Economic Daily Outlook

FRIDAY, APRIL 20, 2012



House passes 20 percent small biz tax cut

House Republicans sent a clear, election-year message that they’re going to make sure taxes are cut — stiff resistance from congressional Democrats and the White House be damned.

With a 235-173 vote Thursday, the House passed a 20 percent tax cut aimed at small businesses, despite a White House veto threat and protests from Democrats that the tax break would disproportionately help the rich and fatten the nation’s deficit.

This tax cut “was never proposed to be the panacea,” House Majority Leader Eric Cantor (R-Va.) said at POLITICO’s Playbook Breakfast earlier in the day.

“We know what we’ve got to do in this country, which is broad tax reform. It is something that we felt was the very least that we could do to help the job generators right now that are having so much difficulty.”



Regulators Offer Long-Awaited Guidance on Compliance with Volcker Rule

In response to industry complaints, regulators on Thursday provided precise guidance on when financial institutions will have to comply with the “Volcker Rule.”

Banks will be expected to fully comply with the provision, named after former Fed Chairman Paul Volcker, by July 21, 2014, or two years after the rule technically takes effect.

It was a long-awaited reprieve for firms that feared having to adhere to the rule this year at the stroke of midnight on July 22.

The rule, which bars banks from proprietary trading activities and hedge fund and private equity funds activities, has been a source of concern for a number of stakeholders given the complexity of the proposal released by the agencies last year. The regulators have yet to finalize the plan, but banks had begun wondering when they are expected to comply with the statute.

The EPA’s Fracking Miracle

The Environmental Protection Agency once again invited itself to do tangible economic harm—this time to the hydraulic fracturing that is transforming American energy—and somehow . . . it didn’t. In the annals of the unlikely, the EPA’s new fracking rules fall somewhere between a Nobel Peace Prize for George W. Bush and a supply-side tax plan from Warren Buffett.

The first-ever federal fracking rule that the EPA released on Wednesday is also the first time the agency has shown restraint under the Clean Air Act since at least 2005 or 2006, about when the Bush Administration gave up on environmental regulatory reform. Given the agency’s track record, any self-control is notable—though in particular on the unconventional oil and gas extraction that the green lobby would prefer to shut down because those fuels contain demon carbon.



Overnight Health: More retiring Dems pile on Obama for healthcare focus

Rep. Barney Frank (D-Mass.) isn’t the only retiring House Democrat who thinks the White House made a big mistake by pursuing healthcare reform. In interviews with The Hill on Thursday, several more Democrats piled on, saying Obama hurt Democrats’ electoral chances.

“I think we would all have been better off — President Obama politically, Democrats in Congress politically, and the nation would have been better off — if we had dealt first with the financial system and the other related economic issues and then come back to healthcare,” said Rep. Brad Miller (D-N.C.), who is retiring at the end of this Congress.

Miller voted for the healthcare bill — as did Frank and Sen. Jim Webb (D-Va.), who reopened the inter-party dispute earlier this week.

Rep. Dennis Cardoza (D-Calif.) also criticized his party’s handling of the issue, saying the bill should have been done “in digestible pieces that the American public could understand and that we could implement.”

Study: ACA would increase continuous coverage

Twenty-six percent of American adults were uninsured for a period of time in 2011, a new study by The Commonwealth Fund shows — and for the most part, people went without health insurance because they lost or switched jobs.

It’s one of the problems the health care reform law was intended to solve, and one of the study’s authors said the problem could become less serious in 2014 — if the law survives.

Almost seven out of 10 of these adults who had gaps in coverage went without it for a year or more, the study said. Americans who had gaps in insurance were more likely to miss regular preventive care screenings and not have a designated physician.

“The longer people are without health insurance, the more estranged they become from the health system,” Commonwealth Fund researchers wrote.



Democrats Joining G.O.P. on Pipeline

President Obama is finding himself increasingly boxed in on the Keystone pipeline fight as more Congressional Democrats are joining Republicans in backing the project, which has strong labor support and could generate significant numbers of jobs in economically hard-hit states.

On Wednesday, the House passed a short-term transportation bill that included a provision that would pave the way for the construction of the next stage of the oil pipeline, a measure that Mr. Obama has said he would veto. The bill passed 293 to 127, with 69 Democrats supporting it.

It is the fourth time the House has passed a measure to expedite the project; one failed narrowly in the Senate only after Mr. Obama personally lobbied some Democrats to vote no. With the House vote, Mr. Obama finds himself, for the first time in his presidency, threatening a veto on a significant piece of legislation that enjoys the support of an increasing number of Democrats, as well as the vast majority of Republicans in Congress.

Target on Manipulation, but It’s Tough to Hit

President Barack Obama’s announcement on Tuesday that he would pursue tougher penalties for oil manipulators shined a spotlight on commodities regulators, who have won relatively few cases in the murky world of energy trading.

In the past 35 years, the Commodity Futures Trading Commission has brought dozens of cases alleging manipulation in energy markets. It was successful in proving only one in court.

With average prices at the pump close to $4 a gallon and crude above $100 a barrel, political pressure is increasing for CFTC Chairman Gary Gensler to show his agency is protecting consumers from nefarious activity in futures markets.

Obama on Tuesday said he wants to increase fines tenfold to a maximum $10 million per violation, and beef up funding for the CFTC.

The added penalties proposed this week would add to assistance the CFTC received from the Dodd-Frank financial-regulation bill. Until last year, regulators also had to prove traders intended to manipulate prices.

The new rules reduced the standard to “recklessness,” which could give the CFTC a better chance of proving manipulation for trading in the future, some lawyers said.



Test Scores and Hosing Costs

Parents hoping to enroll their children in the best public schools have long known that where you live matters and that housing prices can be dictated by the quality of the nearby schools.

A new study from the Brookings Institution quantifies that price gap, and the differences between the cost of living near a high-scoring public school and a low-performing one are striking.

The study, by Jonathan Rothwell, a senior research analyst in the Metropolitan Policy Program at Brookings, found that housing costs in the nation’s 100 largest metropolitan areas were an average of 2.4 times as high – a difference of $11,000 a year – for homes near schools whose average test scores put them in the top fifth of schools in the area, compared with schools in the bottom fifth.

That means that a family would have to pay more per year to move into a good public school zone than for their children to attend some private schools. Translated into an average home price, the gap works out to an average of $205,000 more for a home near a high-performing school.

Student Loan Interest Rates Loom as Political Battle

President Obama begins an all-out push on Friday to get Congress to extend the low interest rate on federal student loans, White House officials said, an effort that is likely to become a heated battle along party lines. If Congress fails to act, the interest rate on the loans, which are taken out by nearly eight million students each year, will double on July 1, to 6.8 percent.

White House officials said the president was planning a sustained effort through the spring: On Friday, Education Secretary Arne Duncan will discuss the issue at a White House briefing, and on Saturday in his weekly address, the president will call on Congress to pass legislation preventing the rate hike.

Next week, Mr. Obama will again hammer the issue — during visits on Tuesday to the University of North Carolina at Chapel Hill and the University of Colorado at Boulder, and on Wednesday at the University of Iowa. The White House also plans a social media campaign through Facebook, Google+ and Twitter, using the hashtag #DontDoubleMyRate.

At a time when Americans owe more on student loans than on credit cards — student debt is topping $1 trillion for the first time — and the Occupy movement has highlighted the rising furor over spiraling student debt, the issue has moved higher on the political agenda. But the question of what to do about the looming interest rate increase has landed deep in the chasm separating Democrats from Republicans, who accuse the president of using the issue in a fiscally irresponsible way, in an attempt to buy the youth vote.

The Congressional Budget Office has estimated that a one-year freeze on the interest rate for subsidized Stafford loans would cost $6 billion.



VA’s Disability Claims Backlog Pushes 900,000

The Veterans Affairs Department faces a “staggering” backlog of 897,566 disability claims with more than 65 percent pending for more than 125 days, a problem compounded by an error rate of 16 percent, representatives of veterans’ services organizations told lawmakers on the House Veterans Affairs Committee on Wednesday.

The department has seen a 48 percent increase in claims since 2008. Officials expect the backlog will grow to 1.2 million claims this year and another 50,000 will accrue in 2013 as veterans of the Afghanistan and Iraq wars flood the system, Veterans Affairs Secretary Eric Shinseki told the Senate Veterans Affairs Committee in March. He vowed to process all claims in fewer than 125 days with a 98 percent accuracy standard by 2015.

Jeffrey Hall, assistant national legislative director for Disabled American Veterans, an advocacy group, told House lawmakers on Wednesday that “while the elimination of the backlog will be a welcome milestone, we must remember that eliminating the backlog is not necessarily the same goal as reforming the claims processing system, nor does it guarantee that veterans are better served.”

James Wear, assistant director for veterans benefits policy for the group Veterans of Foreign Wars, testified that the high error rate and the poor quality of VA’s rating decisions, which determine the financial benefits veterans receive, are a serious problem.