Friday, January 30, 2009

Epic Alternative Stimulus Package Fail

Over at his new digs at The Plum Line, Greg Sargent details the analysis of the GOP's vaunted "alternative stimulus package" full of tax cuts. Only one problem: in their usual style of total incompetence and shoddy workmanship, it turns out the GOP's tax cutting stimulus would in fact raise taxes on over twenty million Americans due to failure to account for the Alternative Minimum Tax (AMT) in their version of the bill.

This is a bit in the weeds. But here goes. According to Dems on the House Ways and Means Committee who have crunched the numbers, the GOP plan, which would reduce income taxes, would as a result shove millions over on to the Alternative Income Tax rate, which would be higher for them. Dem Ways and Means spokesperson Matthew Beck emails me this statement making the case:

In 2008, 4.2 million Americans had to pay the Alternative Minimum Tax (AMT). The Republican proposal would lower marginal tax rates for individuals, but would not reduce AMT rates. Current law requires you to pay the greater of the two rates, so many of those receiving this lower marginal rate would now be held liable for the AMT.

There is no question that Congress needs to — and will — act to prevent the number of taxpayers hit by the AMT from growing to an estimated 26 million this year. However, we confirmed with the non-partisan Joint Committee on Taxation that 26 million people would still be forced to pay the AMT this year under the GOP bill. Essentially, their tax bill would give with one hand and take away with the other, leaving 26 million families without the tax cut they promised in their bill.

Make of this argument what you will, but the fact is that this is going to be an official attack line coming from the DCCC, which is right now drawing up press releases to push this line in the districts of at least a dozen House members across the country who backed the GOP alternative. The hits accuse each member of voting “to raise taxes on 22 million hard working Americans.”

That's lowering tax rates for Americans but NOT the AMT rate, the GOP bill would actually drop the tax rate under the trigger point where the AMT would kick in...and 22 million Americans (families making $70k-$150k or individuals making $46,500-$75,000) would actually end up paying MORE taxes under the AMT as a result. It's a silly oversight...but it's one that would be very costly to millions of Americans.

But what did you expect from the GOP? Actual competence?


More Swinging And Missing

This is starting to get ridiculous. It was one thing when Obama was complaining about Wall Street bonuses, but now Sen. Claire McCaskill of Missouri wants to cap the pay of any Wall Street executive whose company is taking bailout cash. While that's a nice thought, when you turn around and hand the same company several trillion dollars, capping executive pay in comparison shall I put this?

Immensely stupid. Seriously. This is not helping, guys. The problem is not that Wall Street types are making lots of money. You want to make a difference, Claire? Pass a bill that says Congress gets to fire all top management for running the company badly enough to require trillions of dollars of our tax money to save them.

Jesus, but the Democrats look like morons. C'mon guys, you can do better. Obama hasn't made many mistakes so far, but even I can see the GOP play on this one. "Why are we capping CEO pay when liberals are handing the company trillions in the first place? What kind of quid pro quo shop is Obama running here?"

And for once, the GOP would be right. The problem is not excessive Wall Street pay. The problem is the bailout.

Shouting At The Wind

What Digby said.
As we watch this legislative sausage slowly crumble, I would hope that President Obama will take his economic agenda to the American people. (And it's not going to be enough for him to ask people who've had house parties in the past to get together and talk about the president's plan.) He's needs to speak to the country directly.

I can't find any news about an impending State of the Union address (aside from this Ambinder note from last November which speculated about doing one in early February) but I think he should schedule one or something like it. The country needs to be instructed about the logic and necessity of this stimulus plan because they clearly don't fully understand it. And because of that, the Republicans are making headway with their rhetoric of "fiscal responsibility," conflating stimulus with bailouts and the rest of their destructive obstructionism.
Get on the TV. Make the case for the stimulus. Because the rest of Congress is on TV daily making the case against it.

In Which Zandar Answers Your Burning Questions

Tim over at Balloon Juice asks:
I get why Obama would tap Republican Sen. Judd Gregg (NH) for Commerce. Democrats get a 60 vote majority in the Senate, Obama gets bipartisan cred and a vetted Commmerce nominee who seems like a reasonable guy. That’s fine, but why does Gregg want the job?
It does seem like a rather nifty coup. New Hampshire Governor John Lynch, a Democrat, would then appoint a Democrat to Judd Gregg's seat, giving the Dems 60 votes in the Senate (once Al Franken is seated). So why would Gregg basically cut the GOP's throat in the Senate like that?
Whatever the pluses (e.g., he escapes a radicalized caucus that hates and abuses moderates like him), Gregg can look forward to the kind of hate that only Jim Jeffords and a sick twelve year old kid can possibly understand.

Before Judd Gregg makes up his mind, I suggest that he sit down with Graeme Frost and talk about living as a magnet for hysterical rightwing hate.

I've said before that since the GOP insists on doubling down on its massive losses, GOP moderates will simply leave the party. Gregg's been given the perfect opportunity to do so. Why shoudn't he take it? As a moderate Republican Senator, they right wingers will already hate him.

It's the wrong question, however. The one you should be asking is "If Judd Gregg voted against the EFCA, Ledbetter, and SCHIP on multiple occasions and as recently as the last couple weeks in the case of SCHIP and Ledbetter, why is he even in the running for the position?"

Honestly, what the hell business does Gregg have being Commerce Secretary if he doesn't believe in something as simple as equal pay for women? (Which is now law of the land, by the way).

No Mister Bond Market, I Expect You To Die

Much has been made of the stock market tanking in the last 4 months, but much more attention needs to be paid to the bond market.
A disappointing 5-year Treasury note auction was a less obvious, but potentially more insidious, contributor to the market's malaise. The record $30 billion auction priced with a yield of 1.82% well above expectations and up from 1.54% at last month's five-year auction, Bloomberg reports.

Prices of Treasuries with maturities of two-years and longer fell sharply in reaction to the lackluster demand for the 5-year auction, which "may signal investors will have trouble absorbing the as-much-as $2.5 trillion in debt the U.S. is likely to issue this year to pay for a $1 trillion budget deficit and programs to spur the economy," Bloomberg says.

That sentence is notable for its understatement. If the government has to pay higher yields on debt sales, the various bailouts and stimulus packages will turn out to be even more expensive than currently contemplated. And don't be fooled into the "what's bad for bonds is good for stocks" mindset; a big reason the Fed stands ready to buy longer-term Treasuries is to help keep rates down, and their failure to be more specific about those plans yesterday also contributed to weakness in fixed-income today.

Foreign investors are beginning to ignore US Treasuries, especially long-term notes. This has the potential to bring down the economy much faster than a stock market crash would. America runs on China buying our debt...and China is no longer happy with that arrangement.
Then there's the scenario where the U.S. government is forced to pay extremely high interest rates - or is simply unable to sell Treasuries - because foreign buyers go on strike. We're a long way from that "sum of all fears" outcome, but comments from Chinese Premier Wen Jiabao at Davos critical of U.S. economic policy suggest it's getting closer - especially in the wake of Tim Geithner's "manipulation" comment.

I don't think we're very far from that "sum of all fears" moment. In fact, I think there's a very good chance that we'll see foreign buyers go on a strike of sorts sometime before the end of the year.

When that happens, the real economic pain will begin in this country. Foreign investors just aren't going to be able to afford US treasury debt any longer. That will imperil our ability to pay that money back, causing a self-fulfilling prophecy that leaves us all officially broke. What happens when the US government goes belly up? The printing presses go full tilt as a last resort, and the dollar disintegrates in value.

How fast and how brutal that process is will decide if America is just crippled as a world leader or a mortally wounded third world economy.

Swing And A Miss

I like Obama. I think he's a vast improvement over Bush and McCain. I do not however think he's going to be able to fix the economy. I think we're going to crater over the next two years, and be mired in a long, multi-year recovery. Granted, that recovery might be generational under McCain instead of a decade, but it's still going to be bad.

It's going to define my generation and the next for the rest of our lives. Those of us old enough to remember the boom times of the Clinton years will have some nice stories to tell our kids.

Having said that, Obama's complaint about $18 billion in Wall Street bonuses being "outrageous" rings pretty damn hollow when economists are predicting Obama will have to lay out a staggering $4 trillion to rescue the banks.

Sorry Barack. That's a Bush-league mistake right there. That statement is going to come back and kick his ass, and deservedly so.

[UPDATE] What dday said.
There's minor value in angry missives about bonuses, but there's major value in, uh, four trillion dollars. Especially when the more elegant solution is to take over the insolvent banks and stiff the shareholders. But such things are forbidden hippie-talk.

Your Number's Up

How bad the economy do in the fourth quarter? We'll find out this morning at 8:30 AM EST. The quarterly GDP numbers are expected to show a yearly decline around 5.5%, I'm taking the high end of that at 6%. If it's significantly higher, it could be a really horrible day on Wall Street. Likewise, if the number comes in less than 5%, it could be a banner day.

I'll update the numbers as they come in.

[UPDATE] The rosiest prediction was 4%, but GDP only fell 3.8%. That's significantly better than Wall Street expected. Dow futures rocketed upwards, but quickly fell back flat as the significance of a 3.8% drop kicked in. It was bad last quarter.

It'll get worse this one. Next week's unemployment figures will most likely be brutal.


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