Wonkbook: Happy debt-ceiling day!
By Ezra Klein,
JEWEL SAMAD AFP/GETTY IMAGES
This isn't a surprise, of course. The Treasury Department has been warning us of it for months. And we're not without options. Specifically, we have about 11 weeks of options. The first evasive maneuver, begun about 10 days ago, was for the Treasury to stop offering a certain type of debt that state and local governments use to smooth out their finances. Today, the Treasury will begin to borrow from the pension workers of federal employees. And the emergency measures only get worse and more disruptive from here. If you want more on the nuts and bolts of those, the Wall Street Journal has a nice graphic listing some of the Treasury's likely moves.
There's not been much evident progress towards a deal in recent days, though there's been an escalation in Republican demands from the Senate side (McConnell wants Medicare cuts but no tax increases) and a plea from the Obama administration for Democrats to stop adding new demands onto an already overburdened negotiations process. But the outlines of a deal have been relatively obvious for some time: For better or worse, the final deal will be heavily tilted towards spending cuts, and accompanied by some sort of procedural mechanism to make future deficit reduction more likely.
To some degree, that's backwards. The smartest deal going forward would be one in which the two parties stuck to PayGo -- or, if you want to reduce the deficit, SaveGo -- and thus figured out how to pay for tax cuts and spending increases when those tax cuts and spending increases were passed rather than when the bills came due. But given that the House Republicans replaced PayGo with a weaker policy in which spending cuts had to be paid for but tax cuts didn't, that Congress is really interested in avoiding future debt-ceiling showdowns. The minority would very much like to use the debt ceiling to make changes to government that they'd also like to make in the absence of the debt ceiling. But it's not at all clear that the debt ceiling has convinced them to make changes to government that they wouldn't otherwise support, and if they'd supported PayGo in the first place, we'd be in much better shape today.
Five in the morning
1) We're at the debt limit, so the Treasury will start raiding pensions, reports Zachary Goldfarb: "The Obama administration will begin to tap federal retiree programs to help fund operations after the government loses its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt. Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling -- a legal limit on how much it can borrow. With the government poised to reach that limit Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills. Geithner, who has already suspended a program that helps state and local government manage their finances, will begin to borrow from retirement funds for federal workers."
2) And we're still no closer to a deal to raise the limit, report Damian Paletta and Carol Lee: "The pathway to a deal remains unclear, even to those doing the negotiating....People familiar with the negotiations led by Mr. Biden say they are looking at cuts to agriculture subsidies and federal retirement programs, stepped-up antifraud efforts, increased premiums for pension plans backed by the Pension Benefit Guaranty Corporation and the sale of wireless spectrum and government properties...The areas being examined amount to a sliver of the $4 trillion goal officials have set for deficit reduction over the next 10 years. And taxes remain a roadblock. Republican leaders say tax increases can't be part of any deficit plan, but White House officials have said any plan must include revenue increases."
3) IMF head Dominique Strauss-Kahn's arrest could affect the global recovery, report Zachary Goldfarb and Brady Dennis: "The sexual assault charges against Dominique Strauss-Kahn, the head of the International Monetary Fund, have cast uncertainty over global efforts to prevent Europe’s debt crisis from spinning out of control and raise questions about the future of one of the world’s most powerful financial institutions. At the Washington-based IMF, which makes emergency loans to struggling economies, Strauss-Kahn has been a muscular advocate for aiding Greece, Ireland and Portugal as they have fought to avoid insolvency. A default by a developed European economy would shock the global financial markets and endanger the nascent economic recovery in the United States. The IMF on Sunday named Strauss-Kahn’s second-in-command, former banker John Lipsky, as his replacement."
4) A New York special election has become a referendum on Ryancare, reports Philip Rucker: "Special congressional elections tend to be sleepy affairs, campaigns so condensed and out of step with the normal political calendar that they’re often missed. But they can be mirrors of the national moment, too, and that’s what’s happening in the suburbs of Buffalo and Rochester, where a race to fill a vacant U.S. House seat has turned into a referendum on the Republican plan to overhaul Medicare...'If you care about Medicare and want to keep Medicare as it is, she’s your person,' Schumer, the Democrats’ message man in Washington, said as he introduced diners to Democrat Kathy Hochul. 'Her opponent wants to just dismantle it.'... This, Democrats believe, is how Hochul just might do what seemed unthinkable a few weeks ago: win in one of the nation’s more inhospitable places for Democrats."
5) Medicare will run out of money in 2024, reports David Nather: "The new Medicare trustees report says the trust fund is now likely to run out of money in 2024, five years earlier than predicted last year. The reason, according to CMS, is that the economic recovery has been slower than expected -- making tax revenues come in more slowly. At a press briefing, Treasury Secretary Timothy Geithner said the change in the projection was due to 'technical changes in the economic assumptions underlying the projections.' CMS also said the passage of the health care reform law added eight years of life to the Medicare trust fund. Without the law, the agency said, the trust fund would go into the red in 2016."
Conscious hip-hop interlude: Common plays "The Light" live.
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Still to come: Federal pensions are under the knife in debt talks; Obama may have a hard time finding members for Medicare's new independent cost-cutting board; House Republicans are fighting labor regulators; Obama wants to expand domestic oil drilling; and the world's most agile field-rusher.
Federal pensions could be a major target in a debt deal, reports Lori Montgomery: "The generous pension system enjoyed by millions of federal workers from clerks to senators and judges has emerged as a key target in negotiations between Vice President Biden and congressional leaders looking to restrain the growing national debt. Republicans have proposed saving more than $120 billion over the next decade by requiring the civilian workforce to contribute more toward retirement -- a plan that would effectively impose an immediate 5 percent pay cut on more than 2 million federal employees...Now, administration officials have expressed interest in raising the amount that employees contribute to their pensions -- though probably not as high as the GOP proposal."
Conservative economists want the US to pay its debt by selling its gold, reports Joel Achenbach: "With the United States poised to slam into its debt limit Monday, conservative economists are eyeballing all that gold in Fort Knox. There’s about 147 million ounces of gold parked in the legendary vault. Gold is selling at nearly $1,500 an ounce. That’s many billions of dollars in bullion. 'It’s just sort of sitting there,' said Ron Utt, a senior fellow at the Heritage Foundation. 'Given the high price it is now, and the tremendous debt problem we now have, by all means, sell at the peak.' But that’s cockamamie, declares the Obama administration. Mary J. Miller, Treasury’s assistant secretary for financial markets, said the U.S. should sell assets in an orderly, 'well-telegraphed' manner, not in a 'fire sale' atmosphere with a debt limit deadline accelerating the process."
Gas and food prices are driving inflation up, reports Sara Murray: "Rising gasoline and food costs spurred an increase in inflation last month, but there were few signs of a broader price rise that would complicate the Federal Reserve's efforts to boost the economy and jobs. Higher prices for consumer staples did little to damp Americans' outlook on the economy, which turned more optimistic in early May, a separate report showed. The consumer-price index increased 0.4% in April, the Labor Department said Friday, after a 0.5% jump in March. Pricier food and energy were the primary causes, though costs of other consumer goods also showed signs of firming. Energy prices were up 2.2% for the month and 19% year over year. Food prices rose 0.4%, as the cost of eating at home and going out rose. Excluding the more volatile food and energy categories, prices ticked up 0.2% last month."
We need "pay as you go" on steroids, write Pete Domenici and Alice Rivlin: "Save-go requires that Congress achieve specific, annual dollar amounts of budget savings in each of three categories: discretionary (domestic and defense) spending, health-care spending, and other entitlement spending plus revenue...But if Congress failed to meet the yearly targets in any of the three buckets, a trigger would be pulled. If the discretionary spending target were missed in any year, domestic and defense spending would face automatic, across-the-board cuts. If the health-care target were missed, health programs would be cut across the board. If the target for other entitlement spending and revenue were missed, other entitlements (including Social Security) would be cut and tax expenditures...would be cut or other revenue increased."
Obama needs to call the GOP's bluff on the debt ceiling, writes Paul Krugman: "this is a hostage situation. If the president and his allies operate on the principle that failure to raise the debt ceiling is an unthinkable outcome, to be avoided at all cost, then they have ceded all power to those willing to bring that outcome about. In effect, they will have ripped up the Constitution and given control over America’s government to a party that only controls one house of Congress, but claims to be willing to bring down the economy unless it gets what it wants. Now, there are good reasons to believe that the G.O.P. isn’t nearly as willing to burn the house down as it claims. Business interests have made it clear that they’re horrified at the prospect of hitting the debt ceiling...But the president can’t call the extortionists' bluff unless he’s willing to confront them, and accept the associated risks."
We're not out of the woods on unemployment yet, writes Edward Lazear: "The increase in job growth that occurred over the past two years results from a decline in the number of layoffs, not from increased hiring. In February 2009, a month during which the labor market lost more than 700,000 jobs, employers hired four million workers. In March 2011, employers hired four million workers. The number of hires is the same today as it was when we were shedding jobs at record rates. We added jobs because hires exceeded separations, not because hiring increased...The decline in layoffs is not unexpected and does not necessarily reflect labor-market health. Layoffs tend to occur early in a recession. When an economy has reached bottom and has already shed much of its labor, layoffs slow. But that doesn't mean that the labor force is recovering."
Adorable animals using each other for transportation interlude: A sea lion cub rides a turtle.
Confirmation fights for the Independent Payment Advisory Board are sure to be brutal, reports David Nather: "Wanted: nationally known health care experts to serve on controversial health care board that will make painful Medicare spending cuts. Must be willing to quit current job to do it. Also, must be willing to go through bloody and humiliating confirmation fight. That’s the job description for the 15 members of the Independent Payment Advisory Board -- the new panel created by President Barack Obama’s health care law to come up with ways to cut Medicare spending if it grows too fast. It’s the board Republicans would love to turn into this year’s version of the 'death panel,' but Obama is firmly committed to the idea -- so committed that his latest deficit reduction plan would give it even more power. The question that’s increasingly coming up in health policy circles, though, is: Who would want that job?"
Rhode Island's experience showcases some problems with Paul Ryan's Medicaid proposal, reports Janet Roberts: "With Republicans pushing to rein in Medicaid costs, an experiment in Rhode Island is drawing the attention of some conservatives who say it has led to substantial savings without reducing care for the state’s poorest patients. The experiment is the closest to an example of the kinds of changes that Republicans say they want to make -- limiting federal spending for Medicaid while giving states more freedom to decide what benefits to offer and how to control the costs. But an examination of Rhode Island’s experience shows it has not yielded the kinds of savings its supporters claim. Federal spending on Medicaid continues to rise in Rhode Island, including payments the federal government would not be making otherwise."
Newt Gingrich is breaking with Paul Ryan on Medicare, reports Laura Meckler: "White House hopeful Newt Gingrich called the House Republican plan for Medicare 'right-wing social engineering,' injecting a discordant GOP voice into the party's efforts to reshape both entitlements and the broader budget debate. In the same interview Sunday, on NBC's 'Meet the Press,' Mr. Gingrich backed a requirement that all Americans buy health insurance, complicating a Republican line of attack on President Barack Obama's health law. The former House speaker's decision to stick with his previous support for an individual mandate comes days after former Massachusetts Gov. Mitt Romney defended the health revamp he championed as governor, which includes a mandate. The moves suggest the Republican primary contest, which will include both men, could feature a robust debate on health care."
Partisan spats are keeping a panel dedicated to expanding primary care from getting to work, reports Amy Goldstein: "When the government set out to help 32 million more Americans gain health insurance, Congress and the Obama administration acknowledged that steering more people into coverage had a dark underside: If it works, it will aggravate a shortage of family doctors, internists and other kinds of primary care. So Page 519 of the sprawling 2010 law to overhaul the health-care system creates an influential commission to guide the country in matching the supply of health-care workers with the need. But in the eight months since its members were named, the commission has been unable to start any work. The group cannot convene, converse or hire staff because $3 million that it needs for its initial year has been blocked by two partisan wars on Capitol Hill."
Republicans are targeting the National Labor Relations Board over its handling of Boeing, reports Melanie Trottman: "Congressional Republicans are demanding the National Labor Relations Board produce a raft of documents concerning the board’s complaint against Boeing Co. and other decisions the lawmakers say overstep the board’s authority. House Oversight Chairman Darrell Issa (R., Calif.), along with several Republicans on the committee, wrote to NLRB Acting General Counsel Lafe Solomon to demand documents linked to the Boeing complaint and union election laws in Arizona, South Carolina, South Dakota and Utah. The NLRB’s Boeing complaint seeks to force the company to move its newly built production line in South Carolina to Washington state, a remedy pushed by union members who alleged Boeing built the nonunion plant in South Carolina in retaliation for their past strikes."
The views of the public and college presidents on college diverge sharply, reports Kevin Helliker: "The general public and university presidents disagree about the purpose of college, who ought to pay for it and whether today's students are getting their money's worth. But university presidents and the average American agree that the cost of higher education now exceeds the reach of most people. Those are broad findings from a pair of surveys released late Sunday from the nonprofit Pew Research Center. The surveys took place this March and April, one posing college-related questions to 2,142 American adults, the other to 1,055 presidents of colleges large, small, public, private and for-profit...The idea that students and families should bear the largest share of college costs won approval from almost two-thirds of college presidents--but from only 48% of the general public."
Shareholders should decide on corporate campaign donations, writes John Bogle: "In a groundbreaking vote at the company’s June 2 annual meeting, Home Depot’s shareholders will have the chance to vote on a nonbinding resolution of support for the company’s policies on, and future plans for, political contributions. The vote was made possible because the Securities and Exchange Commission rightly decided in March to allow proxy proposals that require public companies to permit their shareholders to weigh in on their political spending. This means that, notwithstanding the Supreme Court’s decision last year that laws limiting corporate political contributions violate constitutional free speech principles, the game is far from over. Shareholders -- not self-interested corporate managers -- should, and can, decide policies on corporate political contributions."
Undergraduate teaching is pretty much terrible, write Richard Arum and Josipa Roksa: "In a typical semester, for instance, 32 percent of the students did not take a single course with more than 40 pages of reading per week, and 50 percent did not take any course requiring more than 20 pages of writing over the semester. The average student spent only about 12 to 13 hours per week studying -- about half the time a full-time college student in 1960 spent studying, according to the labor economists Philip S. Babcock and Mindy S. Marks. Not surprisingly, a large number of the students showed no significant progress on tests of critical thinking, complex reasoning and writing that were administered when they began college and then again at the ends of their sophomore and senior years."
Field invasion interlude: A fan rushes the field at a Mets/Astro game, evades capture for a full minute.
Obama wants to expand oil and gas drilling, reports Darren Goode: "President Barack Obama is looking to bolster U.S. oil drilling, announcing Saturday a preemptive strike against bolder efforts from Capitol Hill as consumer unrest deepens over the price at the pump. The White House will move forward without congressional action on a set of ideas espoused by Republicans and oil-state Democrats to expand oil-and-gas drilling in the Gulf of Mexico, Alaska and potentially parts of the Atlantic seaboard. It’s the closest Obama has come to rivaling his short-lived, pro-drilling stance that ended with the BP oil spill. At the same time, Obama is also firing up the liberal Democratic base by urging Congress to repeal billions of dollars in oil-industry tax incentives and to raise fees against companies that do not act quickly on drilling leases they own."
Senate Energy chair Jeff Bingaman thinks this week's oil subsidy vote will fail, reports Ben Geman: "Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) predicted Friday that a Democratic plan to strip billions of dollars in tax breaks for the largest oil companies will fail in the Senate next week. Democratic leaders are planning a test vote on their plan to end incentives for Exxon, Shell, BP, Chevron and ConocoPhillips that are worth an estimated $21 billion over 10 years. But Bingaman said the plan - which would steer the savings into deficit reduction - does not have enough votes. 'I don’t believe it does, and I think the Republicans will come up with some alternative they are going to offer that does not have the votes either,' he told C-SPAN."
Some freshman Republicans are fighting energy subsidies backed by the rest of the party, reports Marin Cogan: "Freshman Rep. Mike Pompeo (R-Kan.) is waging an uphill battle against energy subsidies supported by his colleagues in Congress. In a Friday news conference, Pompeo introduced a resolution cosponsored by another freshman, Rep. Raul Labrador, and California Rep. Tom McClintock, opposing a bill meant to 'promote a switchover from petroleum-based fuels to natural gas for transportation,' by providing $5 billion in subsidies 'to trucking companies, vehicle owners, vehicle manufacturers and fueling stations' over five years. The bill has 186 cosponsors, including many Republicans. Pompeo’s resolution would circumvent the bill, eliminate all current energy subsidies provided to fuels like natural gas and ethanol and establish opposition to any future subsidies."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.