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Wonkbook: How could taxes blow up debt talks?

By Ezra Klein,

Susan Walsh AP It is remarkable to watch how Republicans have taken tax increases, which have long been present in deficit-reduction deals and generally considered the equivalent of spending cuts, and turned them into something vastly more extreme and unthinkable. How unthinkable? Here's a little game. Take almost any of the Republican leadership's comments yesterday and substitute the words "bombing the moon" for the mention of taxes. See if the comments don't just work, but in fact work a little better.

"We’ve known from the beginning that bombing the moon would be a poison pill to any debt-reduction proposal,” Senate Minority Leader Mitch McConnell said in a speech on the Senate floor. See? Or: “President Obama needs to decide between his goal of bombing the moon, or a bipartisan plan to address our deficit," said McConnell and Sen. on Kyl in a joint statement. Or: “First of all, bombing the moon is going to destroy jobs," said Speaker John Boehner. "Second, bombing the moon cannot pass the US House of Representatives — it’s not just a bad idea, it doesn’t have the votes and it can’t happen. And third, the American people don’t want us to bomb the moon."

"Bombing the moon" would actually make these statements more accurate. A bipartisan deficit-reduction proposal, almost by definition, includes revenue increases. That, along with the spending cuts, is what makes it bipartisan. And unpopular? Tax increases, particularly if targeted at the wealthy, show themselves again and again to be among the most popular ways to reduce the budget deficit. The most recent Washington Post/ABC News poll found that 57 percent of Americans though the best way to reduce the deficit was "a combination" of tax hikes and spending cuts, and polls that have tested specific policies have found vastly more support for raising taxes on the rich than for GOP mainstays like cutting Medicare and Social Security and discretionary funding that goes to programs like education.

Which isn't to say that taxes are good policy. But they're not extreme policy. It's uncontroversial that tax cuts helped get us into this mess. As my colleague Lori Montgomery wrote when analyzing the component parts of our shift from surpluses to deficits, "the biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue." As the Center on Budget and Policy Priorities has shown, letting the Bush tax cuts expire basically stabilizes the debt over the next decade (though it doesn't solve the long-term problem of health-care cost inflation).

This doesn't mean you have to support the full, or even partial, expiration of the Bush tax cuts. Many believe there are better ways to balance the budget, and, for that matter, better ways to raise taxes. But the GOP's sudden insistence that taxes have nothing to do with our problems and only a loon would suggest they have a role in our solutions is ahistorical and unempirical. If you've gotten lost, the first thing to do is try and go back to way you came. After a decade of spending increases and tax cuts, that's what a package of spending cuts and tax increases would do. There's nothing radical about that notion, nothing that should force a halt to discussions and the sort of rhetoric we're hearing from the Republican side. We're not blowing up the moon here.

Five in the morning

1) Debt limit talks have broken down, reports Lori Montgomery: "Congressional Republicans abruptly pulled out of debt-reduction talks with the White House on Thursday and demanded that President Obama meet directly with GOP leaders to resolve an impasse over taxes. With the clock ticking toward an Aug. 2 deadline, senior Republicans said negotiations led by Vice President Biden had ceased making headway as congressional Democrats pressed for as much as $400 billion in new taxes on corporations and the nation’s wealthiest households. 'We’ve known from the beginning that tax hikes would be a poison pill to any debt-reduction proposal,' Senate Minority Leader Mitch McConnell (R-Ky.) said in a speech on the Senate floor. 'Those who are proposing them now either know this or they need to realize it quickly.'"

2) Obama and Boehner are expected to pick up the pieces, report Erik Wasson and Russell Berman: "Negotiations over cutting Washington’s debt plunged into crisis Thursday, as the top Republican negotiator walked out of talks over his Democratic counterparts' demand that taxes be raised. The walkout, by House Majority Leader Eric Cantor (R-Va.), means talks to avert a debt default can probably now be salvaged only by two men: President Obama and House Speaker John Boehner (R-Ohio). The two men, who had sought to break the ice over a round of golf last weekend, met late Wednesday, before the president’s televised speech to the nation about the Afghanistan war, to discuss various issues. Thursday’s dramatic developments suggest Obama and Boehner will be speaking again soon. The Speaker told reporters Thursday that he expected to hear from the president in the wake of Cantor’s exit."

3) The GOP walkout was in the works for weeks, reports Molly Hooper: "GOP aides and lawmakers said House Majority Leader Eric Cantor’s (R-Va.) decision to exit debt talks led by Vice President Biden was inevitable. The timing of Cantor’s exit from the talks has been discussed for weeks, and senior House Republicans cast it as a natural progression for the negotiations. 'There have been discussions about when these talks need to end and when the Speaker and the president need to get in the game,' one GOP aide explained. Democrats suggested Cantor’s decision was meant to undermine House Speaker John Boehner (R-Ohio) by forcing him to decide whether the elimination of any tax breaks would be included in a final deal to raise the debt ceiling and reduce annual deficits. But Republicans pushed back hard at that narrative, describing a coordinated effort that was weeks in the making."

4) The House GOP is challenging Arne Duncan's authority to change No Child Left Behind, reports Sam Dillon: "In a sharp rebuke to the Obama administration, the Republican chairman of the House education committee on Thursday challenged plans by the education secretary to override provisions of the federal No Child Left Behind Law, and he said he would use a House rewrite of it this year to rein in the secretary’s influence on America’s schools. Responding to Education Secretary Arne Duncan’s promise to grant states waivers to the education law’s most onerous provisions if Congress failed to rewrite it, the committee chairman, Representative John Kline of Minnesota, sent Mr. Duncan a letter on Thursday demanding that he explain by July 1 the legal authority that he believed he had to issue the waivers."

5) The Senate's filibuster deal could be on the rocks, reports Josiah Ryan: "Sen. Sheldon Whitehouse (D-R.I.) expressed his anger at Senate Republicans Thursday for filibustering legislation he claimed would create jobs and indicated that a deal struck between the parties early in the year to streamline the legislative process could be on the rocks..."I hope my colleagues on the other side of the aisle will reconsider their tactics,” said Whitehouse. 'If not we may have to reconsider ours and force some votes on job creation measures without this litany of irrelevant amendments that have bogged down and obstructed the previous job bill we tried to get action on.' The agreement struck between Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) was to provide Republicans with unlimited amendments in exchange for fewer filibusters in order to allow Senate to operate more efficiently and avoid the stalemates the characterized the last Congress."

Collaborative musical interlude: 36 YouTube covers of Radiohead's "Paranoid Android", combined.

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

Still to come: The House blocked more funding for the SEC as financial reform takes effect; health providers are slow to add electronic medical records; the Senate killed a GOP measure to end policy "czars"; the US and many other countries are tapping their strategic oil reserves; and LEGOLAND employees treat their boss to a very LEGOLAND prank.

Economy

The House has rejected a funding increase for the SEC, reports David Hilzenrath: "The Securities and Exchange Commission, which had been seeking a budget increase to keep pace with its expanded responsibilities, struck out Thursday in a House committee that controls its purse strings. The Appropriations Committee voted to keep the agency’s budget flat in the fiscal year that begins Oct. 1. The $1.19 billion the committee approved fell short of the Obama administration’s request by $222.5 million. The SEC regulates Wall Street and companies that trade on the stock markets, and it polices offenses such as accounting fraud and insider trading. It also investigates allegations that Wall Street companies dumped toxic housing investments on unwitting investors as the real estate market collapsed."

A patent overhaul cleared the House, reports Amy Schatz: "House lawmakers passed legislation Thursday to overhaul the U.S. patent system for the first time in nearly 60 years, despite disagreements over patent-office funding and a provision that could help large banks challenge some patents. The House passed the America Invents Act on a 304-117 vote, a bipartisan tally with more than two-thirds of lawmakers from each party supporting the bill. The bill would change how the U.S. grants patents and award them to the party which is "first to file" an invention instead of the "first to invent" it. The change would bring the U.S. in line with other countries who adopted first to file patent systems years ago, a move that will simplify the patent process for companies that file applications in multiple countries. The Senate passed similar legislation in March on a 95-to-5 vote."

AT&T/T-Mobile's lobbying campaign is picking up steam, reports Kim Hart: "The Capitol Hill lobbying campaign surrounding the proposed merger of AT&T and T-Mobile continues to escalate. Proponents of the deal are circulating a letter on Capitol Hill that touts its potential benefits. They are seeking to persuade Democratic members -- particularly those who represent rural districts -- to sign on in support of the increased broadband coverage that advocates say will result from the acquisition. But public interest group Free Press has sent its own letter to House and Senate leaders, suggesting that AT&T’s promises to bring broadband to rural America as a result of its deal with T-Mobile are 'greatly overstated.' The dueling letters underscore the massive lobbying operations at work on Capitol Hill to cajole members to take sides."

Christine Lagarde has concluded her campaign to run the IMF, reports Sudeep Reddy: "French Finance Minister Christine Lagarde closed out the race to lead the International Monetary Fund with a pledge Thursday to make tough decisions on Europe's fiscal crisis and to help developing economies gain more clout at the institution. During her three-hour interview with the IMF's executive board, Ms. Lagarde pushed back against complaints from developing-market officials that her candidacy posed a conflict of interest as the IMF helps rescue troubled euro-zone nations. The managing director has an 'exclusive duty of loyalty' to the fund, she said...Ms. Lagarde is expected to win final approval for the IMF's top post next week after maintaining an overwhelming lead throughout the race against Mexican central banker Agustín Carstens."

Obama should recess-appoint Elizabeth Warren, but not nominate her, writes Ian Ayres: "The president should make a recess appointment of Elizabeth Warren and simultaneously nominate Sarah Raskin for the same position. During the July 4 Senate recess, the president may constitutionally exercise his recess appointment right and appoint Warren to begin serving immediately as the CFPB’s director. Warren is the perfect candidate to initially lead the agency...Raskin is a natural successor. She is abundantly qualified for the position. It would be hard for Republican senators to argue that Raskin, as a recently confirmed Federal Reserve governor, is a bad-faith nominee...While traditional recess appointments usurp the Senate’s advise-and-consent role, the 'appoint and nominate' strategy would empower the Senate to end the recess appointment as soon as it wanted. Warren would, in effect, serve at the pleasure of the Senate."

Obama is legally allowed to ignore the debt ceiling, writes Matthew Zeitlin: "Barring a timely resolution to the standoff, could President Obama simply ignore the debt ceiling and keep making good on the country’s obligations? As the deadline grows nearer, the question has been popping up on law blogs and other forums, and according to a number of legal experts with whom I spoke, the answer, surprisingly, appears to be yes--and it is conservative justices who have played the biggest role in making it possible...When it comes to Congress’s ability to stop the Obama administration from ignoring the debt ceiling, legal experts note that the first obstacle standing in its way is the question of standing, or whether a certain party has the right to sue over an issue in the first place....Even if standing could be established...some legal experts note that an additional argument of surprising strength could be made: The government cannot legally default on its debts."

The financial crisis was hardly an anomaly, write Paul Krugman and Robin Wells: "The great financial crisis of 2008-2009, whose consequences still blight our economy, is sometimes portrayed as a 'black swan' or a '100-year flood'--that is, as an extraordinary event that nobody could have predicted. But it was, in fact, just the most recent installment in a recurrent pattern of financial overreach, taxpayer bailout, and subsequent Wall Street ingratitude. And all indications are that the pattern is set to continue...The first thing you need to know about the cycle of financial overreach, crisis, and bailout is that it was not always thus. The United States emerged from the Great Depression with a tightly regulated financial sector, and for about forty years those regulations were enough to keep banking both safe and boring...Over the course of the 1970s and 1980s, however, both the political consensus in favor of boring banking and the structure of regulations that kept banking safe unraveled."

We can, and should, run a regular budget deficit, writes Josh Barro: "The federal government can, and should, run a structural budget deficit in perpetuity. The key is just that the deficit should not be too large; roughly, 2 percent of GDP would be an acceptable figure. This is an idea that people tend to recoil from instinctively. Deficit spending is supposed to be irresponsible, and you can’t do it forever!...The period from 1960 to 1982 saw improving debt to GDP ratios, even as the government ran a budget deficit during every year except one...For most of the last 50 years, we had a sustainable fiscal policy and budget deficits. That’s because key to sustainability isn’t balance--it is making sure that the public debt does not grow faster (over the long term) than the economy."

How is this already retro interlude: A montage of '90s pop culture.

Health Care

Providers are moving slowly on electronic records, reports Matt Dobias: "Electronic health records are at the center of some of the key reforms of the Affordable Care Act, because having reliable data to track patients, trends and possible fraud is one of the ways reformers think they will eventually be able to bend the cost curve. But so far, only a scant number of providers are fully using the technology -- and even fewer use it so as to qualify for federal incentive payments. Through mid-May, just 1,026 registered hospitals and physicians out of a possible 56,599 have shown they use electronic records and other digital technology to meet federal 'meaningful use' standards, and only 861 of them have actually received payment for doing so, according to data collected by the Centers for Medicare & Medicaid Services and obtained by POLITICO."

We need IPAB, writes Kathleen Sebelius: "A key part of the president’s plan, the Independent Payment Advisory Board, has recently been the subject of inaccurate claims. Critics say it will ration care and put bureaucrats in charge of the health care system. Nothing could be further from the truth. As this debate continues, it’s important to set the record straight. Here’s how the advisory board works. It is made up of 15 health experts, including doctors, other health care professionals, employers, economists and consumer representatives. Members will be recommended by Congress, appointed by the president and confirmed by the Senate. Contrary to critics’ contentions, the board’s work will be transparent, independent and accountable to Congress and the president...Moreover, Congress will still have the final decision on any changes."

Domestic Policy

The Senate blocked an effort to defund "czars", reports Josiah Ryan: "The Senate voted 47-51 on Thursday to kill an amendment offered by Sen. David Vitter (R-La.) that would have ended the ability of the White House to appoint policy 'czars,' and prohibited the use of federal funds for the salaries and expenses of czars already appointed. The measure needed 60 votes to pass. Before the vote, Sen. Charles Schumer (D-N.Y.), the Senate’s third-ranking Democrat, decried the amendment from the floor as an attempt to weaken the Democratic presidency and as a 'poison pill' for the underlying legislation...Vitter was attempting to attach the amendment to a bill that would streamline the presidential appointment process."

The Feds are launching an antitrust investigation of Google, report Thomas Catan and Amir Efrati: "Federal regulators are poised to hit Google Inc. with subpoenas, launching a broad, formal investigation into whether the Internet giant has abused its dominance in Web-search advertising, people familiar with the matter said. The civil probe, which has the potential to reshape how companies compete on the Internet, is the most serious legal threat yet to the 12-year-old company, though it wouldn't necessarily lead to any federal allegations of wrongdoing against Google. While Google has faced several antitrust probes in recent years, the U.S. has limited its investigations largely to reviews of the company's mergers and acquisitions. The new inquiry, by contrast, will examine fundamental issues relating to Google's core search-advertising business, its biggest money maker, said the people familiar with the matter."

We need common education standards, write Jeb Bush and Joel Klein: "Recognizing our great need for more rigorous academics, state leaders and educators have come together to create model content standards...The standards provide a framework of clear and consistent skills for math and English. Already some 43 states and the District of Columbia have signed up to adopt the standards...Research shows that rigorous mastery of fractions is crucial for later math performance. The Common Core State Standards provide clear grade-by-grade goals for what students should know about fractions, built on the best practices of high-performing countries. In literacy, what most predicts college readiness is the ability to read and understand complex texts. The Common Standards set clear benchmarks for each grade for students reading sufficiently complex texts."

Federal pay should take its cue from the private sector, writes Max Stier: "The answer is to adopt a true market-based labor system that would establish federal pay levels roughly comparable to that of major private-sector employers when filling similar jobs. It would take into account geographic differences in pay based on cost-of-living considerations and differences based on occupations, skill sets and levels of responsibility. The value of federal employee benefits, such as health insurance and pensions, also would be considered when setting pay, with care taken to ensure that the total compensation package still enables government to compete for the talent it needs...Ultimately, the federal pay system must allow the federal government to attract, motivate and retain highly qualified workers to carry out its many missions."

Prank interlude: LEGOLAND employees replace their manager's car with a replica built out of LEGOs.

Energy

The administration is opening the Strategic Petroleum Reserve, report Steven Mufson and Zachary Goldfarb: "The United States and other industrial nations said Thursday that they will release 60 million barrels of crude oil from strategic stockpiles in aneffort to reduce the price of fuel and to jolt the stalling economic recovery. The United States will sell 30 million barrels from its Strategic Petroleum Reserve over the next 30 days, the largest release ever from the nation’s emergency energy stockpile. The International Energy Agency said its other members will draw down an equal amount. The announcement led to a debate in Congress about the appropriate use of the strategic reserve. Some analysts noted that the drawdown would amount to less than what the world consumes in a single day and that its effect would be fleeting. If successful, though, the release could lower oil prices over the summer."

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

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