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| Welcome to Wonkbook, Wonkblog's morning policy news primer byMax Ehrenfreund (@MaxEhrenfreud). Send comments, criticism or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here. Follow us on Twitter and Facebook. |
| Senators will likely ask nominee about Fast and Furious at hearing |
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Yahoo has announced plansto create a separate legal entity to avoid paying taxes on the sale of its $40 billion in shares of Alibaba, the Chinese online retailer. This entity has no name yet, and it will own only two things: shares in Alibaba as well as some other minor aspect of Yahoo's traditional business. As Matt Levineexplains for Bloomberg View, that other aspect hasn't been identified yet, but the details don't matter for purposes of tax law:
What's in Wonkbook: 1) Lynch's confirmation hearing 2) Opinions, including Jonathan Bernstein on Gov. Pence and Medicaid 3) The Fed will make a statement, Greek stocks are sliding, and more
Chart of the day: New data shows the top U.S. income share remains large. "The share of total income (excluding capital gains) going to the top 1 percent remains above one-sixth, at 17.5 percent. By this measure, the concentration of income among the richest Americans remains at levels last seen nearly a century ago. ... After adjusting for inflation, the average income for the richest 1 percent (excluding capital gains) has risen from $871,100 in 2009 to $968,000 over 2012 and 2013. By contrast, for the remaining 99 percent, average incomes fell by a few dollars from $44,000 to $43,900. That is, so far all of the gains of the recovery have gone to the top 1 percent."Justin Wolfers in The New York Times.
Lynch will avoid political stances in her confirmation hearing. She "will cast herself as an apolitical career prosecutor who is a departure from Eric H. Holder Jr. when she faces a new Republican-controlled Judiciary Committee that includes some of the administration’s fiercest critics in Congress. ... In particular, Ms. Lynch is expected to face tough questioning about her opinion of the president’s decision to unilaterally ease the threat of deportation for millions of unauthorized immigrants. Mr. Holder approved the legal justification for that action, enraging some Republicans. Ms. Lynch, the United States attorney in Brooklyn, will say that while she had no role in compiling the justification for the president's action, the legal underpinning was reasonable, according to officials involved in her preparation." Carl Hulse and Matt Apuzzo in The New York Times.
G.O.P. senators will needle her on a few scandals, real and concocted. "President Obama has dismissed Republican outrage over a series of missteps as 'phony' and political. But the GOP is eager to use the hearing to highlight familiar hobbyhorses like the Fast and Furious program, political targeting at the IRS, and the Justice Department’s monitoring of reporters. Senators will hear from witnesses who have been highly critical of how Holder has handled these issues, and Lynch is certain to field questions designed to provoke an angry or damaging response." Justin Sink in The Hill.
Former CBS News reporter Sharyl Attkisson will testify. She "spent years investigating the Fast and Furious gun-walking scandal. Her stories were part of a corpus that convinced the House to hold Holder in contempt of Congress for dodging questions. Just last month, Holder was among the people sued by Attkisson in a case that accuses the federal government of spying on her; she's asking for compensatory damages, punitive damages, and an injunction preventing the feds from conducting 'any surveillance' of her." David Weigel forBloomberg.
JONATHAN BERNSTEIN: A possible G.O.P. presidential contender accepts Obama's Medicaid expansion. "Governor Mike Pence of Indiana has reached an agreement with the federal government to accept expanded Medicaid for the Affordable Care Act... If even a conservative firebrand such as Pence can't hold out, it's increasingly clear that the federal incentives for state governments to sign on are just too strong to resist." Bloomberg View.
JARED BERNSTEIN: Criminal records are keeping the economy from full employment. "Seventy million people have some sort of criminal record — an arrest or conviction — that could show up on an employment background check. ... In later stages, employers should of course be free to ask potential hires about their records and conduct background checks. But ban-the-box provisions move that activity to a later stage of the interview process, after employers have developed impressions of candidates from meeting them and learning about their qualifications and skills." The Washington Post.
BLINDER: Congress is meddling with monetary policy. "The biggest threat to the Fed and the economy may come from proposals that would limit, perhaps severely, the central bank's ability to act as lender of last resort in a financial crisis—something central banks have done for centuries. ... Some of the Fed's congressional critics remain unhappy because such crisis lending might save some financial giants from oblivion, making them 'too big to fail.' True—sort of. First, can anyone imagine the Fed stopping a systemic crisis without saving—temporarily—at least some systemically important companies? And second, other parts of Dodd-Frank require that basket-case financial giants be liquidated, not saved, albeit in an orderly manner—that is, not like Lehman Brothers in 2008." The Wall Street Journal.
The Federal Reserve will make a statement today as the central bank confronts contradictory economic trends at home and abroad. "Complicating the Fed's timetable is the European Central Bank's just-announced plan to pump 1 trillion euros into its ailing economy. That flood of cash should keep the eurozone's rates ultra-low. Many investors may respond by shifting into higher-yielding U.S. Treasurys. That would strengthen the dollar even more and could push U.S. inflation further below the Fed's 2 percent target. Under that scenario, the Fed might find it hard to justify a rate hike, which risks weakening the economy and slowing inflation further."Associated Press.
The new government takes control in Greece, but stocks decline as negotiations with European officials look unpromising. "'The initial selloff was prompted by EU officials' flat-out rebuttal of any significant changes to the bailout terms,' said Ioan Smith, managing director at KCG Europe Ltd. in London." Inyoung Hwang for Bloomberg.
Cubans are moving to the United States, worried that normalization will make it harder for them to get here. "At the Miami airport and ports of entry along the Mexican border, the number of Cubans who arrived seeking refuge jumped to 8,624 during the last three months of 2014, a 65 percent increase from the previous year. Many Cubans have heard warnings for years that their unique immigration privileges — which essentially treat anyone from the island who sets foot on U.S. terra firma as a political refugee — would not last forever."Nick Miroff in The Washington Post.
A contract with local governments in Texas shows how Motorola and other firms get around competitive bidding rules. "Piggybacking on competitively bid contracts in different jurisdictions – even in other states – has become an accepted mechanism for local governments to bypass potentially lengthy and contentious procurement processes. The Houston-Galveston contract also was used by Fort Worth and Washington, D.C., to award Motorola deals worth tens of millions of dollars without taking bids from other vendors."Greg Gordon for McClatchy.
Frustration with inaccuracies in published scientific results is leading pharmaceutical companies to share data. "Big Pharma has massive amounts of money at stake and wants to see more rigorous pre-clinical results from outside laboratories. The academic laboratories act as lead-generators for companies that make drugs and put them into clinical trials. Too often these leads turn out to be dead ends. Some pharmaceutical companies are now even willing to share data with each other, a major change in policy in a competitive business. 'It's really been amazing the last 18 months, the movement of more and more companies getting in line with the philosophy of enhanced data-sharing,' says Jeff Helterbrand, global head of biometrics for Roche in South San Francisco."Joel Achenbach in The Washington Post.
It's not even named in Yahoo's presentation, which just calls it "ATB," for "active trade or business," a tax term of art. The tax-free spin-off rules involve a mystical series of incantations, including that the spin-off must be done for a "business purpose," and that the spun off company must be engaged in an "active trade or business." Just holding publicly traded stock doesn't count. ... The trick is to make Nameless ATB as small and meaningless as possible, while still persuading the Internal Revenue Service that it's meaningful enough to fulfill the ritual of the tax-free spin-off.Levine goes on to suggest that Alibaba might then buy its own, newly formed parent company, creating a magical ouroboros of lucrative financial engineering. You know it's time for reform when a major corporation's profitability depends so heavily on the inventiveness of its tax lawyers.
What's in Wonkbook: 1) Lynch's confirmation hearing 2) Opinions, including Jonathan Bernstein on Gov. Pence and Medicaid 3) The Fed will make a statement, Greek stocks are sliding, and more
Chart of the day: New data shows the top U.S. income share remains large. "The share of total income (excluding capital gains) going to the top 1 percent remains above one-sixth, at 17.5 percent. By this measure, the concentration of income among the richest Americans remains at levels last seen nearly a century ago. ... After adjusting for inflation, the average income for the richest 1 percent (excluding capital gains) has risen from $871,100 in 2009 to $968,000 over 2012 and 2013. By contrast, for the remaining 99 percent, average incomes fell by a few dollars from $44,000 to $43,900. That is, so far all of the gains of the recovery have gone to the top 1 percent."Justin Wolfers in The New York Times.
1. Top story: Confirmation hearing for Loretta Lynch opens Wednesday
Lynch will avoid political stances in her confirmation hearing. She "will cast herself as an apolitical career prosecutor who is a departure from Eric H. Holder Jr. when she faces a new Republican-controlled Judiciary Committee that includes some of the administration’s fiercest critics in Congress. ... In particular, Ms. Lynch is expected to face tough questioning about her opinion of the president’s decision to unilaterally ease the threat of deportation for millions of unauthorized immigrants. Mr. Holder approved the legal justification for that action, enraging some Republicans. Ms. Lynch, the United States attorney in Brooklyn, will say that while she had no role in compiling the justification for the president's action, the legal underpinning was reasonable, according to officials involved in her preparation." Carl Hulse and Matt Apuzzo in The New York Times.
G.O.P. senators will needle her on a few scandals, real and concocted. "President Obama has dismissed Republican outrage over a series of missteps as 'phony' and political. But the GOP is eager to use the hearing to highlight familiar hobbyhorses like the Fast and Furious program, political targeting at the IRS, and the Justice Department’s monitoring of reporters. Senators will hear from witnesses who have been highly critical of how Holder has handled these issues, and Lynch is certain to field questions designed to provoke an angry or damaging response." Justin Sink in The Hill.
Former CBS News reporter Sharyl Attkisson will testify. She "spent years investigating the Fast and Furious gun-walking scandal. Her stories were part of a corpus that convinced the House to hold Holder in contempt of Congress for dodging questions. Just last month, Holder was among the people sued by Attkisson in a case that accuses the federal government of spying on her; she's asking for compensatory damages, punitive damages, and an injunction preventing the feds from conducting 'any surveillance' of her." David Weigel forBloomberg.
2. Top opinions
JONATHAN BERNSTEIN: A possible G.O.P. presidential contender accepts Obama's Medicaid expansion. "Governor Mike Pence of Indiana has reached an agreement with the federal government to accept expanded Medicaid for the Affordable Care Act... If even a conservative firebrand such as Pence can't hold out, it's increasingly clear that the federal incentives for state governments to sign on are just too strong to resist." Bloomberg View.
JARED BERNSTEIN: Criminal records are keeping the economy from full employment. "Seventy million people have some sort of criminal record — an arrest or conviction — that could show up on an employment background check. ... In later stages, employers should of course be free to ask potential hires about their records and conduct background checks. But ban-the-box provisions move that activity to a later stage of the interview process, after employers have developed impressions of candidates from meeting them and learning about their qualifications and skills." The Washington Post.
BLINDER: Congress is meddling with monetary policy. "The biggest threat to the Fed and the economy may come from proposals that would limit, perhaps severely, the central bank's ability to act as lender of last resort in a financial crisis—something central banks have done for centuries. ... Some of the Fed's congressional critics remain unhappy because such crisis lending might save some financial giants from oblivion, making them 'too big to fail.' True—sort of. First, can anyone imagine the Fed stopping a systemic crisis without saving—temporarily—at least some systemically important companies? And second, other parts of Dodd-Frank require that basket-case financial giants be liquidated, not saved, albeit in an orderly manner—that is, not like Lehman Brothers in 2008." The Wall Street Journal.
3. In case you missed it
The Federal Reserve will make a statement today as the central bank confronts contradictory economic trends at home and abroad. "Complicating the Fed's timetable is the European Central Bank's just-announced plan to pump 1 trillion euros into its ailing economy. That flood of cash should keep the eurozone's rates ultra-low. Many investors may respond by shifting into higher-yielding U.S. Treasurys. That would strengthen the dollar even more and could push U.S. inflation further below the Fed's 2 percent target. Under that scenario, the Fed might find it hard to justify a rate hike, which risks weakening the economy and slowing inflation further."Associated Press.
The new government takes control in Greece, but stocks decline as negotiations with European officials look unpromising. "'The initial selloff was prompted by EU officials' flat-out rebuttal of any significant changes to the bailout terms,' said Ioan Smith, managing director at KCG Europe Ltd. in London." Inyoung Hwang for Bloomberg.
Cubans are moving to the United States, worried that normalization will make it harder for them to get here. "At the Miami airport and ports of entry along the Mexican border, the number of Cubans who arrived seeking refuge jumped to 8,624 during the last three months of 2014, a 65 percent increase from the previous year. Many Cubans have heard warnings for years that their unique immigration privileges — which essentially treat anyone from the island who sets foot on U.S. terra firma as a political refugee — would not last forever."Nick Miroff in The Washington Post.
A contract with local governments in Texas shows how Motorola and other firms get around competitive bidding rules. "Piggybacking on competitively bid contracts in different jurisdictions – even in other states – has become an accepted mechanism for local governments to bypass potentially lengthy and contentious procurement processes. The Houston-Galveston contract also was used by Fort Worth and Washington, D.C., to award Motorola deals worth tens of millions of dollars without taking bids from other vendors."Greg Gordon for McClatchy.
Frustration with inaccuracies in published scientific results is leading pharmaceutical companies to share data. "Big Pharma has massive amounts of money at stake and wants to see more rigorous pre-clinical results from outside laboratories. The academic laboratories act as lead-generators for companies that make drugs and put them into clinical trials. Too often these leads turn out to be dead ends. Some pharmaceutical companies are now even willing to share data with each other, a major change in policy in a competitive business. 'It's really been amazing the last 18 months, the movement of more and more companies getting in line with the philosophy of enhanced data-sharing,' says Jeff Helterbrand, global head of biometrics for Roche in South San Francisco."Joel Achenbach in The Washington Post.
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