Wonkbook: deficit-reduction confusion

at 07:42 AM ET, 05/05/2011

Here’s a partial list of the various budgets and deficit-reduction proposals currently on the table: There’s Ryan’s budget, of course. Then there’s Obama’s proposal. The House Progressive Caucus released a document of their own, as did the Republican Study Committee. There’s the alternative developed by the House Democrats, and Kent Conrad is building out a budget in the Senate. Then there’s the Gang of Six, which doesn’t have a specific proposal yet but does have senators from both parties, and the Biden talks, which begin tomorrow. And those are just official documents from inside the political system. There are also proposals from the Bipartisan Policy Center, the Simpson-Bowles commission, liberal thinks tanks, conservative think tanks...

Nor is it clear where the various players stand. Senate Democrats don’t know whether the Obama administration wants to directly negotiate for the Democrats on this budget process or whether they’d prefer, as with the continuing resolution, to mediate, which means Senate Democrats need to provide a strategic opening bid of their own. There’s confusion over how much of the Ryan budget Republicans are going to insist on seeing included in a final deal, and frustration over the fact that Republicans are trying to reshape the state according to longtime ideological preferences rather than focusing on deficits now and saving the structural reforms for another time. The Gang of Six is having trouble releasing a plan, Senate Democrats are annoyed that Conrad looks likely to release a compromise proposal that’ll quickly become the Democratic alternative, and looming over all of this is the threat of the debt ceiling.

One of my axioms about American politics is that almost nothing is truly planned. But there’s rarely been a better example than the deficit-reduction conversation. It’s just a mess of bills and processes, many of which conflict with each other or are proving counterproductive. My hunch is the two parties are actually further from a real agreement than they were, say, eight months ago, before Republicans had committed themselves to privatizing Medicare as part of a deficit negotiation and Democrats had seen the political opportunities lurking in the Ryan budget.

Five in the morning

1) The GOP has given up on a Medicare/Social Security deal, reports Lori Montgomery: “Senior Republicans conceded Wednesday that a deal is unlikely on a contentious plan to overhaul Medicare and offered to open budget talks with the White House by focusing on areas where both parties can agree, such as cutting farm subsidies... That search could start, Cantor said, with a list of GOP proposals that would save $715 billion over the next decade by ending payments to wealthy farmers, limiting lawsuits against doctors, and expanding government auctions of broadcast spectrum to telecommunications companies, among other items. Democrats said they were encouraged by the move, which could smooth the way to a compromise allowing Congress to raise the legal limit on government borrowing and avoid a national default.”

Cantor is denying this, however: http://politi.co/ijdS33

2) The deal will likely involve debt triggers, report David Wessel and Damian Paletta: “GOP leaders and the White House are discussing a deal that would enact strict deficit targets and some spending cuts to win Republican votes for lifting the ceiling on how much the federal government can borrow... Targets...would aim to bring the deficit below 3% of gross domestic product by 2015, a goal that would require more spending cuts or tax increases than the legislated cuts would achieve. To enforce the targets, automatic and credible spending cuts would be required if the Congressional Budget Office says policies in place won’t meet those goals; the administration wants both automatic spending cuts and tax increases.”

3) Seven Senators won’t vote for a debt limit increase without a balanced budget amendment, reports Scott Wong: “A tea party-backed senator is trying to put his GOP colleagues in a tough spot, forcing them to choose between opposing a debt limit hike or look soft on spending. Freshman Sen. Mike Lee (R-Utah) is asking his colleagues to sign a letter pledging to ‘vigorously oppose any attempt to raise the debt ceiling’ until both the House and Senate pass a constitutional amendment that requires the government to balance its budget each year...In addition to Lee, at least six other GOP senators have signed the letter: Rand Paul of Kentucky, Jim DeMint of South Carolina, Jim Risch of Idaho, Marco Rubio of Florida, Jim Inhofe of Oklahoma and Richard Shelby of Alabama.”

4) The Senate GOP and House Dems are unveiling their own jobs packages, reports Philip Rucker: “Leaders of the minority parties in the Senate and House introduced their jobs agendas in spirited fashion...The 28 other House Democrats flanking Clyburn...came prepared to offer some [ideas] in the form of a ‘Make It in America’ agenda. Among them: new programs to train workers in advanced manufacturing, investments in transportation infrastructure, research and development tax credits, and savings accounts for small-business start-ups...Five Republicans took to the Senate floor to explain some ideas of their own, packaged simply as the ‘Senate Republican Jobs Plan.’ Among them: require a statutory spending limit for the government, reduce individual and corporate tax rates, prohibit the federal regulation of greenhouse gases and repeal President Obama’s health-care law.”

5) The White House will fire an opening shot in the corporate tax debate this month or next, reports Mike Allen: “The Obama administration is quietly gearing up for a high-profile launch in May or June on what may turn out to be the most heavily lobbied issue of the year: corporate tax reform...Treasury Secretary Timothy Geithner plans to ignite the debate by unveiling a white paper that advocates lowering the top corporate tax rate from the current 35 percent to less than 30 percent and as low as 26 percent, according to aides. The proposal is likely to fall between 26 percent and 28 percent. To pay for that, the proposal will call for closing loopholes and slicing exemptions. The two main ones are a tax deduction for domestic manufacturing and accelerated depreciation for capital equipment.”

Classic rock cover interlude: Death Cab for Cutie and The Decemberists play “Go Your Own Way” by Fleetwood Mac.

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

Still to come: The House is moving to block new bank regulations; a kinder, gentler Medicaid cut effort is underway in Congress; the gambling lobby is pushing hard to legalize online poker; a conservative House Democrat is floating a gas tax holiday; and Beyonce guess who crashed a middle school PE class.

Economy

The House is working to block new bank regulations, reports David Hilzenrath: “Almost a year has passed since a Democratic majority in Congress responded to the financial crisis by passing sweeping legislation to tighten regulation of Wall Street, but the partisan conflict over the measure never ended. Now, with Republicans in control of the House, the fate of the overhaul is again in play. On Wednesday, splitting along party lines, the House Agriculture Committee voted to delay by 18 months implementation of rules governing derivatives, the kind of complex financial instruments that were blamed for putting the financial system in jeopardy. The bill would require regulators to gather additional comments and further examine the potential downside of the rules.”

Biden is Obama’s secret weapon in debt limit talks, reports Zachary Goldfarb: “For the third time in six months, President Obama is turning to Vice President Biden to forge an agreement with Capitol Hill over government spending and taxes. On Thursday, in the highest-stakes effort yet, Biden will convene a bipartisan group of lawmakers from the House and Senate to discuss raising the legal limit on how much the government can borrow and a longer-term plan to bring federal spending in line with revenues. The meeting follows Biden’s work to find consensus within Congress earlier this year to avert a government shutdown and in a secret series of negotiations with Senate Minority Leader Mitch McConnell (R-Ky.) that sealed a December tax deal.”

Not raising the debt limit could wreak havoc even before it’s reached, reports Binyamin Appelbaum: “The federal government will not run short of money to pay its bills on May 16, when the federal debt reaches the legal maximum of $14.3 trillion. Even after Aug. 2, the deadline the Treasury Department set this week for Congress to lift the borrowing limit, the government might be able to delay a crisis, perhaps even for a few months, through extraordinary measures such as asset sales. But with every passing week of stalemate over the debt ceiling, the risk increases that investors will start to fret that the United States will not pay its debts, and demand higher interest rates for loans to the federal government. Should that happen, the cost could be vast and the damage difficult to reverse.”

The Fed is deflecting criticism from inflation hawks, reports Jon Hilsenrath: “Two Federal Reserve officials defended the central bank’s stance on inflation, arguing that food and energy price increases are likely to slow on their own and if the Fed were to try to hasten that it might do more harm than good. ‘We are seeing a temporary bulge in inflation before we return to an underlying level of about 1.25 to 1.5% annually,’ said John Williams, president of the Federal Reserve Bank of San Francisco in his first public comments since being named to the post in March...Another Bernanke loyalist, Eric Rosengren, president of the Federal Reserve Bank of Boston, said surging food and energy prices are largely due to supply shocks such as bad weather hurting food crops in Russia and Australia and political upheaval in the Middle East causing worries about the supply of oil.”

China’s centrally controlled banking sector is tripping it up, reports Howard Schneider: “For China to create more jobs and depend less on exports, financing needs to flow more freely to small and medium-size firms, according to economists, bankers and small-business owners. Those firms tend to hire more workers and rely more on local markets. But the companies traditionally have been shunned by a banking industry hesitant to lend until a company has proved itself -- an industry dominated by four large state-owned firms whose lending has been slanted toward larger and state-affiliated companies...China’s financial system is regarded as a sort of final frontier in its integration with the global economy; it is heavily regulated and used by the top authorities to steer economic development through controls on capital, currency, interest rates and other means.”

We should cut tax deductions, not raise rates, writes Martin Feldstein: “Tax credits for buying solar panels or hybrid cars are just like government spending to subsidize those purchases. Similarly, the exclusion from employees’ taxable incomes of employer payments for health insurance is no different from subsidizing the purchase of those insurance policies. The deduction for interest on residential mortgages, probably the best-known tax expenditure, amounts to a giant subsidy for homeownership. At their worst, such tax expenditures create incentives for wasteful borrowing and spending; they have been factors in the mortgage crisis and the rising cost of health care. Tax expenditures collectively increase the budget deficit by more than all other nondefense spending combined, other than Social Security and Medicare.”

We should make a “mini-bargain” on the debt, write Roger Altman and Richard Haass: “The country faces three alternatives. One is to work toward a smaller budget deal -- a minibargain -- that is meaty enough to attract the necessary votes for the debt-limit bill, enough to reassure markets and achievable within this short time frame. The second is to suffer the same fate as this year’s budget, namely, a last-minute, huge, Republican-driven package that guts discretionary spending in future budgets. The third is default. A smaller budget deal is clearly preferable... There can be a minibargain covering three categories: discretionary spending, including defense; entitlements, especially Medicare; and tax expenditures. Equal amounts could be cut from each category for a total $1.5 trillion deficit reduction over 10 years. This is 40 percent of what is eventually needed.”

Celebrities teaching fitness interlude: Beyoncé crashes a Harlem middle school’s PE class.

Health Care

A milder GOP plan for cutting Medicaid has a chance of passing, reports Suzy Khimm: “After first placing Paul Ryan’s drastic Medicaid-slashing proposal on the negotiating table, Republicans are lining up behind a yet another plan to curb the program’s benefits and payments--a smaller-scale change that’s likelier to pass Congress. Republicans in both houses introduced bills on Tuesday that would eliminate federal regulations that prevent states from trimming their Medicaid rolls or erecting new barriers to enrollment. In February, Mother Jones broke the news that Republicans planned to target these so-called Maintenance of Effort (MOE) requirements, which the federal government put in place after giving states a new injection of Medicaid money in 2009. Now they’ve made good on their promise.”

Voters still hate Ryancare, reports Patrick O’Connor: “Changes to Medicare and Medicaid remain wildly unpopular and more than two-thirds of registered voters want to repeal Bush-era tax cuts for households that make more than $250,000 a year, according to the latest Quinnipiac University poll. More than twice as many voters oppose efforts to change Medicare than those who favor limiting benefits under the popular health-care program for seniors. And a distinct majority opposes new limits on Medicaid, the federal-state health program for the poor. What’s worse for the GOP, the numbers don’t change much when voters were told how much federal spending Medicare and Medicaid consume...The only significant change came on the question of defense spending, with support for cuts increasing by 7% when voters were told how much the government spends on the military.”

Domestic Policy

Lobbyists are fighting to legalize online poker, reports Dan Eggen: “Online poker fans are calling it ‘Black Friday’: On April 15, the Justice Department charged the owners of three of the world’s largest Internet gaming companies with bank fraud and gambling offenses, shutting down their Web sites and freezing bank accounts around the world. Now, poker advocates in Washington are attempting to turn the bust to their advantage by renewing a push to legalize online poker in the United States. The Poker Players Alliance, a lobbying group backed in part by overseas gaming interests, has unleashed a blizzard of telephone calls and e-mails to lawmakers in the past two weeks arguing that the criminal case against PokerStars, Full Tilt Poker and Absolute Poker shows the need for a legalized system.”

Students are lagging behind on civics, reports Sam Dillon: “Fewer than half of American eighth graders knew the purpose of the Bill of Rights on the most recent national civics examination, and only one in 10 demonstrated acceptable knowledge of the checks and balances among the legislative, executive and judicial branches, according to test results released on Wednesday. At the same time, three-quarters of high school seniors who took the test, the National Assessment of Educational Progress, were unable to demonstrate skills like identifying the effect of United States foreign policy on other nations or naming a power granted to Congress by the Constitution. ‘Today’s NAEP results confirm that we have a crisis on our hands when it comes to civics education,’ said Sandra Day O’Connor, the former Supreme Court justice.”

Adorable animals locked in a primal struggle to survive interlude: Three cats latch onto one piece of meat.

Energy

Rep. Heath Shuler is pushing a gas tax holiday, reports Dan Berman: “Rep. Heath Shuler is floating a plan to suspend the 18.4 cents-per-gallon federal gas tax for 45 days. Shuler’s plan would offset the gas tax income by eliminating various tax incentives for oil companies for one year, potentially putting Republicans in the sticky situation of choosing between Big Oil and lowering taxes on drivers as gasoline hits $4 per gallon. It’s also one of the first concrete plans this year to curb the gas tax -- always a tempting political target...Shuler (D-N.C.)’s proposal is an amendment to offshore drilling legislation expected on the House floor later this week.”

Corn state senators are caving on ethanol, reports Ben Geman: “A bipartisan group of farm-state senators floated plans Wednesday to slowly phase out ethanol tax subsidies, a measure that surfaced a day after a separate bipartisan coalition introduced new plans to kill the incentives almost immediately. Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Sen. Chuck Grassley (R-Iowa) -- along with half-dozen other lawmakers -- introduced a plan that would extend the ethanol blenders’ credit through 2016 but cut the level. The 45-cent-per-gallon credit that refiners and fuel blenders receive for each gallon of ethanol purchased and mixed into gasoline is currently slated to expire at year’s end. The new plan, according to Grassley’s office, would cut the credit to 20 cents in 2012 and 15 cents in 2013, and from there it would float or vanish -- depending on crude oil prices.”

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

 
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