Bill on outsourced jobs fails Senate test

Top Democrats have claimed the bill would help keep American jobs from going overseas. But when it came to the test vote, four Democrats voted with Republicans to block the bill.

Republicans have called it nothing more than a pre-election political ploy.

The bill came out of nowhere last week and wasn't discussed or debated, as a package, by any of the Senate's committees. It would have given companies a break on payroll taxes for new U.S. jobs that replace positions that had been based overseas.

The measure would have also reined in tax incentives for moving jobs outside the United States.

Democratic sources told CNN they knew all along this measure would not make it very far.

"The bill we tried to pass today is based on simple common sense: to keep American jobs here in America, we should stop forcing taxpayers in Nevada and across the nation to pay for giveaways that reward companies for sending American jobs overseas," said Senate Majority Leader Harry Reid in a statement.

The U.S. Chamber of Commerce opposed the bill saying it would hurt the economy and lead to job cuts. Republicans stuck together to filibuster the bill.

"Now, in the last three days of the session they decided they can pretend to be concerned. This is nothing short of patronizing," said Senate Republican leader Mitch McConnell of Kentucky. "This is about as pure a political exercise as you can get.

As they campaign to retain control of Congress in the Nov. 2 midterm election, Democrats have been hammering Republicans on the issue of tax breaks for companies that send jobs overseas.

Tax holiday: The Creating American Jobs and Ending Offshoring Act would have given U.S. employers a two-year break from payroll taxes on wages paid to new U.S. workers performing services in the United States, according to a summary of the legislation.

To be eligible, businesses would have had to certify that the U.S. employee is replacing an employee who had been performing similar duties overseas.

But experts said the amount of money companies could save as a result of the tax holiday may not be enough to offset the benefit hiring workers in cheaper labor markets.

Closing loopholes: The bill also aimed to discourage companies that ship jobs abroad by eliminating favorable tax rates.

0:00/3:37Business hires, but not enough

Under the legislation, businesses would have been blocked from taking any deduction, loss or credit for costs related to reducing or ending U.S. operations while expanding similar operations outside of the United States.

The bill would have also changed current tax laws that allow companies to defer paying U.S. tax on income earned overseas until the profits are brought back to the United States.

Jennifer Liberto is a senior writer at CNNMoney. Dana Bash is senior congressional correspondent at CNN.

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Tax cuts: Extend them but beware

And making the tax cuts permanent without paying for them would be expensive and could constrain the country's economic growth prospects in the medium- and long-term.

Those are two key points that Douglas Elmendorf, director of the Congressional Budget Office, offered to the Senate Budget Committee on Tuesday.

CBO studied various options that could offer some economic pop over the next two years. Extending the Bush tax cuts ranked last. Topping the list were increased aid to the unemployed, reduced employers' and workers' payroll taxes and the full or partial expensing of investment costs.

Elmendorf wasn't telling lawmakers anything they hadn't heard before. In fact, he was reviewing and drilling a bit deeper on a CBO analysis first published in January.

Nor was he suggesting that extending the tax cuts would have no positive effects. To the contrary, he said, a tax cut extension "would raise output, income and employment during the next two years."

Of all the tax cut scenarios lawmakers are considering, Elmendorf said, a permanent extension for everyone or a permanent extension for everyone except high-income households would be the most effectivein the next two years.

But for all the near-term benefits of keeping the tax cuts, it's a Jekyll-and-Hyde story when it comes to the longer run.

Elmendorf said all the tax cut scenarios would probably reduce national income -- none more so than if the tax cuts were made permanent.

"The problem is that if those tax cuts are not accompanied by other changes in the government budget, and are simply funded through borrowing, that borrowing crowds out other private investment in productive capital ... the computers, the machinery, the buildings, that are the source of long-term economic growth," Elmendorf said.

And that crowding-out will overshadow the positive effects of lower tax rates -- which typically boost households' incentives to work, save and invest.

0:00/4:53Giddis: 'Who cares about deficits?'

A permanent extension of everyone's tax cuts would cost an estimated $3.7 trillion over the next decade. More than 80% of that cost is attributable to extending the cuts for the middle class, which both parties and President Obama have said they want to do.

To boost the economy in the short-term and improve the long-term debt outlook, Congress would have to offset the cost of stimulus with changes to taxes or spending that would narrow the deficit in the future.

It's doable, but not easy, he added.

What about spending?

Elmendorf's testimony came a day before the president's bipartisan fiscal commission holds one of its last meetings. The panel has a Dec. 1 deadline to recommend how to change the country's debt trajectory, which is universally described as unsustainable if no changes to the budget are made.

Both Senate Budget Chairman Kent Conrad, a Democrat from North Dakota, and the committee's top Republican, Sen. Judd Gregg, a New Hampshire Republican, are members of that commission.

During the hearing, Gregg questioned Elmendorf on the government's spending trajectory -- which is projected under Obama's proposals to represent about 24% of the economy by the end of the decade, well above the historical average and well after the economy recovers.

Elmendorf didn't bend to Gregg's characterization that spending is the "problem" driving the debt -- noting that how much the government spends reflects Americans' choices.

But he said that, like tax cuts, unpaid-for spending forces the government to borrow more and that could also have a crowding-out effect on private investment. An increase in tax rates would have a more negative effect on the economy over the long run than a reduction in government spending, Elmendorf added.

Given that a great number of Democrats and Republicans support permanent extension of the tax cuts for the middle class -- at a cost of $3 trillion over 10 years -- Gregg suggested that lawmakers should move past the Bush tax cut debate and focus on "reality."

"We should be focusing on the growth of this government from 20% to 24%, and how do we get that back under control? How do we get that into a manageable number, considering our revenue base?"

Conrad took a more middle-of-the-line stance. "It is very clear we are going to have to cut spending as a share of the economy. It is also clear to me we cannot afford to make permanent all of the tax cuts that are currently in the code ... what we need is tax reform."

The current tax code doesn't reflect the competitive realities facing the United States today, Conrad said. "Just to double-down on this current tax code would be just a huge mistake." 

Home Prices

"While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's. "Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year."

Of course, the positive report was buoyed by the government's tax credit program, which refunded as much as $8,000 for homebuyers. With that program now over, markets could cool.

"We all know what happened to housing after the homebuyers tax credit ended," said Mike Larson, real estate analyst for Weiss Research. "It's been an Acapulco-sized cliff-dive."

QUIZ: Are you an All-American homeowner?

And because this report is a lagging indicator, Larson adds that "it would be foolhardy to think that this report tells us that prices will continue to rise." Instead, he expects prices to slowly deteriorate over the next several months.

In fact, home prices across the country could be substantially lower a year from now, according to Pat Newport, an analyst with IHS Global Insight. "It's now apparent that the demand for housing is a lot weaker than anyone thought," he said.

That has resulted in a glut of inventory, which a slew of bank repossessions of foreclosed properties is only making worse. Plus job gains are still proving elusive.

"These three factors are enough to bring home prices down," Newport said.

Winners and Losers

A market basket of 20 metro areas tracked by the S&P/Case-Shiller home price indexes showed that prices gained in all markets but one. The index is up 4.2% year-over-year, well above a 3.1% forecast from industry experts as compiled by Briefing.com. The month-over-month gain was 1%.

"Las Vegas was the only city to record a fall in prices during June (-0.6%), compared with a month earlier. All 19 other markets were either up or flat, with Chicago, Detroit and Minneapolis the biggest winners. Each gained 2.5%.

Fifteen of the 20 cities recorded 12-month price rises, with San Francisco leading the way. Its 14.3% increase was one of three cities posting double-digit gains, with San Diego prices jumping 11.2% and Minneapolis 10.7%.

0:00/1:40Tips for buying your first home

Las Vegas had the biggest 12-month loss, down 5.2%.  

California eyes $5 billion bank loan

But the final loan amount will not be known until California's legislature resolves a record-long budget impasse, according to Joe DeAnda, a spokesman for Lockyer.

"$5 billion is a possibility, but it could be more or less than that," he told CNNMoney.com. "The numbers will depend on the timing of the budget and the state's cash flow situation at the time of signing."

California has been without a budget since July 1, as state lawmakers grapple with a $19.1 billion shortfall. The impasse has resulted in state workers being furloughed and raised the possibility that the state would have to issue I.O.U.s to creditors.

The bank loans would be in lieu of money the state normally raises by selling short-term "revenue anticipation notes" to investors. But California cannot issue such debt due to disclosure requirements that it cannot fulfill without a budget.

Once the budget is passed, the state would issue notes within weeks to repay the bank loans, according to DeAnda. After a drawn-out budget stalemate in 2009, he said, California borrowed $1.5 billion which was repaid one month later.

Gov. Arnold Schwarzenegger said last week that state officials have reached "a framework of an agreement" on how to close the deficit. 

U.S. poultry producers hit by Chinese tariff

The 35 companies singled out in the announcement will face tariffs of between 50.3% and 53.4%. All U.S. producers not named in the release will face a tariff of 105.4% percent.

Sunday's announcement comes on the heels of a year-long study of poultry imports conducted by the Chinese government that it says found U.S. suppliers were dumping products into the Chinese market to the detriment of domestic producers.

"The ruling is that there is a causal relationship between the U.S. dumping of broiler products and the losses suffered by domestic businesses," the ministry said in a statement.

The tariffs went into effect starting Monday, for a five-year term. In August, China imposed a preliminary tariff of up to 30.3% on imported chicken products from the United States.

So while Sunday's announcement might not have been a total surprise, its something that Assistant U.S. Trade Representative Carol Guthrie says is disappointing.

"We are disappointed that duties are to be imposed, and [we] will be examining the determination for consistency with applicable rules," she said in statement.

China's announcement follows action from the U.S. government in September that placed a 35% tariff on tires imported from China.

The back and forth between U.S. and Chinese policymakers has grown more contentious in recent months, helped in part by the fact that Republican and Democrats in Congress appear to have found a rare patch of common ground on the issue.

On Friday, the powerful House Ways and Means Committee voted in favor of a bill designed to address China's undervaluation of its currency.

China said this year it would allow its currency, the renminbi, to trade in a wider range against the dollar. But the Chinese currency, also known as the yuan, has scarcely appreciated since then, inflaming critics who charge the undervalued renminbi steals U.S. manufacturing jobs.

And as for the wisdom of instituting tariffs during tough economic times, a policy historians often argue made the Great Depression worse, Rep. Sander Levin, D-Michigan, says there is no reason for worry.

"To those who would raise the specter of 'protectionism,' this legislation is indeed the opposite ... this bill is one antidote to remedy the effects of China's protectionist measure," he said. 

Lawmakers curb SEC power to keep secrets

But the House approved a bill Thursday that would overturn the provision after the Senate passed it earlier this week. President Obama will have to sign the bill before it can be enacted.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and one of the authors of the Wall Street Reform and Consumer Protection Act, welcomed the move.

"Our Senate colleagues acted first with legislation to solve the immediate problem, and we decided that the best way to proceed was to concur with the Senate so that the President could sign legislation that solves the immediate problem," Frank said in a statement.

"We have appreciated the opportunity to work with Congress on this legislation and will continue to work with lawmakers to ensure proper balancing of the public's interest in disclosure with effective supervision of the financial markets," SEC Spokesman John Nester said.

The issue of the SEC's ability to deny FOIA requests came to light after Fox Business sued the agency after trying, unsuccessfully, to obtain documents about the investigation of Ponzi schemer Bernard Madoff, who is currently serving a 150-year sentence. While the SEC insists that the new provision was not used to deny FOIA requests from Fox, it brought the issue in the limelight.

SEC Chairwoman Mary Schapiro defended the provision last week in testimony before a House committee.

She said companies would be less willing to share information with the SEC if they thought it could be disclosed to the public at a later date. In addition, she said companies could be put at a competitive disadvantage if certain "trade secrets" were revealed.

But critics say the provision gives the SEC too much power to withhold information from the public, and that repealing it will help promote transparency and expose corruption.

"By repealing this section, we have reaffirmed our commitment to ensure that the SEC will be held to the highest possible standard of accountability and transparency," said Rep. Darrell Issa, R-Calif., in a statement. 

Where have you gone, Wladziu Valentino Liberace?

And that may be why the Liberace Museum, after 30 years in business, will close October 17, it was announced recently. It once drew 450,000 visitors a year, but barely 35,000 in 2010.

Don't worry, the capes aren't disappearing: Elements of the collection will likely be seen again as early as 2011, said Amy Noble Seitz, president of Exhibit Development Group, an Illinois-based company that has been assessing the collection for the past two years and which just signed a contract to start touring the materials.

"We have 12 fine arts, history, musical instrument museums and cultural centers interested," she said. "Everything in this collection is amazing. When you create an exhibit, you're creating a storyline and a context. Liberace was really generous and gentle."

The collection includes rhinestone-encrusted luxury cars, feather and bead capes, exquisitely inlaid antique pianos, dazzling jewelry and knee-high boots, all the former property of "Walter" Liberace, whose campy performances once made him a household name. He died of AIDS in 1987.

In the 1950s, Liberace earned a staggering $55,000 a week for his piano playing, and won a spot in the Guinness Book of World Records as the world's highest-paid keyboard artist. His television and concert appearances were legendary for his showmanship; the collection even includes the scary-looking leather and metal harness used to fly him high over audiences' heads.

Today, few have heard of him and even spending $300,000 a year on public relations firms and events to "re-brand" him was in vain, said Jeffrey P. Koep, chairman of the Liberace Foundation and dean of the college of fine arts at the University of Nevada at Las Vegas. "The bloom was fading," said Koep, a 10-year volunteer member of the eight-person board running the Foundation.

Like many in Las Vegas, the museum, (which is run by the foundation), is saddled with a crippling mortgage. The plaza was fully paid for, but in 2000 the museum took out a $2 million mortgage to renovate the museum's two one-story white brick buildings. The 30-year note carries a crushing 9.5 percent interest rate -- and a penalty for pre-payment that requires paying off all the interest, Koep explained.

The museum was hit with the sorry trifecta of declining revenue from the use of Liberace's intellectual property, (bringing in $25,000 a year, formerly 10 times that amount), declining museum attendance (tickets are $15), and an empty plaza whose many storefronts once brought in rental income.

"Las Vegas is filled with plazas like this one," Koep said.

The collection, a testament to early bling, offers a diamond-encrusted ring in the shape of a grand piano, a gift to Liberace from Barron Hilton (Paris' great-grandfather, the hotelier), an opal ring the size of a baby's fist, dozens of his 400 ostrich and beaded and sequined capes, some weighing 200 pounds, one worth $750,000. The cars include a 1962 Rolls Royce covered in mirror, and a 222-year-old piano, whose twin is in the Metropolitan Museum of Art.

Turning off the A/C (and lights) to save arts scholarships

The foundation's endowment, which is unrestricted and has been dwindling as a result, has given away $6 million to 2,700 arts students nationwide; this year eight institutions received $60,000 -- five years ago $250,000 was more typical, Koep said.

Shutting the museum will save $400,00 to $500,000 a year -- on everything from air-conditioning in a city where summer temperatures routinely top 100 degrees to the salaries of its 30 employees, half of them full-time. In short, the foundation's true mission, to help talented students pursue arts careers, is trumping the costs of keeping its ailing flagship -- the museum -- afloat. At least for now.

The foundation continues to seek a new, more central location, said Koep. "We don't see the museum going away," he said.

In the meantime, three part-timers, who spoke to Fortune.com on the condition of anonymity, said they were hurt and angry at losing their hourly-wage jobs with only six weeks' notice. All retirees in their 60s, they face a difficult job market. One woman said her husband, in his 50s, had searched four years for a job until finally being hired this month -- part-time without benefits -- as a casino usher.

Visitor Cecilia Concepcion, a resident who has been bringing visitors to the museum every year for six years, was saddened to hear of the closing. "I think the museum is fantastic. I'm sorry they're going to close it, No one really understood him. Through the museum, I've learned what a generous man he was. You really need to hear his story." 

Unemployment filings jump back up

The number was higher than economists' forecasts of 450,000 for the week, according to consensus estimates by Briefing.com. It also marked an increase from the upwardly revised 453,000 initial claims filed in the previous week, which was shortened by Labor Day.

Both this week's higher figure, and the upward revision to last week's number disappointed investors, driving stock futures lower in pre-market trading.

"It's a problematic level and really inconsistent with any meaningful job growth," said Mark Vitner, senior economist with Wells Fargo. "It raises the risk that the unemployment rate is going to move back toward 10% toward the end of the year."

Initial claims had declined in the two prior weeks, giving investors some hope for the job market. But overall, the weekly number has made little progress since November, hovering in the mid to upper 400,000s and even ticking slightly above 500,000 in mid-August.

As unemployment figures remain one of the defining measures of the recovery, economists say they're looking for weekly initial claims to trend below the current range before they're entirely optimistic about the economy.

"Companies are still focusing more on cutting costs than they are on growing their business, and that's really what has not changed," Vitner said. "Businesses have been unwilling to take on any risks, and hiring a worker is taking on risk."

The four-week moving average of initial claims, calculated to smooth out volatility, totaled 463,250, down 3,250 from the previous week's revised average of 466,500.

0:00/2:21Economists up odds of a double-dip

Continuing claims: The number of people continuing to file unemployment claims for a second week or more fell to 4,489,000 during the week ended Sept. 11, the most recent data available.

That's down 48,000 from an upwardly revised 4,537,000 the week before. Economists were expecting continuing claims to edge down to 4,450,000.

The four-week moving average for ongoing claims rose by 2,500 to 4,537,000.

Earlier this month, the government's closely watched monthly jobs report showed that the economy cut payrolls by 54,000 jobs in August. The national unemployment rate stood at 9.6%.

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Obama's CEO problem

The business community thinks that is a great idea.

Business executives ranging from Intel (INTC, Fortune 500) CEO Paul Otellini to Citigroup (C, Fortune 500) Chairman Dick Parsons have noted the lack of chief executives at the White House. Allstate (ALL, Fortune 500) CEO Tom Wilson, an Obama supporter, went so far as to call the Obama's dearth of advisers with managerial experience a "hiring mistake for the administration," in an interview with Fortune last week.

"Under any administration, you want a blend of people on your economic team, some with a business background, some with a public policy background, some with an academic background," said Robert Nichols, president of the Financial Services Forum, an association for financial chief executives. "You will have a more rigorous debate if you have people with varied backgrounds at the table."

The White House has been looking for months at chief executives for top economic policy jobs, said Johanna Schneider, executive director of external relations at the Business Roundtable, a lobbying group for executives.

In addition to the pending Summers departure, Council of Economic Advisers Chairwoman Christina Romer, Budget Director Peter Orszag and Assistant Treasury Secretary Herb Allison have left the administration in recent months.

"It's not window dressing," said Schneider, who added that her group has been in touch with the White House about recruiting candidates. "The goal is to bring in somebody with a different set of experiences. They're generally looking for a business executive who can come in and provide a fresh perspective."

It's not like the White House doesn't talk to executives. Over the summer, Obama met with Berkshire Hathaway's (BRK.A) Warren Buffett, Bank of America Corp. (BAC, Fortune 500) CEO Brian Moynihan and Honeywell International (HON, Fortune 500) Chairman David Cote, who is on the president's deficit commission.

Both Otellini and Wilson said they've both participated in off-the-record economic policy discussions with senior White House officials.

However, relations between the White House and the business community have been fraying, in part because the president spent much of his first two years in office bashing insurers during the health care debate and "fat cat bankers" during Wall Street reform.

The lack of managerial experience at the White House also gives some companies pause, and may be contributing to stymied growth in the private sector, said Mark Calabria, director of financial regulation studies at the Cato Institute.

Even Orszag acknowledged that the lack of CEO power at the White House could be impacting business' decisions, making them "nervous," he said in an interview with Charlie Rose last week.

"Regardless of whether they're legitimate complaints, they are affecting -- in a secondary way at least -- they're affecting corporate behavior," said Orszag, who declined to talk to CNNMoney.com. "You don't get us. . . And therefore we're nervous and therefore we're not going to hire or make investments."

Press Secretary Robert Gibbs said Wednesday that chief executives will be in the mix. But he pointed out they have three months to "play the name game," as Summers won't be leaving his post as director of the White House National Economic Council until year's end. He declined to confirm any potential names in the mix.

Executives believed to be in the mix for the Obama economics team include former Xerox Corp. (XRX, Fortune 500) CEO Anne Mulcahy and current Xerox CEO Ursula Burns as well as Citigroup's Parsons and Honeywell's Cote.

But one former White House economic adviser cautioned against the selection of a CEO replacement for Summers chiefly to send a message the business community and the media.

"It's a mistake to make a decision like that based on sending a signal to the outside world, because that signal evaporates within week or so, then you're left with the person in the job," said Keith Hennessey, a former senior White House economic advisor to President George W. Bush.

"You hire the CEO if you think they are going to be good at the job." 

Inflation (CPI)

Consumer prices rose 1.1% over the last 12 months ending in August, the Bureau of Labor Statistics said. While any number above zero means prices are rising, that's a slightly slower pace than in July, when the annual inflation rate was at 1.2%.

Amid confusion over whether inflation or deflation is the bigger threat to the U.S. economy, Friday's sluggish CPI number doesn't do much to assuage fears of falling prices. While prices are still rising, the slow rate is leaning dangerously close to deflation.

"Inflation is already too low. It won't necessarily fall below zero, but if it goes any lower, that's bad," said Dean Baker, co-director and economist with the Center for Economic and Policy Research.

Sluggish inflation poses a unique challenge to the economy. On one hand, prices that rise only very little may seem like a welcome break to struggling consumers.

But on the other hand, those modest price increases don't offer companies enough of a revenue boost to hire workers, at time when high unemployment is the major factor stalling the recovery, said Mark Vitner, a senior economist with Wells Fargo Securities.

He puts the odds of deflation happening -- meaning CPI dips below zero -- at 25%.

"We don't have a whole lot of inflation right now, and the economy seems to be losing momentum. But when you look at the numbers, what we see is low rates of inflation, no actual deflation," he said.

Rising energy and food prices are the biggest drivers keeping the overall index above water, with gasoline rising 4.1% over the last year and food rising 1%. The entire energy index -- which includes fuel, electricity and gas utilities -- rose 3.8%.

Stripping out the volatile food and energy component though, the so-called core CPI remained unchanged, showing prices rose 0.9% over the last year.

That low number means that prices excluding energy and food are also rising, but at a snail's pace -- a trend that mimics the economy at large, which has also grown lately but at a much slower rate than economists' had previously hoped.

For the month of August, overall prices were up 0.3%, in line with the 0.3% increase in July. Economists surveyed by Briefing.com were expecting a 0.2% increase during August.

Meanwhile, the core CPI was flat at zero in August, slightly lower than economists' forecasts for a 0.1% increase. 

Government seizes 3 middle-man credit unions

If those bad assets, now owned by the government, were to be put on the market today, they'd be worth about $50 billion, regulators said.

Consumers won't be impacted. Credit unions, like banks, pay into a special insurance fund that protects deposits should one go bad. In that vein, there also exists a "corporate stabilization fund," for credit unions which allows Treasury to make an emergency loan to protect the industry, and the industry pays back Treasury over a number of years.

Corporate credit unions, provide loans and liquidity to retail credit unions that consumers use.

Careful to say the move isn't a bailout, NCUA chair Debbie Matz, assured that "not one dime of taxpayer dollars will be at risk" in the move.

"It's business as usual. The over all credit union system is sound." Matz said. "This will be invisible to the consumer."

The credit unions to be taken over include: Members United Corporate Federal Credit Union in Warrenville, Ill., with $7.3 billion dollars in assets; Southwest Corporate Federal Credit Union of Plano, Texas, with $7.5 billion in assets; and Constitution Corporate Federal Credit Union, Wallingford, Conn., which had $1 billion in assets.

These seizures, combined with the two even bigger take overs in March 2009 -- Western Corporate Federal Credit Union of San Dimas and U.S. Central Federal Credit Union of Lenexa, Kan. -- means the government now is in charge of 70% of all corporate credit union assets.

NCUA expects the cost of the take overs to hit about $15 billion total, most of which will be covered when the regulators sells the firms' assets. Federally insured credit unions will pick up the rest of the tab, ranging between $7 billion to $9.2 billion, through assessments that will be levied through 2021.

The lobby for federal credit unions called the move "regrettable" but "expected," explaining that credit unions are "unhappy" about having to pay future assesments.

"But this is the reason we got this corporate stabilization fund," said National Association of Federal Credit Unions President Fred Becker. His group lobbied Congress to establish the fund to help ease the pain should credit unions face problems, "so we could stretch this out over time and not have to pay a big bill at once." 

Stimulus: Economists debate its success

The economists - Alan Blinder, co-director of the Center for Economic Policy Studies at Princeton University, Mark Zandi, chief economist of Moody's Analytics, and John Taylor, economics professor at Stanford University - took divergent views.

Taylor expressed his belief that the stimulus plan heralded by President Obama was expensive and ineffective, leaving the country worse off than before.

"Now, rather than leaving the economy in a stronger growth position, the interventions have weakened the economy and left it with the burdens of increased debt and higher government spending as well as concerns about future tax increases," he said in testimony before the committee.

Taylor said that two programs -- Cash For Clunkers that spurred new car buying and the first-time homebuyers program -- provided some spark but "did not increase economic growth on a more permanent basis."

But Blinder and Zandi, who co-authored a report on the subject a couple of months ago, said the massive stimulus may have avoided a repeat of the Great Depression that would have been practically inevitable without intervention.

"I believe that the policy response to the economic crisis was very successful," said Zandi. "Without that response, we would have suffered a 1930s-style Great Depression."

Recession ended in 2009

Zandi added that it's "no coincidence" that the recession ended in the summer of 2009 "when the stimulus was providing its maximum economic benefit via the temporary tax cuts and increases in government spending."

Not all the committee members were on board with this idea that the stimulus was worth the cost. Sen. Kent Conrad, D-N.D., committee chairman, hinted that heavy debt undermines the country's competitiveness when he said, "We have a tax system that was designed when we didn't have to worry about the dominant position of the United States."

0:00/2:32Obama's $300 billion New Deal

Sen. Jeff Sessions, R-Ala., decried the stimulus plan for being "sold as an infrastructure bill" even though "only 3% or so of that money went to that, and it didn't create jobs."

Sen. Debbie Stabenow, D-Mich., said the nation's debt is something that "we have to deal with [in the] long term, but in my opinion, we won't be able to deal with while we have 15 million people out of work."

Much of the discussion centered on America's declining status as a leader in manufacturing. Zandi said manufacturing could be spurred by investment in infrastructure, while Blinder said it could be spurred by an incremental tax on carbon emissions that would motivate businesses to develop new technologies.

But despite that, Blinder didn't present a rosy view of the nation's future for factories.

"There has been for some 50 years now a decline in manufacturing," he said. "I think we have to accept it as a fact of life that [our] share in employment in manufacturing is in decline." 

Will ‘tax the rich’ save the economy?Economic forum offers sobering forecast for U.S.

Tax credit bonanza for small businesses

The health care law called for the expansion of state-run exchanges aimed at helping small businesses find affordable coverage. But not until 2014. To bridge the gap, the law also established a slew of significant tax credits to small firms starting this year.

The Internal Revenue Service has sent out millions of post cards to business owners and tax professionals alerting them to the tax credit. Business owners are still working to get their heads around the details, but it's a bit of bright news for those who'll qualify.

"That would be fantastic," said John Wilson, owner of Artistic Kitchens and Baths, a cabinetry and interior design business in Southern Pines, N.C. Wilson pays 80% of the cost of insurance for six of his twelve full-time employees. The other six employees opt for insurance through other avenues, such as their spouse's plan. "Health care costs are really, really high and that has been a big, big problem," said Wilson.

How it works: Almost 17 million people work for businesses that are in firms that will beeligible for the tax credit between now and 2013, according to analysis from the Commonwealth Fund, a private health care research group.

The credit is phased, and the largest one is offered to the smallest of small businesses. More than 4 million firms will be eligible for the credits, according to a report from Families USA and Small Business Majority.

To get the credit, a business must have fewer than 25 full-time workers or the equivalent (the hours worked by part-timers count), pay an average annual wage of less than $50,000 and cover at least half the cost of health insurance premiums for their workers.

There are a few additional restrictions, including caps on how high qualifying premiums can be. In addition, the credit works on a sliding scale: Businesses with fewer than 10 employees and average wages less than $25,000 can max it out, while larger firms and those with higher payrolls collect a reduced credit.

For 2010 through 2013, the tax credit covers up to 35% of the money a qualifying business spends on its health insurance premiums. In 2014, the top tax credit bumps up to 50%. The credit is available for a maximum of six years: 2010 through 2013 and for any two years after that.

For-profit companies use the credit to offset the federal income taxes they pay for the year. Any unused portion of the credit can be carried forward for up to 20 years to reduce future taxes. Tax-exempt organizations are eligible for a refundable tax credit, although the percentage credit they get is slightly smaller.

Looking ahead: The tax credits are a temporary solution until small companies can shop on insurance exchanges.

States will start implementing the insurance pools in 2014, but it could be two more years until every state has an exchange set up to accommodate businesses with up to 100 employees, according to the Commonwealth Fund.

For businesses with 25 or fewer employees, the tax credits are a big help. But bigger firms will have to wait for the exchanges.

0:00/2:09What small biz wants from the govt.

Marco Lentini is the founder and president of Avanti Food Corp., a holding company for five Philadelphia restaurants. He has between 65 and 70 workers between his four health food cafйs, all called Gia Pronto, and one pizzeria, Taglio.

"I am going to be in business more than the next 6 years so what does it look like after that," said Lentini. "I tend to be more fixated on that." Furthermore, unless he were willing to break down his business into smaller parts, his headcount is too high to qualify for the breaks.

Lentini, like many small business owners, is bit nervous about what it will cost him to buy into the insurance pools. But he is optimistic about the reform.

"How do I take advantage of this change and use it to actually fill a goal of mine which is to be able to provide insurance to all our employees?" Currently, Lentini only offers health insurance to 10 managers.

It will be years before the health reform has been fully rolled out.

"I think the health care is a work in progress really," said Wilson, the owner of Artistic Kitchens and Baths in North Carolina. "It is going to take time to create a really powerful health care system that works." 

Plan to close oil industry loopholes draws fireNew health law keeps TN insurance commissioner engaged

Senate Democrats want middle-class tax cut vote

If the vote happens, it will likely be a test vote on extending tax cuts - now slated to expire at the end of the year - for families earning less than $250,000 and individuals earning less than $200,000.

At this point, the chances of such a measure passing look slim.

Republicans have stood firm on supporting extensions of the 2001 and 2003 tax breaks for all taxpayers. Democrats need one Republican to support their more limited tax break extension and to avoid a filibuster blocking the issue.

President Obama has argued that the nation can't afford the extra $700 billion tab to extend tax breaks for those in the top income bracket. But moderate Republicans, even though they're also worried about deficits, maintain that tax breaks should be extended at least temporarily for all.

"Changing tax policy in the middle of the recession is just not a good thing to do," said Sen. Bob Corker, R-Tenn., who said he would support a two-year extension of tax breaks for all taxpayers. "In the interim, let's figure out a way to get our spending in line."

If Senate Democrats find a way to make the vote happen for middle-class tax breaks, it'll happen soon. The Democrats are contemplating an early return to the campaign trail, at the end of next week, Durbin said.

Senate Democrats and President Obama would like a vote on middle class tax breaks before lawmakers return to the campaign trail to reinforce Democratic support for pocketbook issues.

0:00/11:35Hubbard: Ending tax cuts won't help

Moderate Republicans, Democrats Ben Nelson, of Nebraska and Kent Conrad of North Dakota, and independent Joseph Lieberman of Connecticut have indicated support for temporarily extending all tax cuts, even for the wealthiest, to help juice up the sputtering economic recovery.

-- CNN's Dana Bash contributed to this report.  

More Dems back tax breaks for the richTax law fix tied up in Congress

8 ways to make air travel less grueling

I put your question to Jeanniey Mullen, executive vice president and chief marketing officer at Zinio.com, a service that delivers books and magazine subscriptions online. Mullen is based in New York City but has traveled about 40 weeks of the year for the past decade, first as an ad executive and now in her current job. Here are a few of her tried-and-true tips:

1. Pick flights with WiFi. Some airlines now offer WiFi, or wireless Internet access, on all flights, but others don't, so check before you head to the airport. WiFi-equipped flights are generally marked as such on airlines' web sites, or you can specify that you need this when speaking with your company's travel service.

Mullen says that WiFi is essential so you're accessible in transit. "You can not only respond to email, you can host a whole video conference if you want to." Instead of having to rush to the airport at the crack of dawn or take a red-eye to make sure you're reachable during business hours, "you can travel at more reasonable times," Mullen says. "It's much less tiring, and makes you a lot more productive."

2. Never fly on a Sunday or early on Monday morning. "Sunday is family travel day, so there are lots of hold-ups at security from people who don't fly often," says Mullen. "And Monday morning, especially around 6:45, is for hard-core road warriors only. Unless you're one of them, you won't get the best seat assignments, or the flights will be so overbooked that you won't get on at all." Try to fly a little later on Mondays if you can.

3. Get advance notice of delays. Even if your flights are booked through a corporate travel office, you can sign up on airline websites for delay notifications. "They'll call you or text you if your flight is delayed," says Mullen. "The drawback is, these days, you have to get to the airport so far in advance to get through security that, by the time they notify you, you may already be at the gate." In this regard, road warriors who travel often to the same city or cities have an edge, she adds: "If you ask, airline staffers can often tell you which flights are usually late so you can plan accordingly."

Talkback: Do you travel much on business? Leave your comments at the bottom of this story.

4. Never check a bag. Mullen's record so far for the most days' clothing packed in one carry-on suitcase: 16. "You never know when you may have to get on a different plane than the one you expected to take, and you do want your luggage to arrive when you do," she notes. "Besides, checking and then claiming a bag costs you an extra hour, which you can't spare."

5. Bring extra batteries for your mobile devices. "You need back-up power if you get caught by a long delay somewhere," Mullen says -- partly for work, and partly for entertainment: "Some airlines now charge you an extra fee to watch TV in-flight, so the most frequent travelers bring Kindles and iPads to download reading material without adding extra weight."

0:00/1:22Pete Carroll's travel game plan

6. Don't eat airline food. "Unless you're in first class or at least business class, anything the airline serves you is either overpriced or just bad, or both," says Mullen. "Try to eat before you get on the plane or wait until you get off." For those occasions when a plane is stuck on a runway or circling in the sky for indeterminate periods, Mullen packs an emergency stash of chocolate and pretzels. "I've tried packing fruit, but it always got smushed going through security."

7. Always have a Plan B and C. To get to your destination on time, you may need to be flexible. One time, Mullen needed to be in Des Moines for an 8 a.m. meeting. She and a colleague got to Newark Airport with plenty of time for a 1 p.m. flight the day before the meeting, but it ended up getting delayed for 7 hours and then cancelled. "The weather was so bad, the only flight we could get was to Omaha," Mullen says. "We made some phone calls and found out you can drive from Omaha to Des Moines in an hour and a half, so we flew there and rented a car." By the time they got to Des Moines, it was 4 a.m., but they made their 8 a.m. meeting. Which brings us to Mullen's last tip, arguably the most important of all...

8. Keep your attitude upbeat. This isn't always easy, but it may save your sanity -- and your career. "Driving through Iowa, we passed James Dean's birthplace and the area where they filmed The Bridges of Madison County," says Mullen. "The whole trip was exhausting, of course, but it was also kind of interesting and fun."

The point, she says, is that "if you look at business travel as a burdensome chore, it will wear you down and make you sick." People who spend a lot of time on planes are prone to sinus infections, especially if their morale is low. By contrast, "there is nothing better for your career than building a network of strong relationships, and nothing is better than face-to-face contact for doing that," Mullen says. "So try to see travel as an essential tool for your success. And hold on to your sense of humor." You'll probably need it.

Happy trails!

Talkback: Do you travel much on business? What tricks have you learned for making it easier or more enjoyable? Tell us on Facebook, below. 

Spirit cancels flights through TuesdayUseless: The Social Security trust fund

What happened to Europe's collapse?

"To the curious incident of the dog in the night-time," replies Holmes.

"The dog did nothing in the night-time," says the detective.

"That," says Holmes, "was the curious incident."

Europe, this summer, has been curiously full of dogs doing nothing. Just a few months ago, in the wake of Greece's sovereign-debt crisis and the long, muddled response to it by European political leaders, it was common to hear dire predictions about Europe's economic prospects. Pundits declared that the euro -- the currency shared by 16 countries -- was fundamentally flawed; economies that differed widely in competitiveness could not indefinitely have a common monetary policy when they neither shared a common labor market nor kept to agreed-upon rules on fiscal policy. The euro was bound to continue its recent fall against the dollar. Europe's highly indebted economies -- the famous PIIGS, or Portugal, Ireland, Italy, Greece, and Spain -- could satisfy the bond markets only if they made drastic budget cuts and reformed their sclerotic labor markets, which in turn would lead to massive public resistance and political crises.

Yet here we are, as the evenings lengthen, and ... no dog has barked. The euro has been strengthening against the dollar. Europe's political commitment to the single currency remains as strong as ever. There has been remarkably little labor unrest in Greece since the spring, nor in Spain, where the government adopted a tough austerity package that included wage cuts for public servants. In Britain the new coalition government has set out radical proposals for tax increases and expenditure cuts designed to shrink the public deficit from 11% of GDP now to 2.1% in 2014-15. Yet Prime Minister David Cameron remains popular, with Britons willing, it seems, to happily trade a silk jacket for a hair shirt.

There is, of course, an easy explanation for the apparent acquiescence in European public opinion: summer! Europeans had the World Cup to enjoy in June and July, and always have better things to do in August than hold protest marches against austerity. Now that everyone's back from the beach, we'll see the political backlash, right?

0:00/1:50Germany reins in deficit

I'm inclined to think not. The truth is that the European economies are doing better than expected. Everyone knows about Germany's stellar performance this year, with an unemployment rate now lower than it was in summer 2008 (in the U.S. it is 3.5 percentage points higher), while growth in the second quarter was the best quarterly figure for 20 years.

But there are some bright spots in Europe's peripheral economies too. Consider Ireland. Given troubled banks, a debt downgrade, and high unemployment -- the July rate of 13.7% was the worst since 1994 -- you might think there was no good news there. But Barry O'Leary, chief executive of IDA Ireland, the nation's investment agency, says that there has been a significant "repricing of the economy" since the Great Recession bit. In 2009, Irish public sector pay was cut as an austerity measure, and O'Leary says private sector salaries have followed suit, with reductions of 10% to 15%. The IDA is now once again seeing investors who want to develop manufacturing capabilities in Ireland, the sort of labor-intensive operations that had lately seemed destined to always go Asia's way.

I don't want to sound as if my brain's been addled by too much time on a sun-kissed Greek beach. (I wish.) It's the easiest thing in the world to trot out the challenges that face Europe over the coming decades: aging populations and inflexible labor markets; the need for the German export powerhouse to expand domestic demand; distinct national consumer preferences and regulatory regimes that stop companies from taking good ideas to a global scale -- that list has been the same for 20 years. And so has this truth: Europe remains the world's most populous area of widely distributed prosperity, long life, and good health. They're doing something right over there. Long may the dogs not bark!

--Michael Elliott is the editor of Time International.  

The euro is still trashEconomic forum offers sobering forecast for U.S.

Stocks: All eyes on housing this week

That could change with a raft of economic data coming out this week, as a majority of the reports will reveal details about the key housing sector.

"The focus on housing cannot be overstated," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Market participants are looking at housing, unemployment and the national budget deficit as clues to whether the recession is abating, Saluzzi said. Stocks are at a level where they could break higher, he added, but people are still very cautious.

"If housing prices remain at rock bottom, people can't spend," Saluzzi said. "If they can't spend, we won't get a robust recovery. Housing ties it all together."

Therefore, investors will keep a close eye on this week's reports about sales of new and existing homes, housing affordability, building permits and residential construction.

A housing rebound? Yes, it's possible.

Monetary policy is also in the spotlight Tuesday, with the Federal Reserve releasing the minutes from its last meeting. The central bank is widely expected to keep its key interest rate target unchanged at historical lows between 0.0% and 0.25%.

Investors will scrutinize the statement for "any signs that the Fed will raise rates, or take any other intervention actions," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

With such a heavy schedule of reports on tap, stocks could see more action this week than they have in a slow September thus far. Last week, stocks ended higher on Monday and Wednesday but closed mixed to flat the rest of the week. The Dow gained 0.6% over the week, while the S&P added 0.3% and the Nasdaq leapt 1.3%.

The previous week, stocks went practically nowhere, with one big leap back and three baby steps forward.

On the docket

Monday: After the start of trade, the National Association of Home Builders and Wells Fargo will release a report with their housing affordability index. Economists polled by Briefing.com expect the reading inched up to 14 in September from 13 in August.

Would a midterm loss for Democrats boost stocks?

Tuesday: Before the opening bell, the Commerce Deparment will release its August report on housing starts and building permits.

New home construction is expected to have risen slightly. Economists polled by Briefing.com predict housing starts jumped to a 550,000-unit annualized rate in August from a 546,000-unit annualized rate the previous month.

The report is also expected to show that building permits, a measure of builder confidence, rose to a 560,000-unit annualized rate in August from a 559,000-rate in the previous month.

The Federal Reserve will release the minutes from its most recent policy-setting meeting.

After the close, Adobe Systems (ADBE) will report its third-quarter earnings. The software developer is expected to have earned 49 cents per share versus 35 cents a year earlier, according to Thomson Reuters.

0:00/4:26Stay cool in a wild market

Wednesday: Before the opening bell, Golden Valley, Minn.-based cereal maker General Mills (GIS, Fortune 500) is expected to report it earned 63 cents per share last quarter, down from $1.28 a share a year earlier.

The weekly crude oil inventories report is due in the morning.

After the closing bell, Bed Bath & Beyond (BBBY, Fortune 500) will report its quarterly earnings. Analysts expect the home furnishings retailer earned 63 cents a share, versus 52 cents in the prior year

Thursday: The Department of Labor will release weekly jobless claims figures before the start of trade. The number of Americans filing new claims for unemployment last week is expected to remain unchanged from 450,000 the previous week.

The Leading Economic Indicators (LEI), from the Conference Board, is expected to have risen 0.1% in August after increasing by that amount in July.

The National Association of Realtors will release its monthly report on existing home sales, which analysts polled by Briefing.com expect rose to an annual rate of 4.04 million in August from 3.83 million the previous month.

Friday: Before the start of trade, the Commerce Department will release its report on orders for durable goods, items meant to last three years or more. Analysts polled by Briefing.com predict the number of durable orders fell by 1.3% in August.

Later Friday, the Commerce Department will also report on new home sales for August. Analysts expect sales of newly constructed homes rose to an annual rate of 290,000 last month from 276,000 in July. 

Home sales take unexpected dipHome ownership falls to lowest level in 11 years

Bank bailout: Don't bet on another one

The report said the Troubled Asset Relief Program (TARP), approved by Congress in 2008 at the height of the financial crisis, succeeded in stabilizing the financial system.

But it said the program's other goals, protecting the homes and savings of Americans, were not met. Since October 2008, more than 7 million people have received foreclosure notices, and home prices and stock values have dropped roughly 30% from their pre-crisis peaks, the report said. And hundreds of small banks have been shut down or liquidated, while larger banks have fared better.

Treasury spokesman Mark Paustenbach countered the criticisms, noting that one of the economists consulted for the report has stated that presidential policies have saved 8.5 million jobs.

"Small banks that have received TARP funds have increased lending more than comparably sized banks that did not receive TARP funds," he said. "Treasury helped to restart the asset-backed securitization markets that provide credit to consumers and small businesses."

The panel's chairwoman, Harvard University professor Elizabeth Warren, recused herself from the report last week, according to Damon Silvers, another member of that panel.

Warren was engaged in conversations with the White House about working at Treasury as a special adviser, according to a source familiar with the conversations.

Sources tell CNN that Warren will be named as an assistant to the president so that she can help shape the consumer financial protection agency that's part of the new Wall Street reform law.

President Obama is expected to announce the appointment of Warren, who came up with the idea for the agency, later this week. 

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Budget chief nominee: Crucial times ahead

"With millions of Americans who desperately want to work still unable to find jobs, our first task is to sustain and deepen the economic recovery and spur new job creation in the face of unsustainable budget deficits," said Lew. "At the same time, we must put our nation back on a sustainable fiscal course in the medium term while making investments critical to long-term economic growth."

Lew, who was OMB director under President Bill Clinton, would replace Peter Orszag as the administration's point person on the budget, which has become a politically charged issue ahead of the midterm elections in November.

Senate Budget Chairman Kent Conrad, D-N.D., said he hopes to schedule a vote on Lew's nomination before Congress adjourns in October. He is widely expected to be confirmed. The OMB is currently being run by acting director Jeffery Zients.

Echoing comments Obama made Wednesday, Lew stressed that policymakers should set aside partisan differences on fiscal policy and "do what is right for the country."

Obama tapped Lew in July, shortly after the president pledged to cut the nation's budget deficit in half by 2013 at a meeting of world leaders in Toronto. If confirmed, Lew would be in charge of drawing up the administration's fiscal 2012 budget proposal.

As director of the OMB under President Clinton from 1998 to 2001, Lew oversaw the budget office during a time when the nation ran surpluses. But the current situation is much different, with the need to create jobs in the short term bumping up against worries about the nation's long-term impact of the nation's massive budget deficit.

In response to a question about the growth of entitlement programs such as health care and Social Security, Lew would not rule out the possibility of additional spending. But he stressed that any new initiatives should be fully funded in advance.

"The challenge is to make sure that anything we do in this area we pay for," he said.

0:00/7:30Greenspan: Raise taxes

The Senate confirmed Lew last year to serve as Deputy Secretary of State, where he as worked closely Secretary of State Hilary Clinton on economic affairs. Before that, he was chief operating officer of an alternative investment division of Citigroup, which received federal bailout money.

The hearing comes as lawmakers joust over the expiration of tax cuts enacted under President George W. Bush in 2001 and 2003. In particular, Congress is divided over tax breaks for families and individuals making more than $250,000 and $200,000 a year.

Obama and many Democrats say the tax cuts for the wealthy do not help the economy and should expire later this year, according to schedule. Republicans want permanent extension of all tax cuts. A few Democrats say the cuts should be extended only for a few years.

While Lew stopped short of voicing an opinion on the Bush tax cuts, he signaled that closing certain loopholes in the tax code would "help promote a sense of fairness."

"It has been a long time since there's been a serious discussion about the general nature of the tax code," he added.

The tax cuts and other fiscal issues have loomed large as politicians from both parties jockey for position ahead of the midterm elections, which will decide control of Congress. 

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SEC chief: Agency needs some secrecy

The SEC has 30 staff members handling FOIA requests, Schapiro said. Most requests are denied, primarily because the SEC does not have the requested information -- not because it's refusing to provide it, she added.

The SEC said that 64% of all FOIA requests are for information that doesn't exist - which happens sometimes when a company is doing due diligence on another company. Some 15% of all FOIA requests are granted in full, 5% are granted in part and 7% are denied in full, the agency said. In other cases, the FOIA requests are withdrawn, or the information being sought is already on the SEC's Web site.

At issue was a provision of the recently enacted Wall Street reform law. That section provides certain protections to the SEC, shielding it from the FOIA.

Schapiro said the SEC would want to shield certain "proprietary" information provided by finance companies. This includes "watch lists" that companies gather about other companies as well as the trading records of investment managers.

The proprietary information also includes custom-designed systems known as "trading algorithms" that are used by investment firms and kept secret from rival traders.

SEC: Investigations outrank media

"We felt that if we could not protect it from public exposure, they would suffer serious competitive harm," Schapiro said. "It's their trade secret; it's their formula for Coca Cola. If that information is made public, then other firms can trade on that information."

The information would be more difficult to extract if companies believed that it could be made public through FOIA, she said. She said she didn't want the SEC to "turn into a mechanism for suing firms just to get the production of these documents."

0:00/3:24SEC can't catch all Ponzi schemes

The issue of the SEC's ability to deny FOIA came to light after Fox Business sued the agency after trying, unsuccessfully, to obtain documents about the investigation of Ponzi schemer Bernard Madoff, who is currently serving a 150-year sentence. While the SEC insists that the new provision was not used to deny FOIA requests from Fox, it brought the issue in the limelight.

Four different bills have been introduced to rescind the provision.

"The SEC has already indicated its willingness to exploit this loophole," said Rep. Edolphus Towns, D-N.Y., who has introduced one of the bills. 

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Plan to close oil industry loopholes draws fire

However, the proposed tax changes could have "grave economic consequences," according to a study from the American Energy Alliance, which lobbies for the oil and gas industry.

The study, based on research from Louisiana State University economist Joseph Mason, says the proposed changes will trigger an initial loss of 154,000 jobs in the energy sector and related fields by the end of next year.

In addition, the changes would result in more than $340 billion in lost economic output, and $68 billion in lost wages nationwide, according to AEA and Mason.

"The Obama administration aims to single out U.S. oil and gas firms and raise the cost of energy for consumers by eliminating crucial tax credits to which all taxpayers are entitled," Mason said in a statement.

0:00/3:23'Fracking' threatens local water supply

The proposals that the industry objects to are an elimination of a manufacturing tax credit and a modification to the rules for "dual capacity taxpayers," which are primarily oil and gas firms that make "tax like" payments to foreign governments.

According to research from Concept Capital, ending the manufacturing credit would add $15 billion to the federal coffers, while changing the dual capacity rule would raise $8.5 billion. The administration has proposed using that money to offset the cost of new tax breaks for small businesses and infrastructure spending, among other things.

Those who support closing the loopholes argue that the oil and gas companies are among the most profitable in the world, and that the costs could be easily absorbed.

"American taxpayers are currently giving money to BP, Shell, Exxon and others by virtue of these subsidies," said Kert Davies, research director at Greenpeace. "Correcting that and making them pay those costs will allow a more level economic discussion."

Behind the war between Obama and big business

In addition, he pointed to the thousands of jobs that could be created by subsidizing the development of alternative sources of energy, which is a stated goal of the Obama administration.

But critics say the changes would unfairly penalize minor energy firms and hurt small businesses that rely on big oil and gas companies for their survival.

Alex Morris, an analyst at Raymond James who covers big oil companies such as BP, said it's hard to say exactly how the proposed changes will impact the industry, although he expects there to be some job cuts as a result.

"Any time you eliminate millions of dollars in tax credits, the loss will have to be made up somewhere else," he said. "At some level, there will be an impact on employment." 

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Would a midterm loss for Democrats boost stocks?

With that in mind, many investors are gleefully awaiting this year's midterm elections. The latest Cook Political Report projects that Republicans will gain control of the House and come close to winning back the Senate, pushing Congress into a state of political gridlock (according to Chadha, 70% of midterm elections result in the president losing seats in both chambers).

And gridlock, market experts say, is why midterm elections are good for stocks. The less power a president has, the less likely he is to push an activist agenda, unshackling businesses from the burden of regulatory uncertainty. Or so the theory goes.

0:00/3:38Immelt: Energy bill unlikely in 2010

But while the indicator has worked in just about every midterm election cycle, some experts fear that political gridlock may fail to provide a boost to stocks this year because of the external factors bogging down the economy. They believe the market is struggling not because of anti-Washington sentiment, but because of fundamentals. "There has to be a more significant intervention in the jobs market than simply letting things play out," says Michael Yoshikami, chief investment strategist at YCMNET Advisors. "The economy is too damaged right now to get away with gridlock."

A regulatory stalemate could not only fail to assist the market but would actually make it worse because it would leave economic problems unsolved. "If politicians are unable to work together, some very important policy decision in taxes and energy may not get made, which would cause damage to the economy," says James Angel, a professor at Georgetown's McDonough School of Business. "Gridlock...will cause us to lose precious time."

Could 2011 hold another government shutdown?

Gridlock enthusiasts counter that, while a split government would slow down the pace of legislation, it would also force both sides to arrive at more centrist solutions. Given the dire state of the economy, it's possible that legislators will have to engage in deal making, says Paul Brace, a political science professor at Rice University. "There tends to be a bipartisan gain to bring benefits to states and districts, and even conservative Republicans tend to get pulled into that game," he says. "One might imagine a response like Clinton's, where he let the government shut down in response to the Republican stalemate."

A divided government could arrive at a more business friendly resolution to the issue of tax cuts. Current rates for capital gains, dividends, and individuals are set to expire soon, a hot-button topic in the midterm elections. "As we see a shift in the political pendulum back to the middle ground...maybe those rates will be raised to 20% as opposed to reverting to 39.6%," says Jeff Kleintop, chief market strategist at LPL Financial. "It would make a big difference to many investors."

Though Obama's massive healthcare and financial reforms are unlikely to be repealed -- the President would veto such efforts -- they could be weakened in their implementation, Chadha says, benefiting stocks in those sectors.

Such pro-business activity, though, would not directly address the problem of joblessness, which many economists believe is still the main source of the economy's -- and tangentially the market's -- woes. Corporate profits have soared this year, but much of that lift has come from cost cutting and inventory restocking. Continued weakness amongst consumers could slow the pace of the recovery, stifling the benefits of reduced legislative activity.

Jobs, jobs, jobs

Both sides of the gridlock debate agree that the jobs problem needs to be solved before the market can roar again. But they are divided over the role that the midterm elections would play in spurring that recovery.

Those who believe that gridlock will help the market say it will also boost hiring and bolster consumer demand by improving corporate sentiment. "There's been hesitance to commit to long-term capital investments because of legislative change," says Kleintop. Once the horizon is clearer, he says, employers will free up resources and start hiring again.

Interventionists, on the other hand, say that while business leaders may complain about the government's heavy hand, they are sitting on the sidelines for other reasons. "Most of business hiring is, what orders do we see coming in the next there to six months -- not what will Congress do towards the end of next year," says Angel.

Hiring will improve when the outlook for demand improves, he says, regardless of whether gridlock comes to Washington. 

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Intel CEO: Stimulus didn't work

"The decisions so far have not resulted in either job growth or increased confidence. When what you're doing isn't working you rethink it and I think we need to rethink some plans," he said at the Intel Developers Forum in San Francisco.

Otellini credited the White House for listening to him and other business leaders. "I really think they're trying," he said, adding that he doesn't think there is anti-business sentiment from the administration.

But Otellini said the $787 billion economic stimulus package passed last year has not done enough to solve problems in the job market. He argued that money not yet spent from that program might be better off allocated elsewhere and took the administration to task for focusing on short-term projects.

"It doesn't seem to be working the way it is. Swimming pools in Mississippi are not going to create lasting jobs."

0:00/7:25Intel CEO: Obama doesn't get it

Otellini is also one of the first Fortune 500 CEOs to speak publicly about President Obama's newly proposed $350 billion economic recovery plan. He said that proposal, which includes tax breaks for businesses and research and development incentives, is not the right plan either.

The way Otellini sees it, Washington must decide what the industries of the future are. "We still subsidize trains and agriculture -- industries of the 19th century. We should decide what's important to us going forward and make sure we've got the education system in place and the capital incentive system in place to do the investment here."

Otellini also said that a major problem for companies is that they are being held back by high corporate tax rates.

Intel's McAfee buy is a Buffett-like play

Otellini says it costs Intel (INTC, Fortune 500) $1 billion more to build a factory in the U.S. than abroad because of a lack of U.S. tax incentives. The company has a multi-billion dollar factory slated to open in China this October.

"You have to weigh the advantages of working here, the security of working here in this country...against that billion dollars."

Otellini questioned why global business leaders would want to do business in the U.S. due to the cost, saying it is critical to incentivize foreign countries to invest in America. "Our corporate taxes are twice what they are in the rest of the world. You want corporations to invest here."

Intel is on pace for what Otellini predicts could be the company's best year ever but said other businesses are not so lucky. "A lot of companies are sitting on the sidelines right now," he said, due mainly to a lack of clarity about taxes and regulation.

"Take the uncertainly out. Businesses can't invest until they have fewer variables and right now there are just too many variables," he said. 

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GDP

"It's a crawl-stagger-crawl recovery," said Paul Ballew, senior vice president at insurancer Nationwide Financial. "It's certainly far more subdued than we need."

The report fed into growing fears that the nation could be at risk of a new economic downturn -- a double-dip recession -- leading some economists to darken their outlook for the economy, upping estimates for another slowdown.

"There are spots of strength here and there, but looking ahead growth will be anemic and that's why the probability of a double dip is so high," said Sung Won Sohn, economics professor at Cal State University Channel Islands. He estimates that the risk of a double dip has risen to 40% from only a 25% chance at the start of the year.

One leading concern is stubbornly high unemployment. While the economy is still growing, growth of less than 2% is considered too weak to prompt businesses to start hiring again.

Still, U.S. stocks rose in early trading on the news, as the revision was not quite as severe as expected. Economists surveyed by Briefing.com had forecast a revised reading of 1.4% growth in the period.

"The immediate reaction suggests an attitude shifting from the glass half empty to half full," said Jim Baird, chief investment strategist for Plante Moran Financial Advisors. "The bigger picture issue remains unchanged: there is simply not enough water in the glass to quench our thirst."

Some economists said the weak report could prompt the Obama Administration and Democrats in Congress to push for additional federal action to try to spur the economy.

"The case for more action from policymakers to support the recovery and return the job market to health is now overwhelming," said Josh Bivens, economist with the Economic Policy Institute, a labor-supported think tank.

Some expect further action by the Federal Reserve to spur the economy as well. Speaking in Jackson Hole, Wy., Friday morning, Federal Reserve chairman Ben Bernanke bluntly acknowledged that the U.S. economic recovery has lost considerable steam, but pledged that the central bank has the necessary policy tools to support continued growth.

The downward revision was mostly due to businesses doing less to restock their inventories than previously estimated in the face of weak consumer demand. Inventories grew by only $19 billion in the quarter, down $28 billion from the earlier estimate.

Construction spending also came in weaker than assumed at the time of the original reading, with non-residential building taking the biggest hit.

0:00/1:05'Living hand-to-mouth'

A bigger-than-expected trade gap also trimmed GDP, as rising imports and weaker exports both worked against output by U.S. businesses.

Still some economists pointed to details deep within the report for a glimmer of hope. George Mokrzan, senior economist for Huntington National Bank, said corporate profits rising to a level not seen since 2006 should put businesses in a good position to eventually start adding workers.

"Typically, when corporate profits are rising, hiring tends to follow," he said.

Bumpy road ahead

While the report might not be as bad as feared, one concern is that even weaker growth could lay ahead.

The Congressional Budget Office recently estimated that spending authorized by the stimulus act of 2009 added between 1.7 to 4.5 percentage points of growth in the second quarter, meaning the economy would have been far worse without stimulus.

But that spending will fall off in the second half of this year, the CBO acknowledged, and the boost to the economy will gradually diminish.

In addition, the economy could lose more steam because of the weakening housing market. While investment in new homes shot up 27% in the second quarter due to a tax credit for home buyers that ended in June, more recent readings show home sales hitting record lows since the end of the second quarter.

"The second quarter wasn't as bad as the headline GDP figure looks but, unfortunately, that doesn't mean the third quarter is going to be any better," said Paul Ashworth, senior U.S. economist for Capital Economics in a note to clients. "It could easily be even worse." 

GDPShoppers are choosy in shaky economy

Big business and Wall Street bet on GOP

"We noticed a very dramatic shift right around the beginning of this year, which coincided with financial reform," said Dave Levinthal, spokesman for the Center for Responsive Politics. "This is not just a blip at all; this is a major shift in the opposite direction and one that has persisted ever since."

Looking at the top 20 candidates for federal office receiving strong support from financial firms, only six are Democrats, the center found. New York Sens. Kirsten Gillibrand and Charles Schumer top that list -- which isn't surprising since they represent a chunk of the financial sector, the center noted.

The rest of the top 20 are Republicans, many seeking Senate seats. Former Hewlett-Packard chief executive Carly Fiorina of California tops the list for Republicans, followed by Dan Coats of Indiana and Marco Rubio of Florida.

Some business groups are also giving more heavily to Republicans. While the U.S. Chamber of Commerce tends to support Republicans, in 2008 the group's political committee hiked contributions to Democrats to 39% of their total $144,576. But contributions to Democrats dropped this year to 15% of the total $78,000.

"The chamber is bipartisan; we support Democratic candidates who support our agenda," said Stan Anderson, a managing director at the U.S. Chamber of Commerce, in a response to a question about the chamber supporting mostly Republicans.

Commercial banks and investment firms, in particular, showed a stronger trend in giving more to Republicans, according to the watchdog group.

Bank of America (BAC, Fortune 500) is strongly supporting Republicans this cycle, with Republicans getting 61%, or $834,000, of the $1.4 million total contributions made this year. In the 2008 election cycle, 56% of the bank's contributions went to Democrats, or $1.6 million of the $2.9 million of total campaign contributions.

Morgan Stanley (MS, Fortune 500) is also favoring Republicans, with 55%, or $607,000 of their $1.1 million total, going to Republicans, after favoring Democrats in 2008.

This cycle, Citigroup (C, Fortune 500), of which the federal government still owns a chunk, appears to be playing it safe by giving equally to Democrats and Republicans, about $480,000 a piece. But in 2008, they also favored Democrats, with Democratic candidates getting 63%, or $3 million of the bank's $4.9 million in total contributions.

A Citigroup spokeswoman declined to comment.

Even the giant investment firm Goldman Sachs (GS, Fortune 500), which has favored Democrats for 20 years has tilted toward Republicans this election cycle. Since January 2009, employee and political committee contributions totaled $1.7 million, with nearly a million, or 54%, going to Republican candidates.

Goldman has been the starting point for some big-name Democratic politicians, including former New Jersey Gov. Jon Corzine and President Clinton's Treasury Secretary, Robert Rubin. A few other Goldman alums have joined the Obama administration, including Gary Gensler, who chairs the Commodity Futures Trading Commission.

(Not that everyone at Goldman leans Democratic -- President George W. Bush's Treasury Secretary, Henry Paulson, also worked there.)

A Goldman spokeswoman noted that data includes contributions reported by former Goldman Sachs employees, and otherwise declined to comment on the campaign finance figures.

However, there are some financial firms still favoring Democrats.

JP Morgan Chase (JPM, Fortune 500) is still giving more to Democrats - about 52%, or $545,000 of the $1 million they've spent so far. And the Credit Union National Association has supported Democrats to the tune of $1 million, or 56% of the $1.8 million they've spent so far. 

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Is a college degree really worth $1 million?

Okay, but I worry about his earning power over time: I've heard that college grads earn an average of $1 million more, over their lifetime, than people with a high school diploma. So will he be making a big mistake by skipping college? -- Maryland Mom

Dear M.M.: Maybe, maybe not. With the cost of a four-year degree constantly rising, researchers at Seattle-based PayScale.com recently set out to analyze exactly what return on investment a graduate is likely to get for his or her tuition. The results are fascinating: It turns out that "at many schools, investing in college costs, even at full price [without financial aid], has been competitive versus getting a job out of high school and putting the money in the stock market or Treasury bonds," the report says.

Talkback: Do you think a college degree pays off? Did yours? Leave your comments at the bottom of this story.

However, that magical and much-quoted $1 million earnings premium, which originated with the Bureau of Labor Statistics some years ago, is apparently the exception rather than the rule. According to PayScale's analysis, out of 554 four-year schools, only 40 (36 private colleges and 4 state universities) -- or fewer than 10% -- have delivered a net return on investment of $1 million or more, over the course of grads' careers, than a high school diploma alone.

Now, about your question: Al Lee, Ph.D., PayScale's director of quantitative analysis, dug into the firm's vast database of salary information and came up with a list of 6 jobs where top performers can earn $100,000 or more per year without first going to college.

6-figure jobs, no degree needed

"All of these jobs require a lot of on-the-job training and experience to get to high levels of pay," he notes. "But, if you're the kind of person who can't stand to sit in a classroom, they may be a great way to get there."

All of these jobs are fairly recession-proof as well, Lee notes. "They all involve activities that have to get done no matter what the economic conditions at any given time," he says. "And they come with a regular paycheck, so you can apply technical skills without the risk of running your own business."

All six also share one other appealing characteristic: They can't be outsourced. "As globalization rolls on, there is a lot to be said for any job that has to be done by a person working in a particular physical location," Lee says. He has a point there.

Talkback: Do you think a college degree pays off? Did yours? If you didn't go to college, do you wish you had -- or have you built a successful career without a degree? Tell us on Facebook, below. 

Business briefs: Cigna Government Services could add jobs, lose othersGet a job, or go to grad school?

Bond yields rising? Curb your enthusiasm

Ultra-low bond yields are often associated with economic malaise. Since prices and rates move in opposite directions, rates tumble when investors rush into Treasurys, since they are typically perceived to be relatively safe global investments even when the outlook for the U.S. economy is weak.

As such, many bond experts have been predicting lately that the 10-year yield could approach the record lows of 2.04% from December 2008. So it's somewhat comforting that long-term rates have recovered a bit and are edging back toward 3%.

The move has taken place following a series of slightly better-than-expected pieces of data about the economy in the past week. The latest jobless claims figures came in at a lower level than feared. And the trade gap in July narrowed significantly.

But it may be a mistake to get too excited. The recent spike in long-term rates may just be a blip.

After all, the Federal Reserve has signaled that it wants to keep rates super low to try and get the economy back on more solid footing. And the Fed is committed to buying more long-term Treasurys in order to achieve that goal.

Priya Misra, the widely respected rates strategist at Bank of America Merrill Lynch, wrote in a report last week that she thinks the yield on the 10-year may fall as low as 1.75% in the first quarter of 2011.

She cited the Fed's desire to "prevent a deflationary spiral by taking aggressive preemptive action" as a main reason why rates could head even lower.

But if rates remain this low for a prolonged period of time, it's hard not to interpret that as a sign of more than just an economic hiccup on the road to recovery. Instead, it may be evidence that the malaise will last for a long time.

0:00/3:59Treasurys: Repeat of 2008?

That brings me back to the notion of "less bad." The fact that the economy no longer seemed on the abyss was the justification for much of the stock market's big rally from March of 2009 up until about April of this year.

The best that many bulls could say about the economy was that the recession was likely over and that the economy, while not strong, was not looking as terrible as it did in the fall of 2008.

That all changed this spring. Fears about the European debt crisis, the May 6 "flash crash," and more and more data showing that the recovery in the U.S. was losing steam began to make investors more nervous again.

"This recent economic soft patch is probably more than a soft patch. It's a delayed effect from the chaos in Europe. Consumers and businesses were worried it could be a replay of the fourth quarter of 2008," said Haag Sherman, managing director with Salient Partners, an investment firm in Houston.

Bears came out of the woodworks to once again proclaim that the economy was about to double dip. The gloomiest of the bunch declared that the recession that began in December 2007 never even ended. Scarier D words than double dip, such as deflation and depression, started to enter the conversation again.

Keep track of bond yields and other interest rates

The good news is that the pendulum seems to have swung away from these sourpusses for now. But again, that's not exactly something to truly celebrate.

"We are beginning to see rates attempt to normalize. Sentiment is moving from its most negative expectations of a double dip, but it's just back to the notion of this being a slower recovery," said John Stoltzfus, senior market strategist with Ticonderoga Securities in New York.

And here's the most troublesome thing. It will likely take a long time before the economy is fully recovered from the financial meltdown of two years ago. So while long-term rates may inch higher every now and then, they are likely to, for the most part, remain stuck below 3% for awhile.

"Next year will probably be similar to 2010," Sherman said. "You'll have periodic crises and bad economic data that will spook people and push Treasury yields back down. This phenomenon will happen over and over again for the next few years."

Great. Pass the Pepto-Bismol please.

We're going to Sizzler! Couldn't help but notice that HP, despite its best efforts to prove that there isn't a leadership vacuum, continues to disappoint Wall Street. HP announced its third post-Mark Hurd acquisition Monday but the stock was flat even though it was an up day for the market and tech sector.

That brought to mind the following movie quote, which I then challenged my Twitter followers to identify. "Sometimes when you win, you really lose. And sometimes when you lose, you really win."

JKang1217 is the winner. He? She? correctly pointed out that this gem was from "White Men Can't Jump." I hope that JKang1217 can hear Jimi.

- The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney.com, and Abbott Laboratories, La Monica does not own positions in any individual stocks.  

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China's inflation battle intensifies

The global economy has become increasingly dependent on China's rapid expansion as an engine for growth.

But prices in the fast-growing Chinese economy have been outpacing most western economies; U.S. prices were up only 1.2% over the 12 months ending in July.

That has raised some concerns that the Chinese government might take steps to slow down growth in order to keep prices in check.

"China has to be careful," said Robert Brusca of FAO Economics. "Their big objective is domestic stability, and domestic stability requires employment. But they can't let inflation get away from them. So they have a tiger by the tail."

Separately, China reported that the country's industrial output increased 13.9%.

The increases in Chinese consumer prices have been driven by higher food prices, up 7.5% in the last 12 months. Food makes up about a third of the overall consumer price index in China, compared to only 14% of the official mix of prices in the United States. Fresh vegetables have shot up 7.7% in the last month and further price increases are expected due to a poor wheat harvest in Russia.

0:00/1:39China's path to economic powerhouse

There is little the Chinese policymakers can do to control food prices other than provide subsidies, said Virendra Singh, director in international economics for Moody's Economy.com.

But he said there is concern that rising food prices could spill over to the rest of the economy as workers demand higher wages.

So his firm is expecting the People's Bank of China to move soon to raise interest rates.

In fact, the August price report got particular attention when China moved up the release of the data by two days, prompting some to speculate the move was done to give financial markets a chance to digest the news and possibly open the way for the People's Bank of China the chance to raise interest rate.

But Jay Bryson, international economist for Wells Fargo Securities, isn't convinced China is getting ready to raise rates because of uncertainty about the strength of the global economic recovery. And he said even if it does raise rates, the impact will be more symbolic than substantial.

"The Chinese have always had a bias toward growth rather than keeping inflation in check," he said. "[A rate hike] could send a signal that these guys are getting serious about inflation."

The Chinese central bank has left rates unchanged since September 2008 when it cut rates to in the face of the global financial meltdown.

There isn't an overnight lending rate in China comparable to the U.S. Federal Reserve's benchmark fed funds rate, which has been near 0% since December 2008.

By comparison, the People Bank of China's one-year lending rate has been at 5.31%, but that relatively lofty rate has done little to slow the economy overall.

China's gross domestic product, the broadest measure of the size of the economy, was up 10.3% in the second quarter compared to a year earlier. 

Home construction fails to lift recoveryInflation (CPI)

Fracking debate heats up in New York

Fracturing - or 'fracking' - has helped usher in one of the biggest energy booms in U.S. history. It's also generated fear over ground water contamination and other hazards.

"It's a trap," said Martha Robertson, a resident of Dryden, N.Y., who is traveling to the hearing in Binghamton on Monday. "If it comes to New York it will transform our landscape, our economy, and our way of life. I'm deeply concerned about going in this direction."

The hearing will be the fourth the EPA has conducted across the nation as it attempts figure out if fracking, which is expanding on a rapid scale in shale gas fields across the country, is safe.

Monday's meeting, where opposition to fracking runs the highest, was originally set for last month but was changed at the last minute. Security had to be reassessed because thousands of people were expected to show up.

Now, about 2,000 are expected, said Binghamton Deputy Mayor Andrew Block, who said people only had a couple of weeks to plan for this meeting.

'Fracking' yields fuel, fear in Northeast

Nonetheless, the city will close off two roads around the auditorium on Monday, keep about a dozen police on hand, and set up designated areas for both pro and anti-drilling advocates to gather.

"People are expecting tension," said Robertson. "This is as tense issue."

A second day of hearings is set for Wednesday.

The issue

People in New York sit atop the Marcellus Shale, one of the largest natural gas deposits in the nation which extends beneath Pennsylvania, West Virginia and Ohio.

But shale gas development is happening nationwide.

Thanks to higher prices and new technology, vast reserves of natural gas are now available. Over half the states have shale gas reserves. Large deposits are also found close to major cities like Denver, Dallas, Chicago, Detroit, Philadelphia and New York City.

The size of this resource is massive, effectively doubling the nation's gas reserves, according to a recent study from Massachusetts Institute of Technology.

0:00/3:02Exelon CEO on natural gas plans

Investment money is pouring into the sector. Exxon Mobil (XOM, Fortune 500) recently paid over $40 billion for a shale gas company, a sign that the industry has hit the big time. Shale gas production, virtually nonexistent ten years ago, now accounts for about a fifth of the country's gas consumption, according to the MIT study. It's on track to provide over half the nation's gas by 2030.

"It's a game changer," said Melanie Kenderdine, executive director at MIT's program. "It's significant supply at relatively low cost. An enormous opportunity."

That's good news to people concerned about global warming or foreign oil dependence.

Most natural gas is burned to produce electricity or heat and cool buildings. When burned, it emits about half the carbon dioxide as coal, and most of the country's big environmental groups are cautiously supportive of increased development.

Natural gas can also be used to power modified vehicles. Although not yet popular for cars, the idea is catching on among operators of large fleets: city busses, delivery trucks adn the like. If adopted more widely, cleaner burning cheaper gas, could put a big dent in the nation's oil imports.

But extracting shale gas comes with a dark side. Producing the gas involves drilling deep underground and injecting massive amounts of chemical-laced water and sand to free the gas from a seam of shale rock.

People living near the drilling are afraid the process will contaminate their drinking water, and there have been several cases where the water supplies have been ruined. They are also shocked at the pace of development this industry is undergoing. Trucks and drilling rigs operating round the clock, roads widened, pipes laid.

Fracking has been around for decades, but has never been done on such a massive scale and so close to major population centers.

The industry says the water contamination is the result of isolated accidents unrelated to fracking. They point out that thousands of wells are drilled each year, and there have only been a handful of problems.

They say the fracturing occurs thousands of feet below the water table, far from the drinking water. When the wells do pass through the water table, the industry goes to great lengths to protect the water by lining the wells with concrete and steel.

"We've drilled over a million wells in the last 60 years," said Daniel Whitten, a spokesman for the American Natural Gas Alliance. "We think the process is safe."

Up until now, the government has generally agreed with the industry and has left regulating the process largely up to the states.

But the 2005 energy act did not subject fracking to the Clean Water Act, which largely sidelined the agency.

Responding to public pressure, Obama has ordered EPA to study the issue again, although results from the investigation aren't expected until late 2012.

Many people that live near shale sites want the drilling stopped until the EPA study is complete.

On Thursday, the EPA asked companies to disclose what chemicals they are injecting into the ground. Many people want more, including greater EPA oversight, more enforcement personnel, and greater treatment of the fluids when they are returned to the surface. 

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