Economic Daily Outlook

MONDAY, APRIL 16, 2012



GOP and Dem lawmakers race hand in hand toward a fiscal cliff

Republicans and Democrats are hurtling toward a fiscal cliff, and neither side wants to take the plunge.

In less than nine months, Bush-era tax rates are scheduled to expire, hiking rates for the middle class as well as top income earners. At the same time, automatic spending cuts will kick in. The combination, coupled with the expiration of the payroll tax cut and other factors, would constitute a blow that analysts say could imperil the economic recovery and send America crashing back into recession.

That gives both parties an incentive to reach a deal to avert disaster and, with Tax Day approaching, millions of taxpayers a reason to hope that give their bill could look awfully similar this time next year.

OPINION: Skip Buffett tax, try for real reform (Sen. Rob Portman)

In the middle of the weakest recovery since the Great Depression, with more than 20 million Americans still out of work or underemployed, it is reasonable to expect that President Barack Obama and Congress would focus on real solutions to create jobs — including reforming our inefficient, complex and outdated tax code.

Instead, it’s Tax Gimmick Week in Washington.

Senate Democratic leaders will soon take up the president’s proposed new tax that targets investment income earned by individuals who, in his judgment, make too much money. The “Buffett Tax” — named after billionaire Warren Buffett — would impose a 30 percent minimum tax on anyone earning more than $1 million.

For all the political chest-thumping surrounding this proposal, the new tax will bring in less than $5 billion per year. That represents 0.4 percent of annual individual income taxes paid — or enough to pay one week’s interest on the national debt.



Lenders Fear Impact of New Mortgage Rule

U.S. mortgage lenders and real-estate agents are growing concerned a new set of mortgage-lending standards under development by a new consumer regulator will imperil the fledgling housing recovery and limit the availability of home loans.

In recent weeks, after meetings with consumer bureau officials, several real-estate industry groups and some consumer advocacy organizations have grown worried about how the Consumer Financial Protection Bureau could interpret the mortgage lending rules, which it is aims to finish by this summer.



Critics Say Proposed Rule Would Make Millions Ineligible for Health Insurance Subsidies

Consumer advocates, physician groups and several Democratic lawmakers are fighting a quiet battle over a key benefit in the health-care law: tax credits to help millions of people purchase insurance.

At issue is a section of the law that outlines when low- and moderate-income employees can opt out of their employer’s coverage and instead get federal subsidies to buy insurance through new state-based marketplaces, called exchanges.

The debate over who qualifies for subsidies has been overshadowed by more-polarizing issues such as the government’s authority to require most people to buy insurance. But if the Supreme Court upholds the law – or even most of the law – the way the tax-credit dispute is resolved will help determine how many people can get subsidized coverage.

A proposed Treasury Department rule says workers and their families cannot qualify for those subsidies unless their employer’s plan is unaffordable because it exceeds 9.5 percent of their household income.

Week ahead: Lawmakers tackle expiring healthcare policies

With multiple deadlines looming, lawmakers have plenty on their healthcare plate as they return from their two-week Easter recess.

The House and Senate could unveil as soon as this coming week legislation updating the fees prescription drug and medical device makers pay to fund their regulators at the Food and Drug Administration. The Energy and Commerce Health subcommittee is holding a hearing Wednesday on the user fees and “how innovation helps patients and jobs.”

Current user fees expire Sept. 30 and the committees of jurisdiction — Energy and Commerce in the House and Health, Education, Labor and Pensions (HELP) in the Senate — had been hoping to start marking up legislation by month’s end.

Lawmakers also have a slew of spending bills to pass to keep the government running past Sept. 30, even if the divided Congress will likely end up passing a short-term package and delaying hard decisions until after the election.



Political races run hot on energy

Soaring gasoline prices have members of Congress and their opponents running scared all across the country — and trying to seize the advantage.

Republicans are pounding the pocketbook energy issue hard, tying their Democratic opponents to President Barack Obama’s stance on offshore drilling and the Keystone XL pipeline.

House Speaker John Boehner (R-Ohio) has said voters will reward his party come November because the GOP has been leading the way in passing energy bills aimed at producing more fossil fuels — even if the legislation has died in the Democrat-controlled Senate.

But Democrats see a political winner of their own — the claim that Republicans are tools for Big Oil. Their attacks on GOP lawmakers have become commonplace on the campaign trail, with the White House pushing for votes aimed at eliminating billions in subsidies for oil andgas companies.

Congressional Republicans turn focus to gas prices

Free of the GOP presidential primaries that frequently forced their agenda onto the sidelines in favor of social issues, congressional Republicans return to Washington on Monday refocusing on bread-and-butter matters, particularly high gasoline prices.

Returning from a two-week break Monday, House Speaker John A. Boehner (R-Ohio) wants the spring legislative session to focus on several bills to allow more domestic energy exploration, believing that the issue has become an Achilles’ heel for President Obama.

Senate Democrats, meanwhile, are forcing a vote Monday on the so-called Buffett rule, in which those earning more than $1 million a year would require a minimum tax of 30 percent even on the sort of investment income that billionaires such as Warren Buffett use to reap most of their money.



School Turnaround Push Still a Work in Progress

The federal program providing billions of dollars to help states and districts close or remake some of their worst-performing schools remains a work in progress after two years, with more than 1,200 turnaround efforts under way but still no definitive verdict on its effectiveness.

The School Improvement Grant program, supercharged by a windfall of $3 billion under the federal economic-stimulus package in 2009, has jump-started aggressive moves by states and districts. To get their share of the SIG money, they had to quickly identify some of their most academically troubled schools, craft new teacher-evaluation systems, and carve out more time for instruction, among other steps.

EDITORIALReform School on the Bayou (WSJ)

Governors of both parties have promoted education reform, but so far no one has delivered more than Louisiana’s Bobby Jindal. This week he’ll sign two bills that offer a national model for competition and parental choice.

Louisiana’s new laws will essentially give all parents an average of $8,500 to use for their child’s education as they see fit. They can keep their child in their local public school, but they can also try to get Johnny into a more demanding charter school, or a virtual school, or into special language or career-training courses, among other options.

Nearly 400,000 low-income children—a bit more than half of all students—will also be eligible for vouchers to attend private schools. State officials estimate that about 2,000 students will use vouchers this September given private-school capacity limits, but that tens of thousands will do so over time.



Complex Attack by Taliban Sends Message to the West

Taliban suicide bombers and gunmen barraged the diplomatic quarter and the Parliament in the Afghan capital for hours on Sunday and struck three eastern provinces as well, in a complex attack clearly designed to undermine confidence in NATO and Afghan military gains.

Though the overall confirmed death toll was low, with six victims initially reported across four provinces, they were among the most audacious coordinated terrorist attacks here in recent years. The multiple sieges ended in Kabul on Monday morning after nearly 18 hours, and silence fell on the city with roads in the bullet-strafed areas beginning to reopen. The last of the attacks to be resolved was the one on the Parliament, which ended at 7:30 a.m., according to a statement by the Afghan Interior Ministry.  “The situation is normal,” the ministry said.

The attacks came near the peak of the American military troop “surge” in Afghanistan, some of it designed around ensuring the security of the capital. And they were an early test for the Afghan National Security Forces, who responded with only minimal help from NATO, Western military officials said.

US, Colombia free-trade agreement to be implemented in May

U.S. Trade Representative Ron Kirk said Sunday that the United States and Colombia will enter into their trade agreement on May 15, an announcement which comes as President Obama concludes his visit to Colombia for the Summit of the Americas.

The free trade agreement, which had taken several years to complete before Congress passed it last year, is now set to take effect after the Obama administration determined that Colombia had taken sufficient steps to address union worker concerns in a Labor Action Plan.

“We believe this is a very historic step,” Kirk said Sunday, according to Reuters.