal estate tax to cut the deficit.

“I am suggesting a tax that reaches far more people—essentially anyone who inherits any significant amount of money—but at a much lower rate. The principle behind the current estate tax (or once-and-future estate tax) is frankly redistributive: to prevent large private fortunes from growing, generation after generation, with the recipients accumulating power as well as money...

"The idea of my tax is to produce a lot of money that can then be used to pay off, or at least buy down, society’s debts. If we could collect just 20 percent of the alleged $41 trillion about to pass through two generations, that would be more than $8 trillion."

If not taxes to cut the deficit, it’ll have to be cuts to entitlements, the Wall Street Journal’s front page suggests. Hed: “Obstacle to Deficit Cutting: A Nation on Entitlements.”

“Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.”


The upper chamber moved to debate the small-business lending bill favored by Democrats and President Obama. Two GOP senators, Voinovich and George LeMieux (Fla.), voted with all of the Dems. Bloomberg:

The latest NFIB small business optimism report suggests Democrats have failed small businesses: “The Index has been below 93 every month since January 2008 (32 months), and below 90 for 25 of those months, all readings typical of a weak or recession-mired economy. Near the beginning of the recession in 2008, USA Inc. shareholders elected a new CEO and management team but unfortunately the change in leadership did nothing to curb the recession. In fact, the economy only got worse while new policy tactics enacted by management made little sense in terms of dealing with the main problems.”

But small biz’s woes aren’t all that different from everyone else’s economic problems, argues Daniel Indiviglio. “Consumers continue to spend apprehensively. And just as the broader recovery, if weak demand persists, so will the problems of small business.”


Sen. Chris Dodd (D-Conn.), one of the main authors of the Wall Street reform bill, isn’t happy with the idea of President Obama appointing Elizabeth Warren as head of the new consumer finance protection bureau instead of putting her through the confirmation process.

Dodd on Tuesday suggested Congress could even defund the bureau. HuffPo: “Dodd said that an interim appointment would deprive the director of the legitimacy that comes with Senate confirmation. He added that such an appointment could create a backlash that would lead Congress to defund the bureau.... [Dodd said,] ‘This is a big job, an important job, and it needs to be -- you've got to build the support for that institutionally or the next Congress - and none of us know what the outcome's going to be politically -- you could gut this before it even gets off the ground.’”

Reuters’ Jim Pethokoukis says the outspoken Warren may seem scary, but perhaps not as much as Wall Street thinks: “Rather than shutting down exotic ideas, she may instead push for more disclosure on them. But even if a Warren commission were to clamp down on some complex and risky products, it’s hard to believe the financial engineers won’t find a way to design simpler, and profitable, ones for consumers.”

WaPo’s Steven Pearlstein says that bank regulators were once bamboozled, but are now emboldened with the international finance regulations agreed to in Basel. “The new rules... bring the capital requirement back up to 7 percent, with even more required from the very biggest banks and an extra surcharge that kicks in the next time bank lending grows faster than the underlying economy... The trillion-dollar question is whether regulators have learned from the last credit bubble the lessons necessary to prevent the next one.”