Details are emerging on the What and How of the imminent economic stimulus recovery package.

The latest -- and perhaps most surprising -- figure to be associated with the legislation is a $300 billion tax cut. Over two years, the total cost of the bill, which may include massive infrastructure spending and state aid, could be $775 billion. The tax cut portion of the bill would be targeted to individuals who pay income taxes and businesses. And the scale of the tax cuts would best Bush's 2001 and 2003 cuts.

Mr. Bush's 10-year, $1.35 trillion tax cut of 2001, considered the largest in history, contained $174 billion of cuts during its first two full years, according to Congress's Joint Committee on Taxation. The second-largest tax cut -- the 10-year, $350 billion package engineered by Mr. Bush in 2003 -- contained $231 billion in 2004 and 2005.

I'd be lying if I said I was totally comfortable with this. Economic stimulus legislation should do two things: 1) Stimulate the economy and 2) provide assistance to the hardest hit. While tax cuts for individuals can accomplish (2), there are more efficient ways of accomplishing (1). The economic results of the tax rebates issued in 2008 were mixed, and tax cuts for businesses are the least efficient means to putting the economy back on track.

And while timing is critical here, so is taking the time to craft a more effective bill. So, I'm glad House Majority Leader Steny Hoyer (D-MD) is showing a modicum of concern as to how much and on what economic recovery funds should be spent:

"It's going to be very difficult to get the package put together that early so that it can have sufficient time to be reviewed, and then sufficient time to be debated and passed," Hoyer, D-Md., said on "Fox News Sunday." "But we certainly want to see this package passed through the House of Representatives no later than the end of this month, get it over to the Senate, and have it to the president before we break for the presidential break." Congress goes on a week hiatus the week of Feb. 16.

While we were glad to see Peter Orszag tapped to head OMB, we were equally sad to see the Congressional Budget Office (CBO) robbed of such an outstanding leader.

But House Speaker Nancy Pelosi's (D-CA) selection Douglas W. Elmendorf to succeed Orszag indicates we shouldn't be too upset. Elmendorf has plenty of experience in government economic analysis (The Fed, Treasury, Council of Economic Advisors, and CBO), and like Orszag, Elmendorf has headed up the Brooking Institution's Hamilton Project.

Elmendorf was a few steps ahead of Treasury Secretary Paulson in favoring capital injections into banks (though, not without reservations). His paper on the distributional effects 2001-2003 Bush tax cuts employed an interesting angle. And while I can't claim that I'm extremely familiar with the rest Elmendorf's work, his publications at Brookings indicate that he will continue to lead the CBO in the same competent and responsible manner as Orszag.

The Budget Brigade is back from the holiday break and ready to hit the ground running in 2009 - and it looks like we're not the only ones. Sens. Kent Conrad (D-ND) and Judd Gregg (R-NH) published an op-ed in the Washington Post this morning that restarts their effort to create a bipartisan entitlement reform commission to study the long-term fiscal imbalances in the federal government. Conrad and Gregg are the leaders of the Senate Budget Committee and introduced legislation in late 2007 that would create such a commission (they call it a task force). According to their op-ed, the proposal would:

Establish a process to confront the long-term fiscal imbalance. It would consist of a bipartisan panel of lawmakers and administration officials tasked with developing a legislative proposal to steer our budget back on course. Everything, including spending and revenue, would be on the table.

The panel's proposal would be given fast-track consideration in Congress. But, importantly, nothing could be put forward by the task force without a strong bipartisan agreement among its members.

Progress on this legislation stalled in 2008 as election-year pressures made major policy changes or initiatives difficult to enact (two other proposals from the 110th Congress that would establish similar commissions also made little progress). But Conrad and Gregg are wasting little time in 2009 - launching an op-ed on the first day Congress returns from the holiday break. And with a new administration interested in thinking big, it may be possible to enact one of these commission proposals this year.

The Budget Brigade would like to wish you all a great holiday season and a super New Year.

We would also like to thank all of our readers for following our work supporting us in 2008. We will be on vacation until January, but will return in 2009 to continue keeping an eye on things.

Image by Flickr user wan · der · lust used under a Creative Commons license.

We're on the verge of the holidays this Monday and the Associated Press reported yesterday that bank executives around the country received an early present this year, courtesy of Joe and Jane Taxpayer:

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

We reported earlier this year about bank and financial institution executives who were receiving outrageous salary, bonus, and retirement packages after running their companies into the ground. John Thain, CEO of Merrill Lynch, who received the largest compensation for 2008 in the AP study, made headlines earlier this month when he lobbied for at least a $10 million bonus (he argued he was brought in after the risky decisions were made and managed to sell the company off to Bank of America. Hmmm...).

It's bad enough that the leaders of these institutions are being rewarded with unimaginable amounts of money for horrible performance, but the fact they are being paid with taxpayer dollars is enough to make anybody say "good grief." Happy Holidays!

Image by Flickr user K!T used under a Creative Commons license.

With the announcement of a TARP-sponsored bailout of GM and Chrysler, Treasury Secretary Henry Paulson said that the remaining $350 billion authorized in the TARP legislation would have to be released by Congress.

In the very short-term, the allocated but not yet disbursed TARP balances, in conjunction with the powers of the Federal Reserve and the FDIC, give me confidence that we have the necessary resources to address a significant financial market event. It is clear, however, that Congress will need to release the remainder of the TARP to support financial market stability. I will discuss that process with the congressional leadership and the President-elect's transition team in the near future.

And asking for the remainder is really just a formality. When Congress wrote the Emergency Economic Stabilization Act -- the law that created the Troubled Asset Relief Program (TARP) -- it put a few bumps in the road for the administration by requiring that the President ask for the $700 billion in a series of installments. But Congress made it virtually impossible to say "no."

The final installment request can only be stopped by a join resolution from Congress, and join resolution can only be enacted into law with the signature of the president. And since it will be the president asking for the money, it would be rather queer that he would deny his own request by approving Congress's denial. Congress, of course can override the veto, but that two-thirds-majority-override hurdle is pretty tall.

Image by Flickr user rcrowley used under a Creative Commons license.

The private tax collection program run by the IRS is in the news again. BNA reported yesterday that Ways and Means Chairman Charles Rangel (D-NY) and Oversight Subcommittee Chairman John Lewis (D-GA) (along with 12 other Ways and Means members) sent a letter to President-elect Obama urging him to end the private tax collection program. The House members quickly lay out the strong rationale for ending the program:

The Committee...[argues] that tax collection is an inherent Government function and that professional IRS agents are more efficient at collecting outstanding tax debt. In 2007, the Committee conducted an investigation into the use of private debt collectors and found that their services often subjected taxpayers to undue harassment and confusion not associated with the use of trained IRS agents.

The letter is well timed as the current contracts to Pioneer Credit Recovery and the CBE Group, the two contractors handling the tax collection for the IRS, are up for renewal on March 8, 2009. Hopefully the IRS will make the right decision and not renew the contracts. They made a similar decision to abandon other wasteful contracts just this past September, so there is hope.

Disturbing story in The Washington Post this morning indicating that the executive compensation provisions in the Troubled Asset Relief Program (TARP) may not apply to any the firms that have received money under the plan.

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

And that's bad as it goes, but if this bit is true, Congress needs to seriously reevaluate its trust in Secretary Paulson.

Lawmakers agreed to the Treasury's request that the measure apply only to executives at companies whose assets were bought by the government through auctions. In the executive-compensation tax section, a new sentence saying that eventually was inserted.

Meanwhile, Paulson repeatedly told lawmakers that he did not plan to use bailout funds to inject capital directly into financial institutions. Privately, however, his staff was developing plans to do just that, Paulson acknowledged in an interview.

We're not totally shocked, of course. In September, we warned Congress that it should take a deep breath and carefully consider the risks. Let's hope this is a learning moment for Congress and that it will be a little more judicious with nation's checkbook.

TARP's Congressional Oversight Panel (COP)-- one of the Troubled Asset Relief Program's (TARP) oversight institutions -- now has a website.

Pop on over to http://cop.senate.gov/ to follow the panel's reports and announcements.

Here's COP's chair Elizabeth Warren explaining the panel's duties.

The Congressional Oversight Panel (appropriately acronym'd "COP") of TARP asked the really big question that the architects of the program has yet to answer: What's the point of TARP?

The COP report was released to a House Financial Services Committee hearing on the program on Dec. 10. The hearing was a four-hour session of slappy face in which Congressmen lined up to express dismay and ask pointed questions of TARP executor Neel Kashkari and other TARP-related authorities like interim Comptroller General Gene L. Dodaro, and COP members Elizabeth Warren and Rep. Jeb Henarsling (R-TX).

• Rep. Melvin Watt (D-NC): "People are asking me, 'Is Goldman Sachs running this country?...What are we doing giving $700 billion and there is this monopoly on who is controlling it. Nobody is accounting to anybody for it. And the perception, whether the reality is correct or not, the perception is that there is something sinister going on here."
• Rep. Virginia Brown-Waite (R-FL): "We have been sold a pig-in-a-poke and a bait-and-switch has occurred"
• Rep. Davis Scott (D-GA): "We've been lied to. We've been bamboozled. What we have here is one big mess."
• said Maxine Waters (D-CA): "You have done nothing...What is your resistance to helping homeowners stay in their homes?"

My personal favorite line of questioning came from Rep. Brad Sherman (D-CA) on the Treasury Department's rules on executive compensation, because it highlights just what a joke the executive compensation provisions in TARP are. See the clip:

Wall Street Journal: "Treasury Criticized on Hill Over TARP"

The Washington Post: "Panel Overseeing Bailout Criticizes Treasury Department"

The New York Times: "Blunt Advice for Treasury on Progress of the Bailout "

Portfolio: "T.A.R.P.: Tearing Apart the Rescue Plan"

Bloomberg: "Congressional Panel Overseeing U.S. Bailout Criticizes Treasury "

Reuters: "Lawmakers rap Treasury on bailout plan"

Associated Press: "Anger, doubt aired in financial bailout hearing"

The Congressional Oversight Panel, a committee created by the Troubled Asset Relief Program (TARP) legislation released its first report today. And because appointments to the panel were made only weeks ago, they had little time to conduct an investigation. So, rather than expose any waste, fraud, or abuse, the panel's 38-page report is an enumeration of questions that it feels Treasury should answer.

To wit:

• What is Treasury's Strategy?
• Is the Strategy Working to Stabilize Markets?
• Is the Strategy Helping to Reduce Foreclosures?
• What Have Financial Institutions Done With the Taxpayers' Money Received So Far?
• Is the Public Receiving a Fair Deal?
• What is Treasury Doing to Help the American Family?
• Is Treasury Imposing Reforms on Financial Institutions that are taking Taxpayer Money?
• How is Treasury Deciding Which Institutions Receive the Money?
• What is the Scope of Treasury's Statutory Authority?
• Is Treasury Looking Ahead?

The report's repeated assertions that the public has a right to know certain information and that the public also needs to understand why Treasury is undertaking the actions that it does is encouraging. We're looking forward to future reports from the panel, which, hopefully, will bring greater transparency to TARP, because this report indicates quite a few areas of opacity in the program.

Image by Flickr user sean dreilinger used under a Creative Commons license.

The budget situation in the states just keeps getting worse. The Center on Budget and Policy Priorities released another update to their analysis of widespread state budget shortfalls. The total is up to 43 states and the District of Columbia (up from 29 states and DC since CBPP last released an update of this report). It looks like things are continuing to get worse despite efforts by state governments to balance the books:

Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year — which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps have opened up in the budgets of at least 37 states plus the District of Columbia after they struggled to close the largest budget shortfalls seen since the recession of 2001. And these problems are expected to continue into next year.

Below is a great map from the CBPP report showing which states are facing budget problems in 2009 or 2010. The full report is definitely worth a read.

CBPP: STATE BUDGET TROUBLES WORSEN

The Budget Brigade occasionally registers its opposition to adding to the national debt on this blog. Not today.

Investors accepted the zero percent rate in the government's auction Tuesday of $30 billion worth of short-term securities that mature in four weeks. Demand was so great even for no return that the government could have sold four times as much.

In addition, for a brief moment, investors were willing to take a small loss for holding another ultra-safe security, the already-issued three-month Treasury bill.

At 0% (for 30 days), the federal government would be daft to not borrow. The "flight to safety," as investor types are say, is making government borrowing cheap cheap cheap. And if inflation is greater than zero for that the duration of the loan, the government would actually make money by repaying the loan back with fewer real dollars than it borrowed!

Image by Flickr user NCinDC used under a Creative Commons license.

WaPo:

Neil M. Barofsky will become a special inspector general within the Treasury Department to audit and investigate spending by the Troubled Asset Relief Program.

The special IG is the sole executive branch officer with the power to oversee the potential conflicts of interest and miscalculations in the program. Armed with a $50 million budget and dual-reporting responsibility to Congress and the president, the special IG has the independence to audit and investigate every transaction and subpoena every record associated with the rapidly changing program.

And yet it took two months from the time the Treasury Department started spending the $700 billion before the special IG's job was filled. [emphasis ed.]

The Bush administration acted immediately to appoint the rest of the bailout team, but it waited six weeks to nominate Barofsky as special inspector general. Then, his confirmation was held up anonymously by one senator. The opposition was finally lifted last week.

On Friday, the Bureau of Labor Statistic reported the largest job loss numbers since 1974 as the economy lost 533,000 jobs and the unemployment rate pushed higher to 6.7 percent. This news, combined with last week's pronouncement that the U.S. economy is officially in a recession shows that we are now in deep trouble.

On Friday, The Center on Budget and Policy Priorities released a statement on the job loss numbers that underscores the bleak economic outlook, focusing on in impact this downturn will have on individuals and families living in poverty and those who are about to fall into such dire economic circumstances:

Today's report also makes it more likely that unemployment will reach 9 percent by the end of 2009, as Goldman Sachs has predicted. The Center on Budget and Policy Priorities estimates this could swell the number of Americans living in poverty by up to 10 million and the number of Americans in deep poverty, with incomes below half the poverty line, by up to 6 million...

This week the National Bureau of Economic Research determined that a recession began in December 2007. In the ensuing 11 months, employers have shed jobs each month and the losses have accelerated sharply in recent months. Overall labor market trends are grim.

CBPP also points out that the current recession is already one-month longer than the post-World War II average. Yet it feels like we are just getting started with this one. Yikes!

CBPP: STATEMENT ON THE NOVEMBER EMPLOYMENT REPORT
NY Times: U.S. Loses 533,000 Jobs in Biggest Drop Since 1974