Wonkbook: Grover Norquist's small loss and big win

Grover Norquist, chairman of Americans for Tax Reform, speaks at the Faith and Freedom Coalition in Washington June 3. (JOSHUA ROBERTS - REUTERS) You can look at yesterday's Senate vote on ending ethanol subsidies one of two ways: as a major loss for Grover Norquist, or as a major win.

Norquist, of course, is the anti-tax enforcer who leads Americans for Tax Reform. He's the guy who gets Republicans to pledge that they won't raise tax rates and won't get rid of tax breaks or close loopholes in a way that raises revenue (ending breaks or closing loopholes and using the money for tax cuts is, by contrast, fine and dandy). But yesterday, Republicans broke his pledge.

Tom Coburn gets credit for this one. Over the past few months, he'd publicly sparred with Norquist over whether you could end the ethanol subsidies in the tax code and use the money to pay down the deficit. Norquist said no, that was a tax hike. Technically, Norquist was correct. But Coburn had pulled back the curtain on the extremism of Norquist's position. Yesterday, the measure came up for a vote and failed, as Democrats, to their discredit, defended the subsidies. But Norquist decisively lost the vote: 34 Senate Republicans voted to end the subsidies and put the savings towards the deficit.

Or perhaps he didn't? Today it's front page news that Republicans are willing, in an extreme case, to close a small number of tax breaks to pay down the deficit. So 10 years after the Bush tax cuts blew a hole in the deficit, we're talking about whether Republicans will accept any types of new revenues at all. The question for Democrats, meanwhile, is whether they'll accept spending cuts that are three, four or five times larger than the new revenues.

Norquist might have to take a hard line and pretend he's appalled to see it crossed, but in focusing everyone on that line, he's effectively distracting them from how far the goalposts have been moved. Instead of revenues being an assumed part of a deficit deal, with the only question being how much of the deal they make up, the question has become whether Republicans will accept any revenues at all in the deficit deal. Including any new revenues at all has been framed as a major concession for the Republicans, which means it's easier for Republicans to include far less revenue in total. And no matter how you look at it, that's a win for Grover Norquist.

Five in the morning

1) The director of the CBO said that defaulting on the debt could increase the deficit, reports Brian Beutler: Elmendorf noted that one of the potential consequences of even a brief period of default would be higher federal debt, triggered by a spike in interest rates and, thus, higher interest payments on federally issued debt. 'If Treasury rates moved up by just 10 basis points over the next decade, that would add $130 billion to interest payments over the decade,' Elmendorf said. A basis point is one-one hundreth of one percent. Thus, according to Elmendorf, each 0.1 percent increase in interest rates on U.S. Treasuries would amount to a significant increase in U.S. debt."

2) Senate Republicans broke with Grover Norquist and the no-taxes pledge on an ethanol vote, reports Lori Montgomery: "A majority of Senate Republicans appeared to break Tuesday with two decades of GOP orthodoxy against higher taxes, voting to advance a plan to abruptly cancel billions of dollars in annual tax credits for ethanol blenders. The measure, offered by Sen. Tom Coburn (R-Okla.), fell short of the 60 votes needed to overcome a filibuster threat. But it had the support of 34 of 47 Republicans, most of whom have signed an anti-tax pledge that specifically prohibits raising taxes by any means but economic growth. Coburn has argued forcefully that Republicans must abandon that pledge if they are serious about tackling the spiraling national debt. Though the Senate turned back his measure, he said the vote nonetheless marks the beginning of the end of GOP tolerance for wasteful giveaways through the tax code."

3) The GOP isn't too enthusiastic about extending payroll tax cuts, report Damian Paletta and Carol Lee: "President Barack Obama is considering how strongly to push for extending a payroll-tax break for workers and creating a new tax break for employers to jump-start the economy, reflecting White House concerns about joblessness but also complicating efforts to rein in the federal deficit. White House officials brought up the ideas during closed-door debt talks Tuesday with a bipartisan group of lawmakers, people familiar with the meeting said...However, the payroll tax idea received a lukewarm response on Capitol Hill. Even Sen. Orrin G. Hatch (R.,Utah), a stong past supporter of payroll tax relief, reacted cautiously...A Senate Republican aide said there was 'no chance' Republicans would accept the payroll tax breaks in exchange for higher tax rates on upper-income families."

4) Ben Bernanke again urged a hike in the debt limit, report Erik Wasson and Russell Berman: "Federal Reserve Chairman Ben Bernanke on Tuesday reiterated his warning that the administration and Congress must avoid brinksmanship in talks to reduce the deficit and raise the debt ceiling. Bernanke spoke as Vice President Biden held the first of three meetings this week with congressional negotiators crafting a deal to raise the nation’s $14.3 trillion debt ceiling while reducing the deficit...Bernanke shot down suggestions by Sen. Pat Toomey (R-Pa.) that the Treasury Department could prioritize U.S. debt payments once the $14.3 trillion ceiling is reached to protect bondholders. He said delaying other government payments could still spook investors and hurt the economy."

5) Wisconsin's anti-union bill has been okayed by the state Supreme Court, reports Monica Davey: "The Wisconsin Supreme Court cleared the way on Tuesday for significant cuts to collective bargaining rights for public workers in the state, undoing a lower court’s decision that Wisconsin’s controversial law had been passed improperly. The Supreme Court’s ruling, issued at the close of the business day, spared lawmakers in the Republican-dominated Capitol from having to do what some of them strongly hoped to avoid: calling for a new vote on the polarizing collective bargaining measure, which had drawn tens of thousands of protesters to Madison this year and led Democratic lawmakers to flee the city in an effort to block the bill. Republican leaders had warned on Monday that if the Supreme Court did not rule by Tuesday, they would feel compelled to attach the same measure to the state’s budget bill."

Boss interlude: Bruce Springsteen & the E Street Band play "Rosalita (Come Out Tonight)" on the Darkness tour in 1978.

Got tips, additions, or comments? E-mail me.

Still to come: The Consumer Financial Protection Bureau could open without being able to exercise many of its powers; GOP governors are playing hardball on Medicaid cuts; Eric Cantor wants House Republicans to set a schedule for spending bills; why a debt deal should include a carbon tax; and Conan O'Brien gives a commencement speech at Dartmouth.

Economy

The Consumer Financial Protection Bureau could open without many powers, reports Ylan Mui: "The law prohibits the agency from using any new powers until Obama appoints a director, a provision that has ensnared the CFPB in a bruising political fracas. The White House has yet to nominate anyone and has remained mum on future plans. Republicans in the Senate, which must confirm the appointment, have threatened to block anyone from getting the job without significant changes to the bureau. The stalemate has lasted so long that it would be virtually impossible for the Senate to vet any candidate before the agency opens for business July 21, even if a compromise could be reached. The White House could make a recess appointment during the Independence Day holiday, but Republicans have promised to keep the Senate in session."

Eric Cantor wants GOP House members to approve annual spending bills, reports Jonathan Allen: "House Majority Leader Eric Cantor warned his GOP colleagues Tuesday that they can’t cut government operations if they don’t first approve annual spending bills, hinting strongly at leadership’s concern that appropriations could be hamstrung by reflexive votes against spending. 'Not one cut below the current 2011 level will go into effect if we don’t first complete our appropriations bills and make the House-passed levels the reference point for 2012 spending,' Cantor wrote in a memo to colleagues that contains a projected schedule for consideration of the spending bills on the House floor. In addition, Cantor all but conceded that Congress won’t finish its appropriations work on time this year. The Virginia Republican’s tentative timetable has the House wrapping up its first pass-through on the dozen annual spending bills by the week of Sept. 20 -- 10 days, at most, before the end of the fiscal year."

Regulators have set a bank capital floor, reports Alan Zibel: "U.S. bank regulators on Tuesday installed a firm floor under the amount of capital the nation's largest banks must hold against losses, rolling back a 2007 regulation that allowed them to use their own models to calculate how much capital they need to hold. The standards mean the nation's largest banks must at least meet the capital standards of community banks. The change was required by the Dodd-Frank financial overhaul passed last summer, a provision drafted by Sen. Susan Collins (R., Maine) and championed by Federal Deposit Insurance Corp. Chairman Sheila Bair. The rule was approved by the FDIC, Federal Reserve and the Office of the Comptroller of the Currency. Ms. Bair called the rule the 'single most important provision of the Dodd-Frank act for strengthening the capital of the U.S. banking system.'"

A handful of court cases could change the whole mortgage industry, report Brady Dennis and Renae Merle: " New York appellate court ruled last week that a Reston-based company that electronically tracks and transfers millions of mortgages did not have the right to foreclosure on a property or assign a mortgage it doesn’t actually own. The decision came only days after an appeals court in California took a different view, ruling that the firm indeed has the power to act on behalf of lenders. The two cases, like dozens of others already decided or playing out in courtrooms across the country, highlight a protracted legal wrestling match that could determine the validity of foreclosures already in the pipeline and shape the mortgage market for years to come."

There's reason to think a debt deal with more stimulus is possible, writes David Leonhardt: "Both parties have reason to compromise. Democrats are worried -- or at least they should be, deeply -- that the weak economy will cost them the White House and Senate next year. Republicans are worried that their plan to replace Medicare with a system of private insurance will let Democrats win even if the economy remains weak. A deal that commits both parties to further cuts in Medicare’s growth while also helping the economy seems to have a chance of passing...The best such deal would include two kinds of help. The first would be immediate: further tax cuts for households and businesses, as well as an extension of jobless benefits...The second...might be even more important: policies that would eventually shift the country away from its debt-fueled reliance on consumption and toward more investment, production and high-end service industries."

"Living wills" for Wall Street firms are going to fail, writes Allan Sloan: "Translated into English, this means that giant institutions create contingency plans for regulators to break them up or liquidate them in a crisis without any cost to taxpayers. And without the Federal Reserve providing any financing to make the deals work. Living wills sure sound great. Unfortunately, they can’t possibly work if we have anything resembling the 2008-09 panic, in which financial markets essentially closed down. It’s not just me saying that -- lots of players, including the Treasury’s former chief restructuring officer, Jim Millstein, are saying it too. The problem is exacerbated because Dodd-Frank bars the Fed from helping stricken institutions the way it did during the height of the panic."

Corgis are excellent interlude: A corgi befriends two ducklings.

Health Care

GOP governors are playing hardball on Medicaid cuts, reports Michael Fletcher: "Faced with severe budget problems, Republican governors are escalating their fight against federal rules requiring states to maintain current levels of health-care coverage for the poor and disabled. The growing resistance to the federal government over the hugely expensive Medicaid program poses a critical test for President Obama, who has the power to relax the rules for states. If he allows states to tighten eligibility requirements, it would outrage many of his core supporters while undermining the central goal of his signature health-care law: expanding health insurance coverage. But if the president turns his back on governors struggling to gain control of their finances by trimming their most costly program, he risks intense criticism."

Health-care reform has unlocked a couple of potential grand bargains on health care, writes, well, me: "I don’t think Republicans have really realized this yet, but the health-reform law unlocks a lot of potential reforms that they really like, and that no Democrat would accept in the law’s absence....Taken together, Medicare and Medicaid comprise most of the government’s control over the health-care sector. But if the Affordable Care Act’s exchanges work well and the program’s delivery-system reforms bring down costs, you could imagine eventually moving the two programs onto the exchanges, where beneficiaries would then be able to choose between the government insurer and a suite of private options. To some degree, that’s what Paul Ryan is proposing for Medicare, but since he coupled it with repeal of the Affordable Care Act and vouchers that grow much more slowly than health-care costs, he made the idea completely unacceptable. But as his former co-sponsor Alice Rivlin has argued, if Republicans dropped those demands and left traditional Medicare as an option, the plan would be much more attractive to Democrats."

Domestic Policy

Wal-Mart workers are trying to organize in a non-union context, reports Steven Greenhouse: "After numerous failed attempts to unionize Wal-Mart stores, the nation’s main union for retail workers has decided to try a different approach: it has helped create a new, nonunion group of Wal-Mart employees that intends to press for better pay, benefits and most of all, more respect at work. The group, Organization United for Respect at Walmart, or OUR Walmart for short, says it has quietly signed up thousands of members in recent months, and it is going public this week with a Web site, ourwalmart.org, and a Facebook page. Organizers say they have more than 50 members at some stores, and they hope to soon have tens of thousands of members. Wal-Mart has nearly 1.4 million workers nationwide."

Speech interlude: Conan O'Brien's commencement address at Dartmouth.

Energy

A carbon tax should be a part of the debt deal, writes Stephen Stromberg: "Democrats would have to agree to reform Medicare more than they say they are willing to now...Republicans are likely to demand lowering certain taxes, especially on corporations. In return, Democrats -- backed by the budget math -- will insist on new taxes and the maintenance of federal spending at levels higher than Republicans would like. Green policies could be a nice fit here. One of the most appealing is a tax on carbon emissions. Those whose activities result in dangerous greenhouse emissions -- things such as burning coal in power plants or mixing cement, with results that affect all of us -- would have to pay something for them. This would raise lots of money -- depending on the details, tens or hundreds of billions over a decade."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.