Back when he was first announced as co-chairman of the Obama administration’s debt commission, former Republican Senator Alan Simpson (WY) bucked today’s conservative orthodoxy by saying that the commission needed to consider tax increases as well as spending cuts to get long-term deficits under control. “To say that all we have to do is take care of waste, fraud and abuse, and foreign aid is a like a sparrow’s belch in the midst of typhoon,” he said. “That is nothing, less than 1 percent of the budget.”

Simpson has garnered criticism from the right for his stance. “He’s old and grumpy, and he doesn’t like the Reagan Republican Party,” said anti-tax crusader Grover Norquist said. Simpson was not cowed, however, and today went back on the offensive, slapping down the conservative ethos around Ronald Reagan and his supposed resistance to any and all tax increases.

At a public hearing of the commission, Simpson said that one of the “myths, and the misconceptions, and the distortions and, as one president said, the plain damn lies” promulgated by the right is that Reagan didn’t raise taxes when the situation called for it. As Simpson pointed out, he most certainly did:

Let’s just disengage ourselves from the myth that Ronald Reagan never raised taxes. He did. And here are four big ones. So I hope this will clear the air for some of the groups today. In 1982, the Tax Equity and Fiscal Responsibility Act, that rolled back about a third of his ’81 tax cuts, raised corporate tax rates, and to a lesser extent income tax rates. Raised taxes by almost one percent of GDP, which at that time was the largest percentage in peacetime increase ever. 1982 gas tax increase, 1983 Greenspan commission raised payroll taxes…Then there was the 1984 deficit reduction tax…Then there was the Railroad Retirement Revenue Act, Consolidated Omnibus Budget of ’85…So there were a lot of them. Just thought I’d throw that in.

Watch it:

Reagan, in fact, raised taxes in seven of his eight years in office. “No peacetime president has raised taxes so much on so many people,” Paul Krugman pointed out.

“Reagan was more pragmatic than those who now quote him,” said former Sen. Pete Domenici (R-NM), who also is of the opinion that tax increases must be on the table to deal with the long-term deficit. “Those who claim they’re better Republicans than we are — put their solutions in front of us and let’s see if they’re doable.”

As former Reagan economic official Bruce Bartlett wrote, “every serious budget analyst — I mean every — knows that revenues must be part of the solution to our deficit problem…[T]he idea that we can or even should embark on serious deficit reduction with no tax increase whatsoever is grossly immature and unworthy of consideration.” But that is the idea that the modern conservative movement clings to, as unrealistic as it is.

For the last few weeks, both the Senate and the House have been unable to enact measures aimed at boosting the economy — like providing aid to states, extending unemployment benefits, or getting money to schools so they don’t have to lay off teachers — because Republicans (and quite a few Democrats) have become infected with deficit hysteria and are staunchly against short-term spending.

The GOP argues that the national debt precludes any steps to boost the economy, with Senate Minority Leader Mitch McConnell (R-KY) accusing those who want to continue fiscal stimulus of “fiscal recklessness.” However, today, Doug Elmendorf, Director of the non-partisan Congressional Budget Office, said that there’s simply no contradiction between advocating short-term stimulus spending and evincing a concern for addressing long-term deficits:

“There is no intrinsic contradiction between providing additional fiscal stimulus today, when unemployment is high and many factories and offices are underused, and imposing fiscal restraint several years from now when output and employment will probably be closer to their potential,” said Congressional Budget Office Director Douglas Elmendorf…He cautioned that he wasn’t advising Congress on what approach to take, but said it was “important to understand the difference between the effects of government borrowing for a limited period when the economy is weak and [borrowing] for indefinite periods when the economy has recovered.”

In fact, it’s very possible that a hesitancy to spend now is going to make it harder to pay back the debt in the future, as tax revenues stay depressed and social safety net spending stays elevated. “What worries me the most is this idea that austerity is going to be helpful,” said Michael Reich, an economics professor at UC Berkeley. “When you make an economy shrink, it makes it harder to pay back debt in the future.”

As CAP’s Michael Ettlinger said today in testimony before the Obama administration’s debt commission, focusing on spending cuts now, like those McConnell and his colleagues in the Senate advocate “would seriously cramp our economic recovery and would, in fact, make longer term deficit reduction less likely”:

It has become a cliché to say “we can’t grow ourselves out of our deficit problem.” It’s true, of course, but it’s also true that we’re not going to “spending-cut our way out of the deficit problem” or “tax ourselves out of our deficit problem”…The consequences of moving towards a balanced budget without an assist from economic growth would be devastating for the country—a grim scenario that we may see in Greece.

But instead, we have a Congress that is unwilling to take steps to boost growth, and it content scoring political points by fearmongering about the deficit.

Yesterday, after weeks of ducking interviews with the mainstream press, Senate candidate Sharron Angle — who is running on the Republican ticket in Nevada — appeared on Face to Face with Nevada journalist Jon Ralston to clarify some of her positions, including her view that unemployment benefits should be cut because “spoiled” workers are living off of them instead of getting a job.

Ralston asked Angle what she meant by that statement, and Angle replied that there are plenty of jobs out there for the unemployed, but extended benefits are discouraging workers from reentering the workforce because they pay more than entry-level work does:

They keep extending these unemployment benefits to the point where people are afraid to go out and get a job because the job doesn’t pay as much as the unemployment benefit does…What has happened is the system of entitlement has caused us to have a spoilage with our ability to go out and get a job…There are some jobs out there that are available. Because they have to enter at a lower grade and they cannot keep their unemployment, they have to make a choice now.

Watch it:

Ralston then asked, “if people lose their jobs through no fault of their own, as many have during this recession, Sharron Angle’s solution is to cut their unemployment benefits so low so they’re somehow gonna go out and find jobs that don’t exist?” “There are jobs that do exist. That’s what we’re saying, is that there are jobs,” Angle replied. “But those are entry-level jobs.”

Angle’s clarification doesn’t make her position look any better, and her assertion that there a multitude of jobs available for the unemployed is simply rubbish. First, the average unemployment benefit is just $290 per week. There are nearly five workers actively searching for work for every job available, compared to 1.5 per job opening before the recession began. “That is incredibly unusual, so therefore it’s premature to give up on those emergency benefits,” said Mark Zandi, chief economist of Moody’s Economy.com.

In all, there are currently 15 million Americans unemployed, and almost half of them have been out of work for at least six months, which is a post-World War II record. As Heather Boushey, Luke Reidenbach, and Christine Riordan pointed out, “since the 1950s, federal unemployment insurance extensions remained in place during recessionary periods until unemployment dropped to as low as 5.0 percent. The highest unemployment rate at which these extensions were allowed to expire was 7.2 percent.” But Angle is sure that these benefits actively keep people from working, and if we only slashed them, employment would flourish.

During the 20 hour negotiating session that produced what is now the first version of the Dodd-Frank financial regulatory reform bill, conferees added an exception to the Volcker rule — which bans banks from trading for their own benefit with federally insured money — sought by Sen. Scott Brown (R-MA). The exemption allows banks to invest 3 percent of their tier one capital in risky hedge funds and private equity firms and to continue managing those firms.

The namesake of the Volcker rule — former Federal Reserve Chairman and current Obama administration adviser Paul Volcker — had warned against watering it down in precisely this way. “Allowing a bank to invest in a speculative fund goes against the very intent of the bill as we seek to define those activities that are worthy of government protection,” he said. So it shouldn’t come as much of a surprise that he’s disappointed with the final product:

Volcker, the 82-year-old former Federal Reserve chairman, didn’t expect the proposal to be diluted so much, said a person with knowledge of his views. He’s content with language that bans banks from trading with their own capital, the person said.

Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR), who proposed the toughest version of the Volcker rule during the regulatory reform debate, “were also dissatisfied with the result, for the same reasons as Volcker.”

The final bill that came out of conference undeniably has some warts that are unfortunate. In addition to the watered down Volcker rule, it has an unjustifiable exemption for auto dealers from new consumer protection laws and a weakened version of Sen. Blanche Lincoln’s (D-AR) derivatives spin-off. That said, it still make huge strides toward building a financial system that doesn’t have its incentives entirely backwards and that puts consumer protection on a more even-footing with bank profits.

But Volcker’s disappointment shows that passing a single piece of legislation isn’t the end of creating a financial system that’s stable and fair. This point was underscored this week by a New York Times report that the financial services industry is turning its attention from lobbying lawmakers to lobbying regulators who will be tasked with designing and implementing the new rules of the financial road:

Well before Congress reached agreement on the details of its financial overhaul legislation, industry lobbyists and consumer advocates started preparing for the next battle: influencing the creation of several hundred new rules and regulations…[The bill] is notably short on specifics, giving regulators significant power to determine its impact — and giving partisans on both sides a second chance to influence the outcome.

The implementation of some provisions in the bill will quite literally take years, so the banks will have ample opportunity to bend them to their advantage. It’s worth paying attention to.

Earlier this month, Senate Democrats tried and failed on three separate occasions to pass a tax extenders bill that included an extension of unemployment benefits that have currently expired. The problem, though, wasn’t that the bill lacked majority support, but that it was filibustered by Republicans who, along with Sen. Ben Nelson (D-NE), refused to allow it to proceed to a final vote by defeating cloture motions.

Senate Democrats whittled the bill down to appease Republican concerns and subjected more and more of the bill to spending offsets, ultimately leaving just the jobless benefits extension unpaid for. But still, the Republicans refused to relent. However, one glimmer of potential hope remains for those counting on the Senate to take the belated but responsible step of extending benefits, as Sen. Olympia Snowe (R-ME) is advocating for a benefits-only bill, even saying that she’s okay with it adding to the deficit:

The hundreds of thousands of unemployed Americans who are losing jobless benefits every week deserve our immediate attention, so I am writing today to urge you to bring a free-standing extension of unemployment insurance benefits to the Senate floor for a vote early next week. As of today, more than 1.2 million people out of work for longer than six months are ineligible for the next tier of extended benefits, which were originally provided by the economic stimulus bill to fight the recession.

It’s a pretty ugly spectacle to see Snowe call for paying “immediate attention” to a measure that she voted to filibuster not once, but three times. But, considering that 1.2 million people will have lost their benefits by the end of this week if something is not done and that 46 percent of the unemployed have been out of work for six months or more, I suppose this is worth considering.

Of course, passing a stand-alone bill neglects all the other important provisions that were in the extenders bill, including COBRA subsidies to help laid-off workers purchase health insurance and aid to states to help them with their Medicaid bills. Failing to pass such measures is only going to add to the economic misery that Snowe at least seems aware is occurring.

Today, the House attempted to rush a bill consisting of nothing but a benefits extension through under a suspension of the rules, which means that a two-thirds majority of members was needed for it to pass. However, the House fell short on a 261-155 vote, meaning that the bill — which costs $33 billion — will have to be brought back under normal order if House Democrats wish to ultimately approve it.

In the last two days, three of the four Republican senators who voted for their chamber’s version of financial regulatory reform legislation — Sens. Olympia Snowe (R-ME), Susan Collins (R-ME), and Scott Brown (R-MA) — have expressed reservations about the final bill crafted by the House-Senate conference committee. They’ve keyed upon a $19 billion fee that would be levied upon the biggest financial firms, to cover the cost of the legislation’s implementation, as a reason for their new-found doubts.

Brown today even officially said that, should the fee remain in the bill, he would vote against it. “I am asking that the conference committee find a way to offset the cost of the bill by cutting unnecessary federal spending,” he said.

This has led Congressional Democrats to reopen the conference committee and find some other way to raise the revenue necessary to implement the bill:

Administration officials said Democrats seemed to be coalescing around a push to drop the bank tax and to replace it with a provision to end the Troubled Asset Relief Program months short of its scheduled Oct. 3 expiration. Doing so would leave some money available that would help offset the cost of the financial regulatory bill. Lawmakers were also said to be negotiating yet another increase in the fee that banks pay to the Federal Deposit Insurance Corporation, though details had yet to be worked out.

Before getting into the politics of this mess, it’s worth remembering what the spat is about. As Kevin Drum noted, the bank fee is “not there to punish banks or to create a slush fund for new spending. It’s there solely to make the bill deficit neutral.” What the Senate Republicans are saying is that they’d rather raid the budget elsewhere than raise taxes on the very biggest financial firms, which benefited tremendously from federal intervention during the financial crisis. Remember, this fee amounts to 0.01 percent of GDP over the next decade.

The ability to get the financial reform bill through the congress has obviously been complicated by the GOP’s intransigence and the passing of Sen. Robert Byrd (D-WV). Sen. Russ Feingold’s (D-WI) announced opposition doesn’t help matters. I’m sympathetic to the view that Democrats should remove the concessions Brown won in the final language and insert language that would bring Sen. Maria Cantwell (D-WA), who voted against the bill in the Senate, around to supporting it, instead of removing the bank fee. But that still doesn’t get you from 57 to 60 votes.

What I can’t understand, however, is why no attempt to pass the bill as is will seemingly be made. As David Dayen put it, Democrats “could dare Republicans to filibuster a Wall Street reform bill over and over, putting them squarely in opposition to public opinion.” Back in April, just the threat of the Democrats pulling out the cots and camping in the Senate all night to pass an unemployment benefits extension was enough to get the GOP to drop its opposition. Doesn’t this call for a repeat performance?

When the Senate Banking Committee’s financial regulatory reform bill finally came up for a vote on the Senate floor, after the inevitable Republican filibuster was dispensed with, four Republicans cast their vote in support of the legislation — Sens. Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA) and Chuck Grassley (R-IA).

Today, Brown said that he will vote against the final bill produced by the House-Senate conference committee (despite the inclusion of an special deal that he personally sought) because it imposes a $19 billion fee on the biggest financial firms to cover the cost of the law’s implementation. And now Snowe and Collins are singing a similar tune:

COLLINS: I’m not happy with the $19 billion new fee or tax that would be imposed. It was not part of either the House or Senate bill. It was added in the wee hours of the morning.

SNOWE: Well, obviously I’m concerned, anytime you’re placing taxes in the legislation that was not in the Senate bill. I’m going to have a discussion with Sen. Dodd on some of these issues.

It’s not only in the Senate that this tiny levy has become the object of scorn. “The imposition of a job-killing tax on large financial institutions to create a $19 billion slush fund to finance future bailouts is nothing short of bleeding this economy in the midst of the worse recession in 25 years,” said Rep. Mike Pence (R-IN).

As Dean Baker, co-director of the Center for Economic and Policy Research, pointed out, “the fee is approximately equal to 0.01 percent of projected GDP over the next decade.” To derail legislation aimed at correcting the deficiencies that led to an economic meltdown because of a fee that will hardly be a blip on the radar of the biggest banks seems foolhardy, especially considering that Maine’s banking system is largely composed of smaller institutions that won’t be affected by the fee.

Rep. Barney Frank (D-MA), who chaired the financial reform conference committee, challenged the Republican hold-outs to find some other way to pay for the bill, if they don’t want to use a bank fee. “Do they want to add to the deficit?” he asked. “Is there another way? What’s their other way?”

As the Economist’s Ryan Avent put it, opposition to the fee also has implications for the debate over addressing the deficit. “The most moderate Republicans in the Senate are balking at the charge. Not because they disagree in any real sense with the economics of the fee. They simply won’t vote for anything that looks like a tax. This is why it’s so difficult to imagine a solution to America’s long-run budget crisis,” he wrote.

One of the key planks of Senate candidate Marco Rubio’s (R-FL) campaign is scaremongering about the nation’s deficit and debt. “The United States government spends more money than it takes in,” Rubio said. “It’s as simple as that. You can’t do that for long without getting into trouble.” Rubio has repeatedly called on President Obama to “stop spending money we don’t have.”

However, Rubio’s concern with the deficit seems to evaporate when it comes to tax cuts. Democrats in Congress want to allow the 2001 and 2003 Bush tax cuts for the wealthiest Americans to expire on schedule at the end of the year, but yesterday on Fox News, Rubio wholeheartedly endorsed making the cuts permanent and “doing it now”:

RUBIO: I would argue in favor of making permanent the 2001 and 2003 tax cuts. And I would argue doing it now, before they recess, so that people have some level of certainty. [...]

VARNEY: You’re arguing economics. I put it to you that, if you suggested that we not increase taxes on the rich on January the 1st, you would be demagogued to death. You would be accused of giving money to the rich at a time of a nasty recession.

RUBIO: Well, the bottom line is that we need folks to create jobs in America. And jobs in America are created by people that have money or access to money.

Watch it:

This proves that Rubio is actually not at all serious about addressing deficits, as the Bush tax cuts are one of the main drivers behind the country’s long-term deficits. As the Center on Budget and Policy Priorities found, the Bush tax cuts will cause $3.4 trillion in deficits over between 2009 and 2019. The debt-service costs caused by the Bush tax cuts amount to “$1.7 trillion over the 2009-2019 period” and more than $330 billion in 2019 alone.

Not only that, but Rubio is incorrect that cutting taxes for the wealthy inevitably spurs job creation. The Bush tax cuts actually led to “the weakest jobs and income growth in the post-war period,” with monthly job growth the worst of any business cycle since 1945. Rubio’s call to extend the cuts for the wealthy also comes at a time when income inequality is the worst it has been since 1928. In fact, according to the latest data, “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.”

Of course, Rubio is hardly alone in believing that spending adds to the deficit but reductions in revenue somehow do not. “Allowing Americans to keep more of their money through tax rate reductions is an entirely separate issue,” said Ryan Patmintra, a spokesman for Sen. Jon Kyl (R-AZ) when asked about the deficit effect of extending all the Bush tax cuts.

Last year, Sens. Carl Levin (D-MI), Claire McCaskill (D-MO) and Chuck Grassley (R-IA) proposed legislation requiring states to collect information on those individuals forming corporations within their borders, in an effort to crack down tax avoidance and money laundering through fake companies. Currently, someone creating a corporation is required to give “less information to the State of incorporation than is needed to obtain a bank account or driver’s license and typically does not name a single beneficial owner.”

The Levin-McCaskill-Grassley bill was supposed to be marked up last week, but was derailed by Sen. Tom Carper (D-DE), who, according to Citizens for Tax Justice (CTJ), proposed changing the legislation to “allow the beneficial owner on record to be a shell company, rather than requiring it to be an actual human being.” This, for obvious reasons, would ruin the whole thing, if the point of the legislation is to prevent phantom companies from engaging in illegal activity. As CTJ explained:

Shell companies — as they are called because they don’t do any real business — are used for all kinds of illegal purposes, including laundering money from illegal activities and financing terrorists. They are also used extensively for tax evasion…Sen. Carper is obviously concerned about his state’s ability to maintain its status as the incorporation capital. But that can hardly take priority over addressing criminal activities and threats to national security. Let’s hope his colleagues on HSGAC are less myopic than he is.

The Tax Justice Network has actually named Delaware the world’s number one tax haven, ranking it ahead of familiar locales for hiding income like Switzerland and the Cayman Islands. As Levin has pointed out, the federal government uncovered “an individual who set up over 2,000 Delaware shell companies, opened bank accounts for those companies, and then moved $1.4 billion dollars through those bank accounts, all without revealing who was behind these transactions.”

In a different case, Immigration and Customs Enforcement “discovered a web of over 800 companies formed in all 50 states, all controlled by the same Panamanian entities.” The original company had been incorporated in, you guessed it, Delaware, and an investigation into the company’s suspicious wire transfers “hit a dead end when ICE was unable to discover who the beneficial owners of the corporations actually were.”

Obviously, privacy concerns shouldn’t be discounted here, but requiring that a company have one, real, actual person prove their existence before incorporation doesn’t seem like too much to ask. As the Government Accountability Office has found, as long as privacy concerns are balanced, “having more information would make using U.S. shell companies for illicit activities harder and give investigators more information to use in pursuing the actual owners.”

Last week, the Federal Reserve announced the results of an inquiry it made into the structure of pay packages on Wall Street, noting that many are still “deficient” and encouraging too much risk. “While many firms are using or are considering various methods to make incentive compensation more risk sensitive, many are not fully capturing the risks involved and are not applying such methods to enough employees,” the Fed found.

Prior to the financial meltdown, one of the biggest problems with Wall Street pay was the guaranteed bonus, which was given to a particular trader or executive regardless of whether or not his or her work was a benefit or detriment to the company. The New York Times referred to them as “ironclad, multimillion-dollar payouts — guaranteed, no matter how an employee performs.” And according to Bloomberg News, the guaranteed bonus is back:

Firms are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to lure top bankers…The demand for investment bankers and traders has led some firms to offer pay packages as high as $8 million, including guaranteed bonuses, which are paid regardless of an employee’s or the company’s performance, recruiters said. That recalls Wall Street compensation practices before the credit crisis forced banks to cut more than 345,000 jobs worldwide.

“When markets fell to hell in a handbasket, people were lucky to get a job with a base salary, and everything else would depend on their performance,” said Richard Lipstein, a managing director at Boyden Global Executive Search, a recruitment firm. “As we start to see people being recruited from one firm to another, as opposed to being recruited from unemployment, the need to make some kind of guarantee is becoming more necessary.”

It’s not hard to understand why a guaranteed bonus would be problematic if the goal of restructuring pay packages is to make them more sensitive to risk. After all, a guarantee is just that: given regardless of performance. Though other money is likely tied to an individual executive’s performance or lack thereof, a guaranteed bonus gives him or her little reason to not make huge bets, as a substantial sum of money will still be there even if the gambling doesn’t pay off.

When Wall Street handed out its 2009 bonuses, former Citigroup CEO John Reed said that “there is nothing I’ve seen that gives me the slightest feeling that these people have learned anything from the crisis. They just don’t get it. They are off in a different world.” It doesn’t seem that another six months has changed that assessment.

As the conference committee reconciling the House and Senate versions of financial regulatory reform went through its marathon 20 hour negotiating session on Thursday night, an exception to the Volcker rule — which prevents banks from trading for their own benefit with federally insured dollars — was added at the behest of Sen. Scott Brown (R-MA). The exception, which was pushed by large Massachusetts-based financial firms State Street Corp. and Mass Mutual, allows banks to invest up to three percent of their capital in risky hedge funds and private equity firms and to continue managing those funds.

These exemptions could undermine the effectiveness of the rule, as State Street is a great example of a financial firm that specialized in relatively benign financial practices, but then became systemically important by building up a huge amount of credit risk and engaging in risky trading. Ultimately, it needed to be rescued by federal intervention.

Of course, when he was first elected, Brown said that there would be “no more closed-door meetings or back-room deals by an out-of-touch party leadership.” And now, Brown isn’t even certain that he will vote for the reform bill because of a tiny bank tax levied to cover the cost of the law’s implementation:

On Friday, Brown questioned a provision added to the bill late in negotiations that would charge large banks and hedge funds a fee to generate as much as $19 billion to help cover the cost of the bill. “My fear is that these costs would be passed onto consumers in the form of higher bank, ATM and credit card fees and put a strain on lending at the worst possible time for our economy,” he said in a press release. “I’ve said repeatedly that I cannot support any bill that raises taxes.”

First, it’s worth putting this bank levy in perspective. As Dean Baker, co-director of the Center for Economic and Policy Research, pointed out, “the fee is approximately equal to 0.01 percent of projected GDP over the next decade. If it is fully passed on by financial institutions to customers will cost people an average of $6 a year.”

But more importantly, Brown’s deal strikes at the very heart of the Volcker rule. As former Federal Reserve Chairman and Obama administration adviser Paul Volcker said, “allowing a bank to invest in a speculative fund goes against the very intent of the bill as we seek to define those activities that are worthy of government protection.”

The vote count on financial regulatory reform is complicated by the passing of Sen. Robert Byrd (D-WV), who was a supporter of the effort, making Brown’s vote even more important. Brown was one of four Republicans who voted for the original Senate bill, and the other three — Sens. Olympia Snowe (R-ME), Susan Collins (R-ME) and Chuck Grassley (R-IA) — have thus far been noncommittal as to the reconciled bill.

Yesterday, as expected, Republicans and Sen. Ben Nelson (D-NE) filibustered the Senate’s tax extenders bill, which would have extended unemployment benefits and several tax credits, as well as provided fiscal aid to states to help with their Medicaid bills. As a result of the Senate’s inaction, states may be forced to cut 200,000 jobs along with a host of health care and education programs, and 1.2 million people who were expecting unemployment benefits will see them disappear.

This obstructionism comes despite Senate Democrats chopping their original package nearly in half and finding pay-fors for the entire package except for the unemployment insurance. It also occurred despite a subdued economic assessment from the Federal Reserve, which said that “financial conditions have become less supportive of economic growth on balance.” “We have gone more than the extra mile,” said Senate Finance Committee Chairman Max Baucus (D-MT).

Senate Majority Leader Harry Reid (D-NV) said that he is going to pull the extenders bill and move onto a bill meant to boost small business lending. “We’re going to move to the small business jobs bill,” said Reid. “We can’t pass [the extenders bill] until we get some Republicans…It’s up to them.” However, this is the same small business bill that Republicans have already said that they are going to bog down in their intense desire to cut taxes for the heirs of multimillionaires and billionaires:

A small-business bill coming soon to the Senate floor could provide the catalyst for a big issue: the long-awaited debate over the future of the estate tax. Asked Thursday whether he planned to push for an estate tax amendment on that bill, Minority Whip Jon Kyl said: “Count on it.”

It would be incredibly irresponsible for Congress to find spending offsets to cut the estate tax, considering the state of the economy and that the money could be used on job creation measures. But it would be doubly irresponsible to do so without passing the extenders bill, thus leaving the unemployed and those who rely on services in their states simply out to dry.

There are currently 15 millions Americans unemployed, and almost half of them have been out of work for at least six months, which is a post-World War II record. There are nearly five workers actively searching for work for every job available, compared to 1.5 per job opening before the recession began.

At the same time, income inequality is the worst its been since 1928. According to a new report from the Center on Budget and Policy Priorities, “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available).”

To take care of that top one percent while leaving the unemployed with no safety net at all is simply unforgivable, but it’s what Republicans (and Ben Nelson!) are forcing the Congress to do at the moment.

Early this morning, the conference committee reconciling the House and Senate versions of financial regulatory reform approved final language for the legislation after a marathon 20 hour negotiating session. The House conferees approved the reconciled legislation on a 20-11 vote and the Senate approved it 7-5. Both votes were party line. The bill now moves to one more vote in each chamber next week, where it can’t be amended further.

A flurry of changes were made to the legislation last night, including the addition of an exemption to the Volcker rule — a ban on banks trading for their own benefit with federally insured dollars — and a weakening of Sen. Blanche Lincoln’s (D-AR) provision requiring banks to spin-off their derivatives trading desks. However, the final bill seems to have retained Lincoln’s language requiring exchanges and clearinghouses for derivatives, as well as a provision from Sen. Susan Collins (R-ME) that compels banks to hold more capital against losses.

Below is a comparison of the House and Senate versions of the bill, as well as what ultimately ended up in the conference report. This is by no means an exhaustive comparison, but hits the major portions of the bill:

Provision	Senate Bill	House Bill	Reconciled Bill
Derivatives Exchanges and Clearing	Forced almost all derivatives trading onto exchanges and through clearinghouses, with narrow exemptions for non-financial end users.	Forced derivatives trading onto exchanges and through clearinghouses, but with wide exemptions for end-users, including financial companies.	Senate version
Derivatives Spin-Off	Forced banks to spin-off their derivatives trading desks into a separately capitalized entity.	Did not include a spin-off provision.	Forces banks to spin-off some derivatives trading activity (commodities, energy, metals, agriculture, equities and below-investment-grade credit default swaps) but keep trading related to interest rate swaps, foreign exchange swaps, credit, gold and silver, investment-grade credit default swaps and “any transaction used to hedge risk.”
Volcker Rule	Directed regulators to study and then implement a ban on proprietary trading.	Allowed regulators to ban proprietary trading at systemically risky firms.	Implements a stronger ban proposed by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR), but with an exemption sought by Sen. Scott Brown (R-MA) that allows banks to invest up to three percent of their Tier 1 capital in risky hedge funds and private equity firms.
Consumer Protection Agency	Included a Consumer Financial Protection Bureau, housed within the Federal Reserve, with an independent director and rule-writing authority. It could be overruled by a majority vote of the Financial Stability Oversight Council, which is composed of bank regulators.	Included a stand-alone Consumer Financial Protection Agency with an independent director and rule-writing authority.	Senate version
Auto Dealer Exemption	Did not exempt auto dealers from oversight by the new consumer regulator, but the Senate did pass a “motion to instruct” encouraging conferees to approve the House language.	Exempted auto dealers from oversight by the new consumer regulator.	House version
Resolution Fund	Included resolution authority funded by an after-the-fact assessment on large financial institutions. Any extra money needed to unwind a firm can be fronted by the Treasury Departent.	Included resolution authority pre-funded by an assessment on institutions with more than $10 billion assets. The fund could grow no larger than $150 billion.	Senate version

“This is going to be a very strong bill, and stronger than almost everybody predicted that it could be and that I, frankly, thought it would be,” said House Financial Services Chairman Barney Frank (D-MA). The legislation was renamed the Dodd-Frank bill after Frank and Senate Banking Committee Chairman Chris Dodd (D-CT).

Early this morning, at about 5:40 a.m., the conference committee reconciling the House and Senate’s respective versions of financial regulatory reform finished its work, with the House conferees approving the reconciled legislation on a 20-11 vote and the Senate approving it 7-5. Both votes were party line, with Democrats in favor and Republicans opposed. The bill was officially renamed the Dodd-Frank bill, after Senate Banking Committee Chairman Chris Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA).

Before I start complaining about what went on last night, I should take a moment to note that this bill has many strong provisions that will help create a safer, more stable, and fairer financial system that does far more than the current one to protect consumers and rein in Wall Street excess. It creates a new consumer protection regulator, a resolution authority for dismantling failed banks without taxpayer money, and crafts a regulatory regime for derivatives where currently none exists. These are all significant achievements.

However, there were also some unsavory compromises worked out by the conferees overnight that will render the bill less transformative than it could have been. For instance, while a stronger version of the Volcker rule — a ban on banks trading for their own benefit with federally insured dollars — proposed by Sens. Carl Levin (D-MI) and Jeff Merkley (D-OR) was included, conferees added an exemption to the rule sought by Sen. Scott Brown (R-MA) that allows banks to continue to invest money in risky hedge funds and private equity firms.

Not only was Brown’s exemption included, but negotiators decided to allow banks to invest three percent of what’s known as Tier 1 capital, as opposed to three percent of what’s known as tangible common equity (TCE). This is a huge distinction, as banks have far more Tier 1 capital than TCE. As Shahien Nasiripour explained, this small change means that banks can place bets with billions of dollars more than was envisioned by the original Volcker rule proposal:

Using JPMorgan Chase, the nation’s second-largest bank by assets with more than $2.1 trillion, as an example, the bank would be able to invest an additional 40 percent of its cash, or more than $1.1 billion, in the activities that Volcker wanted to prohibit banks from engaging in, according to the firm’s latest annual filing with the Securities and Exchange Commission.

Permitting banks to invest in risky entities strikes at the very heart of the Volcker rule, as former Federal Reserve Chairman Paul Volcker himself has said. “Allowing a bank to invest in a speculative fund goes against the very intent of the bill as we seek to define those activities that are worthy of government protection,” he said.

The bill now moves to one more vote in each chamber of Congress before going to the President for his signature. Conference reports can’t be amended.

Today, the conference committee that is reconciling the House and Senate versions of financial regulatory reform is supposed to deal with one of the most contentious aspects of the legislation: reform of the derivatives market. The Senate’s text, which is being used as the base for negotiations, includes a strong derivatives title authored by Sen. Blanche Lincoln (D-AR) that would force almost all derivatives trades onto public exchanges (like the stock exchange) and through clearinghouses (which ensure that each party in a trade has adequate collateral should the trade go bad).

Lincoln’s bill also includes Section 716, which is a provision requiring banks to place their derivatives trading desks into a separately capitalized entity. It has drawn the scorn of the financial services industry, but would help protect taxpayers by ensuring that risky derivatives trading is divorced from money that is federally insured (like a bank’s deposits).

In the last few days, some House Democrats have expressed hesitation about Section 716, with one, Rep. Mike McMahon (D-NY), saying that “it would be impossible for me to vote for a bill that contains that provision.” Lincoln has, thus far, been standing tall against pressure to back down, and yesterday received some support from one of the few Republicans who voted for financial reform — Sen. Chuck Grassley (R-IA):

“I heard there was some compromise or some backing down on Blanche Lincoln’s part, and I hope she doesn’t back down,” Grassley said. “I voted for it in the Ag Committee, and it’s one of the main reasons I voted for it on the floor of the Senate.”

And while much has been made of the Democrats who are reluctant to support Lincoln, there are also House Democrats who are pushing for Section 716 to remain in the final bill. Reps. Bart Stupak (D-MI), Jackie Speier (D-CA) and Rose DeLauro (D-CT) penned a letter to the financial reform conferees telling them to “preserve the strong Senate language”:

The Senate bill includes important provisions that remove the ongoing Federal subsidy to the derivatives businesses of the five large banks that dominate this market. This language will help ensure that taxpayers are not supporting this risky activity with deposit insurance or other benefits. It will increase transparency and safety by making sure that derivatives market making activities are separately capitalized. As a result, it will also redirect bank capital towards lending and investment in Main Street, rather than empty speculation.

Rep. Barney Frank (D-MA) said earlier this week that “the essence of what Senator Lincoln wanted to do on pushing derivatives out of the banks will happen, and certainly they will be totally insulated from any insured deposits.” It seems this is one of the few ideas recently capable of garnering bipartisan support.

Today, Senate Democrats expect to hold yet another vote on their tax extenders package — which extends unemployment benefits and various tax credits — and by all accounts they will not be able to drum up enough votes to invoke cloture. During this process, the bill has been whittled from $200 billion to $100 billion, and gone from being deficit-funded to almost entirely paid for (with the exception of the unemployment insurance). “I’ve never been involved in anything that’s been revised so often and in so many different ways,” said Sen. Max Baucus (D-MT).

And still, Republicans — along with Sen. Ben Nelson (D-NE) — are going to filibuster it. Minority Leader Mitch McConnell (R-KY) “dismissed” the latest proposal, calling it the “deficit extenders bill.”

This refusal to move legislation that would help the unemployed and boost the economy comes just after the Federal Reserve warned in its latest statement that the economy is still exceedingly weak:

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months.

The extenders package includes aid to state governments to help pay for Medicaid that, if not passed, could result in 200,000 jobs lost alone, as states cut their budgets to make up the difference. Vital health and service programs will also be on the chopping block should Congress not act to help the states.

In addition, on Friday 1.2 million people will have lost their unemployment benefits, resulting in a drop in demand in the economy and untold amounts of misery for families who were expecting their benefits to continue, only to see their safety net pulled out from under them. For every dollar spent on unemployment compensation, $1.60 is added to our economy’s output.

There are currently 15 millions Americans unemployed, and almost half of them have been out of work for at least six months (and maybe much longer), which is a post-World War II record. There are nearly five workers actively searching for work for every job available, compared to 1.5 per job opening before the recession began.

And yet, deficit hysteria and obstruction (after all, a majority of Senators support the extenders bill) are preventing meaningful attempts to address these problems from going through. Which isn’t to let the Fed off the hook entirely either. As David Leonhardt pointed out yesterday, the Fed acknowledges that it could be doing more to boost employment — it just simply isn’t going to do it.

I’ve been long lamenting the lack of perspective from which the debate over the currently expired estate tax has been suffering. Conservatives pushing a tax cut worth tens of billions of dollars to the very richest 0.2 percent of households in the country have been presenting their proposal as a “reasonable compromise,” even though it is the most conservative idea on the table short of full repeal. Progressives, meanwhile, seemed to be resigned to reinstating the estate tax at the 2009 level, which still costs billions compared to the budget baseline.

Well, Sens. Bernie Sanders (I-VT), Tom Harkin (D-IA) and Sheldon Whitehouse (D-RI) have finally rectified the situation, proposing a progressive estate tax:

According to a letter they were circulating, the measure would impose a 10 percent “billionaire’s surtax” on the value of inheritances worth more than $500 million per spouse, or $1 billion per couple. That would be on top of a 55 percent rate on the value of estates above $50 million. Below $50 million but above $10 million, and the rate would be 50 percent; and between $3.5 million and $10 million, estate values would be taxed at 45 percent, same as in 2009 law that has since lapsed. Estate values below $3.5 million would go untaxed, also as in the 2009 law.

“We have an entire party that is dedicated to preventing working people, who have lost their jobs through no fault of their own as a result of this economic meltdown, from getting unemployment insurance,” said Whitehouse yesterday. “But they are completely satisfied with an oil tycoon worth $9 billion having his estate go completely tax-free to his heirs.” “At a time when we have a record-breaking $13 trillion national debt and a growing gap between the very rich and everyone else, people who inherit multi-million and billion dollar estates must not be allowed to avoid paying their fair share in estate taxes,” added Sanders.

Deficit hysteria has gripped Capitol Hill and is preventing any meaningful effort to boost job creation or bolster the social safety, while income inequality continues getting worse, so it makes sense to add some progressivity to the estate tax while still retaining the 2009 exemption. While the new proposal will definitely bump up the effective rate for those paying the tax at the highest end of the income scale (which is currently 14 percent), it’s a good way to raise revenue with exceedingly minimal impact on the wider economy.

As I’ve pointed out before, one of the lower-profile issues included in the financial reform legislation that is currently being reconciled in conference committee is corporate governance reform, which is an attempt to rein in some of the perverse corporate incentives that contributed to the financial meltdown. This is an important thing to do, as just this week the Federal Reserve announced findings that the structure of pay packages on Wall Street still incentivizes too much risk.

One of the key problems in our current corporate governance system is shareholders (who are the owners of a company) can’t get their own candidates onto the ballot for election to a company’s board of directors. Currently, during an board election, a company sends out a “proxy” (ballot) with its preferred slate of candidates and bills the cost to the company, while “dissenting shareholders [must] pay up for mailing and publicity costs, sometimes in the millions of dollars,” to send out their own, separate ballot.

A provision that would have guaranteed investors “proxy access” was included in the House version of financial reform. The Senate, however, changed the provision to limit proxy access to investors holding 5 percent of a company’s shares. The Street’s Eric Jackson has a theory as to what happened:

Why did the Senate — unprovoked by the House — decide to insert this change into its own legislation? Sources have told me that both Senators Bayh and Mark Warner insisted on this new language after strong lobbying from the Business Roundtable. Apparently, both men threatened Sen. Dodd that they would vote against the financial reform bill without this new language, which would block cloture on the bill and slow down its passing.

According to the Huffington Post, the White House also lobbied for the higher threshold.

The problem, though, is that most investors don’t come anywhere close to owning 5 percent of a company. “We’re just horrified that the Senate would try to weaken language that was similar in both bills. To set such a high threshold makes the reform totally unworkable,” said Ann Yerger of the Council of Institutional Investors. As Ryan Grim pointed out, “the biggest pension funds are more likely to hit the half-percent threshold in rare cases.”

Former SEC chairman Arthur Levitt penned an op-ed in the Wall Street Journal today calling the Senate’s version of the provision “comically useless.” “The bill, already weakened by deal-making as it emerged from the Senate, has been bled dry of nearly every meaningful protection of investors,” he wrote.

Studies have shown that both total returns and share performance are better for companies with an investor presence on their board, which makes sense, as investors have a vested interest in the entire company’s performance, not just lining the pockets of executives. It doesn’t make sense for the Senate to water down what the House has done.

The Senate is still — yes, still — trying to wrangle together the perfect formula for its version of a tax extenders bill that extends unemployment insurance and several tax credits. The House, when it passed its version of the legislation, jettisoned $24 billion in aid to state’s for Medicaid, but the Senate has been trying to place the funding back, to no avail.

The Medicaid funding has been a sticking point for some of the self-styled “moderates” in the Senate, who seem to think that cutting a bill’s economy-boosting potential is the height of moderation. Sen. Susan Collins (R-ME), for instance, “has twice voted against procedural motions on the tax extenders bill because of their cost.” “That’s been my No. 1 concern,” she said. “I’d like to help [the states], but we can’t afford it,” added Sen. George Voinovich (R-OH).

Senate Minority Whip Jon KyL (R-AZ) said that “he thought at least some cut in the Medicaid aid would be necessary to get the bill to pass.” But as The Atlantic’s Derek Thompson pointed out, the instinct on the part of lawmakers to cut state aid is all wrong on the economics:

The instinct to wean is understandable, but the timing is troublesome. Take New Jersey, where Gov. Chris Christie has proposed to cut $11 billion (that’s 25%!) of the state budget for its fiscal year 2011, which begins in two weeks. The states are looking to the federal government to determine how much money they’ll need to allocate toward Medicaid and education. If [it cuts] our new Medicaid crutch in half, the states’ Medicaid burden grows and in a zero-sum budget, that means something else goes.

Thompson pointed to a Center on Budget and Policy Priorities report stating that “without the extended Medicaid funding, Pennsylvania plans to cut funding for domestic violence prevention in half, eliminate all state funds for addressing substance abuse and homelessness, cut funding for child welfare by one-quarter, and cut payments to private hospitals, nursing homes, and doctors across the state — among other steps.” But Pennsylvania is not the only state that will have to take dramatic steps if Congress doesn’t act.

Arizona would have to cut funding for its state court system, Colorado’s likely cuts “include eliminating state aid for full-day kindergarten for 35,000 children, eliminating preschool aid for 21,000 children, and increasing overcrowding in juvenile detention facilities,” while New Mexico “could eliminate a wide range of Medicaid services, including emergency hospital services, inpatient psychiatric care, personal care assistance for the disabled, prescribed medications, and hospice care.”

Mark Zandi, chief economist of Moody’s Economy.com, estimated that 200,000 jobs could be at stake in this debate over Medicaid funding. “If state governments don’t get additional help from the federal government in the coming fiscal year, then the job losses will be at least that large — in all likelihood, measurably larger than that,” Zandi said.

When she’s not looking to weaken capital requirements for the benefit of her state’s biggest bank, Sen. Blanche Lincoln (D-AR) has been doing good work on financial regulatory reform, as she authored a title on derivatives reform that is stronger than its House counterpart, and would help bring transparency to this currently opaque market.

Lincoln’s title is worthwhile because it forces almost all derivatives trades onto public exchanges (like the stock exchange) and through clearinghouses (which ensure that each party in a trade has collateral should the trade go sour). These steps help both investors and regulators see what is happening, driving down prices and making it easier to police financial shenanigans.

But Lincoln’s bill also includes what’s known as Section 716, which would require banks to place their derivatives trading desks in separately capitalized entities, divorced completely from the banks’ federally insured deposits. House Financial Services Chairman Barney Frank (D-MA), who is also chairing the ongoing financial reform conference committee, had initially expressed opposition to the measure, saying that it “goes too far,” but he is now saying that Lincoln’s goal of getting derivatives away from traditional banking “will happen”:

The essence of what Senator Lincoln wanted to do on pushing derivatives out of the banks will happen, and certainly they will be totally insulated from any insured deposits.

The financial services industry is fighting the spin-off provision tooth and nail, and it’s really no surprise considering that “selling over-the-counter derivatives is among the most lucrative businesses for the largest financial companies.” In fact, U.S. banks held derivatives with a notional value of $212.8 trillion in the fourth quarter of last year. JP Morgan, Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley hold 97 percent of that amount. BusinessWeek estimated that JP Morgan and Citigroup have the most to lose from Lincoln’s provision:

JPMorgan had 98 percent of its $142 billion in current value derivatives holdings inside its bank in the first quarter of this year while Citigroup had 89 percent of $112 billion, the records show…Morgan Stanley and Goldman Sachs Group Inc., each of which entered the commercial banking business in 2008 in the midst of the financial crisis, would be less affected. Morgan Stanley kept just over 1 percent of its $86 billion in derivatives holdings in its bank in the first quarter, and Goldman Sachs Group’s held 32 percent of its $104 billion.

As Kansas City Federal Reserve President Thomas Hoenig and Dallas Federal Reserve President Richard Fisher wrote, that kind of risky trading “should be placed in a separate entity that does not have access to government backstops. These entities should be required to place their own funds at risk.” And it’s looking more and more like such a division could actually become the law of the land.