My sources at the Federal Reserve and in the financial markets increasingly expect that Washington is going to have to put up hundreds of billions of dollars more to directly recapitalize troubled banks. Such a step would be in addition to the $700 billion authorized by Congress last week and could require new congressional appropriations. It would put even greater pressure on the short-term budget deficit and add to uncertainty over the total cost of cleaning up the financial system mess. It could also require new federal legislation, setting up yet another bruising battle on Capitol Hill.    more »

What’s the solution to the short term credit problems of California? A federal loan, of course. According to a story by Randal Archibold in the New York Times Governor Schwarzenegger sent a letter to Secretary Paulson asking for a $7 billion loan. If it works for AIG, why not states? Though maybe Treasury should demand the Golden Gate Bridge as collateral.    more »

After close to three months of debate, California finally passed its $103.4 billion general fund budget last week. While other outrageous fiscal events trump the state’s fiasco, it is worth noting that no one in California actually thinks the state’s budget problems are solved. Rather, they’ve plastered over a mess that will worsen with economic conditions next year and make it even tougher to balance the budget after that.    more »

Let it be written: If the Senate-passed financial services bailout bill turns out to save us from the next Great Depression, we will owe a deep debt of gratitude to… chicken poop. If not, we can simply say the entire proposition turned out to be little more than, well, you know.    more »

Typically, TPC measures the impact of tax laws and proposals in terms of average tax rates. This gives a good measure of how taxes affect our pocketbooks, but economists also like to examine how taxes affect economic incentives. For that purpose, the effective marginal tax rate is most apt. That is, how much tax do we pay on an additional dollar of income. This is important because marginal rates affect the incentive to work that extra hour or to engage in tax avoidance.    more »