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Wonkbook: How Indiana could change Washington in 2013

By Ezra Klein,

In Indiana, Sen. Richard Lugar now looks likely to lose the Republican primary to state Treasurer Richard Mourdock. Typically, a Senate primary isn't the sort of event I'd include in Wonkbook. But this one matters.

J. Scott Applewhite

AP

In this April 24, 2012, file photo, Sen. Richard Lugar, R-Ind., the ranking member of the Senate Foreign Relations Committee, speaks with reporters off the Senate floor before a series of votes on Capitol Hill in Washington.

If Mitt Romney wins the election, it's easy to see the kind of Congress he has: A Republican one. But if President Obama wins reelection, it's likely that one or both chambers will be controlled by Republicans. In that case, if you want to know how 'Taxmageddon' will be resolved, or whether immigration reform will be possible, you need to know how Republicans in Congress feel about compromising with Obama. And Lugar's fate might shape that sentiment. Consider three possible outcomes in Indiana:

Lugar wins: In this world, it's not clear that any high-profile incumbents would have lost to a Tea Party challenge in this cycle. Sen. Orrin Hatch is widely expected to withstand his challengers in Utah. To many lawmakers, this will suggest that the threat of primary challenges has begun to recede. That gives them more space to actually legislate, with all the compromising and taking of tough positions that that implies.

Lugar loses and Mourdock wins the general election: This would be a signal that primary challenges remain a threat, and no Republican lawmaker can feel safe cutting deals or taking tough votes. This is a world where Republicans, having run and lost with a "Massachusetts moderate," swear never to compromise on their principles again, and incumbent lawmakers realize that there will be a raft of primary challenges coming and so they had better spend the next two years shoring up their right flank. This is not a world in which you can imagine a 'grand bargain' getting done.

Lugar loses and Mourdock loses the general election. This, too, is a possibility. "If Mr. Lugar loses, it should increase Democrats’ odds of picking up the Senate seat in November," writes Nate Silver. In that case, Lugar's loss could keep the Senate in Democratic hands, much as Tea Party candidates lost in Nevada, Delaware, and Colorado and kept the Senate in Democratic hands after the 2010 election. And remember, in this hypothetical, Obama would also have won the presidential election. This might be a world where Republican Party has a moderating moment, as both elites and rank-and-file blame their parties continued losses on its extreme reputation and take a more cooperative tack in order to repair their reputation in advance of the 2014 and 2016 elections.

Of course, we can come up with endless hypotheticals. But the underlying point here is that what gets done in Washington next year won't just be decided by the presidential election. It will be decided by the congressional elections, and the parties' reactions to what happens in the congressional elections. And the degree to which Republican lawmakers think of themselves as constantly vulnerable to a primary challenge could matter quite a lot in terms of how much they can actually partner with Obama to do.

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RCP Obama vs. Romney: Obama +3.4%.

RCP Obama approval: 47.8%.

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Top stories

1) House Republicans don't plan to pay for tax cut extensions. "House Republicans say they have no plans to pay for the extension of the Bush-era tax rates, a move that could erase the deficit reduction they have achieved since winning their majority in the chamber in 2010. The income and investment tax cuts enacted in 2001 and 2003 are set to expire at the end of the year and are at the center of a thicket of fiscal decisions that Congress must make in the next several months...Moving to extend the Bush tax rates without offsetting spending cuts or revenue increases could leave the GOP vulnerable to attacks on the deficit, particularly for a party that has spent years accusing Democrats of bankrupting federal coffers and used their House majority to insist on controlling the exploding debt. It is Republican Party orthodoxy that tax cuts do not need to be offset because of the additional tax receipts they spur through economic growth." Russell Berman and Bernie Becker in The Hill.

2) Paul Ryan introduced a plan to stop the sequester. "House Budget Committee Chairman Paul Ryan (R-Wis.) has introduced legislation to replace a mandatory across-the-board discretionary spending cut in fiscal year 2013 that is required by last summer's deal to raise the debt ceiling. The bill is the start of an effort to prevent $600 billion in defense cuts over 10 years that both parties argue would reduce U.S. national security. The defense cuts were supposed to pressure a 'supercommittee' of lawmakers to find alternative cuts in the budget, but that panel failed to come up with a plan. Ryan's Sequester Replacement Act, H.R. 4966, would eliminate language in last year's Budget Control Act that requires the cut to 2013 spending, known as the 'sequester.' Another piece of legislation, the Sequester Replacement Reconciliation Act, is a 187-page bill that outlines the various cuts and savings to mandatory programs that will make up for ending the sequester." Pete Kasperowicz in The Hill.

3) Earmarks are proving a tough habit to break. "House Republican freshmen are figuring out that it’s hard to hate Washington and need Washington at the same time...These earmark-like promotions reveal the serious tension between the conservative anti-government ideology that swept the freshmen into office and the political pressure to deliver the federal goods back home. Rookie lawmakers have revolted over cuts to mass transit that affect them on the home front while expressing sticker shock at the overall cost of the $260 billion bill. In a different time, a highway bill would have been greased for passage with hundreds -- if not thousands -- of earmarks for highways, bridges and transit projects. But the larger transportation bill never made it to the floor and a shorter, trimmed-down version of the bill the House did pass is now heading into conference committee where there are eight freshmen waiting to help out with negotiations. Their biggest concern now is: What is this going to do for us?" Kate Nocera and Adam Snider in Politico.

4) Fannie Mae once saw benefits to principal reduction. "Officials at government-backed mortgage giant Fannie Mae concluded years ago that the company could 'reduce its losses substantially' by lowering loan amounts for some troubled borrowers, according to internal documents cited Tuesday by the top Democrat on the House oversight committee...The letter details a specific pilot program that Fannie Mae officials considered creating in conjunction with Citibank beginning in 2009. Under the program, the loan balances of qualified homeowners would be reduced to help them remain in their homes, with the homeowners agreeing to share any profits on the future sale of the home. The letter cites presentations in which Fannie officials estimated that the program would cost $1.7 million, while the benefits could have saved more than $410 million. Despite its approval by a company risk officer in April 2010, the program was killed that July, and the documents provide no clear explanation why, according to Cummings." Brady Dennis in The Washington Post.

@NickTimiraos: DeMarco on why writedown decision is tough: involves funds being taken from one group of citizens to provide a benefit to another group

Top op-eds

1) YGLESIAS: Spain should quit the euro zone. "Spain is in a complete economic crisis. Its unemployment rate of 24.4 percent is higher than the U.S. unemployment rate during the worst of the Great Depression...But perhaps there is a way out, one suggested by the recent experience of Argentina, a nation that’s currently enjoying full employment...So what’s the lesson for Spain? Piggybacking on the dollar ultimately failed Argentina, because pegging to the dollar didn’t suddenly turn Argentina into the United States...A full monetary union is not the same thing as a currency peg, and unwinding the euro would wreak even more short-term havoc than Argentina’s default. But an economically sovereign country at least has the opportunity to get things right, while a country shackled to another nation’s macroeconomic policies is basically left hoping for charity. If officials in Spain and elsewhere aren’t considering the possibility of quitting the eurozone, they should be." Matthew Yglesias in Slate.

@mattyglesias: Briefly thought I'd come up with a solution to the Eurozone's problems, but after rechecking my work they're still unfixable.

2) MILBANK: Congress is best at doing nothing. "If you were to stroll by the House chamber today -- or tomorrow, or the next day, or the day after that -- you would arrive at the ideal time to see what the lawmakers do best: absolutely nothing...By the time the Republican-led House returns next week, members will have been working in Washington on just 41 of the first 127 days of 2012 -- and that was the busy part of the year. They are planning to be on vacation -- er, doing 'constituent work' -- 17 of the year’s remaining 34 weeks, and even when they are in town the typical workweek is three days...To call this 112th Congress a do-nothing Congress would be an insult -- to the real Do-Nothing Congress of 1947-48. That Congress passed 908 laws. To date, this one has passed 106 public laws. Even if they triple that output in the rest of 2012 -- not a terribly likely proposition -- they will still be in last place going back at least 40 years." Dana Milbank in The Washington Post.

3) PORTER: The trade imbalance with China is disappearing. "America’s economic imbalance with China has been a singular concern of policy makers for more than half a decade. Senators Charles E. Schumer and Lindsey Graham wanted to punish China for pegging the exchange rate to the dollar in 2005 -- arguing that its policy of cheapening the currency to subsidize exports was fueling a huge trade surplus that cost America jobs. Their bill never passed. But reducing China’s surpluses has remained at the top of the bilateral agenda ever since. Something unexpected has happened to China’s economy, however. Its surplus with the rest of the world has largely disappeared...China’s current-account surplus -- the broadest measure of its trade relations, which tracks how much more China exports in goods and services than it imports -- has plummeted. In 2007 it amounted to more than 10 percent of the entire Chinese economy. By last year it had shrunk to about 2.8 percent." Eduardo Porter in The New York Times.

4) ORSZAG: The housing crash showcases the failure of bad economic models. "Federal Reserve Chairman Ben S. Bernanke trenchantly noted that the initial losses from the dot-com bust were about the same size as those from the housing meltdown -- yet the two episodes had very different economic consequences. What Bernanke didn’t say was that the reason the Fed, along with every other official forecaster, underestimated the depth of the latest downturn so badly is that its models effectively treated the housing collapse as if it were merely dot-com bust 2.0. And only modest progress has been made toward avoiding that same mistake in the future...The problem is that the macroeconometric models used by the Fed -- like those used by the Congressional Budget Office, the White House and others -- had at best a very rudimentary financial sector built into them. As a result, they took into account the macroeconomic impact from the housing bust -- but for the most part didn’t reflect the concentrated loss of wealth and degree of leverage in the financial industry." Peter Orszag in Bloomberg.

5) WOLF: Central banks have been transformed. "What is the future of central banks? It will be busy, because they are now expected to deliver both monetary and financial stability. It will be controversial, because the decisions they make have a huge impact on the distribution of income, people’s access to finance, the way the financial system operates and even the solvency of governments. Before the crisis, the rise of sophisticated modern finance was thought to render redundant the role of central banks as guardians of financial stability. It had been long believed that their role as financiers of government brought only inflation. Thus, central bankers became priests of a monetary policy aimed at low and stable inflation. This past is a foreign country. Central banks have not abandoned the religion of price stability, though some economists have muttered heretical thoughts about the need for higher inflation. Nevertheless, central banking has been transformed, in practice and theory." Martin Wolf in The Financial Times.

Jazz interlude: Thelonious Monk plays "'Round Midnight" live in Poland.

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

Still to come: Swipe fees are halved; the future of health care could be comparison shopping; relaxed gun export laws face opposition; less revenue for states due to cheap natural gas; and a philosophical pop star.

Economy

1) Manufacturing had another good month. "Manufacturing activity picked up steam on several fronts in April, easing concerns that a key engine of the economy was beginning to falter. The Institute for Supply Management's index of manufacturing activity, based on surveys of purchasing managers across the U.S., rose to 54.8 last month from 53.4 in March--the 33rd consecutive month of growth and the fastest pace since June 2011. The expansion was broad-based, with 16 of 18 industries reporting gains, according to the report Tuesday. Gauges of production, exports and employment all increased while the new-orders index--a barometer of future activity--rose 3.7 points to 58.2. Readings above 50 indicate growth." Conor Dougherty in The Wall Street Journal.

@TheStalwart: Economy not going down without a fight

@jimtankersley: Today: ISM Manufacturing up. Yestdy: Chicago PMI down. Hey economic data: Pick a theme, will ya?

But auto sales growth slowed last month. "U.S. auto sales continued at a brisk pace in April although the total volume of vehicles sold increased only slightly due to a quirk in the calendar, lower sales to rental fleets and weaker deliveries from General Motors Co. and Ford Motor Co. Annualized sales were at a 14.4 million pace, according to researcher Autodata Corp., indicating that auto purchases in the U.S. remain on track to rise by 10% or more this year compared with 2011...Overall U.S. new-auto sales for the month rose 2.3% from a year earlier, to 1.18 million cars and light trucks, Autodata said. April was a mix with Chrysler Group LLC and Toyota Motor Corp. reporting strong gains while others posted declines." Jeff Bennett and Matthew Dolan in The Wall Street Journal.

And foreclosures increased slightly. "There were 69,000 completed foreclosures in March, up from a revised 66,000 finished in February, but down from 85,000 in March of last year. In the first quarter, 198,000 foreclosures were completed, off from the 232,000 seen in the first three months of 2011. Since the start of the financial crisis in September 2008, there have been about 3.5 million completed foreclosures, CoreLogic said. A home has completed the foreclosure process when it has been either seized by the lender or sold. At the same time, there were fewer homes awaiting foreclosure. Foreclosure inventory fell to about 1.4 million homes, or 3.4 percent of all homes with a mortgage, down from 1.5 million, or 3.5 percent, a year ago." Leah Schnurr in Reuters.

Dodd-Frank has halved swipe fees. "Fees charged by banks for use of their debit cards have been roughly halved since new price caps were put in place, according to data collected by the Federal Reserve. The central bank found that, six months after the highly contentious limits on 'swipe fees' were established, banks subject to the cap saw their average fees drop by 45 percent. Before the limit was established, the average fee was 43 cents per transaction. Six months after the cap was put in place, it had fallen to 24 cents. The data marks fresh fodder for the fight over the so-called 'Durbin amendment,' which proved to be one of the more bruising battles on Capitol Hill last year. Sen. Dick Durbin (D-Ill.) pushed the provision, a late entry in the Dodd-Frank financial reform law, to set a limit on the fees a bank could charge a business for swiping its debit card...Banks came up short in their effort to delay the limit but gained ground when the Fed finalized the cap at a level roughly twice as much as the original proposal." Peter Schroeder in The Hill.

@BCAppelbaum: Things economists say: Hey! I just figured out what just happened!

Awkwardness interlude: Holding The Door Open For People That Are Far Away.

Health Care

Regulators are scrutinizing stop-loss insurance. "Federal regulators are now scrutinizing whether small companies with relatively healthy employees will pull out of the group health insurance market by self-insuring--meaning the companies take on the risk of paying for employees’ medical care...Stop-loss policies are insurance agreements that employers can buy to limit the amount of risk they take on when self-insuring. In a Federal Register notice posted on May 1, three agencies are requesting information about stop-loss insurance...Regulators from the departments of Labor, Treasury, and Health and Human Services want to know where stop-loss policies are setting that level, known as an 'attachment point' and analogous to an individual’s deductible. If it’s low enough, the employer isn’t taking on much risk but does enjoy exemptions from state insurance requirements and taxes that don’t apply to self-insured plans." John Tozzi in Bloomberg Businessweek.

Comparison shopping may be the future of health care. "Whether it’s looking up restaurants on Yelp! or scanning Craigslist for apartment listings, Americans comparison shop for nearly everything online -- everything except for health care. A recent survey found that we spend more time comparing value of dishwashers than doctors. Castlight Health wants to change that. The nascent health care start-up launched last year with the goal of giving insurance subscribers meaningful information on health care costs. Castlight, in the simplest terms, wants to bring comparison shopping to health care. That idea quickly turned heads in Silicon Valley...After initially launching with $81 million in capital, Castlight will announce Tuesday another $100 million in backing. That’s pretty massive as far as start-up funding goes. With its capital now more than doubled, the health care start-up gives us some clues about what Silicon Valley thinks the future of health care looks like." Sarah Kliff in The Washington Post.

House Republicans want to end rewards for enrolling low-income children. "House Republicans want to stop rewarding states for finding and enrolling low-income children in Medicaid and the Children’s Health Insurance Program, and public health advocates are livid. The Republicans say it’s a smart fiscal move that will better protect the program against fraud; their critics say it’s undermining years of progress states have made in identifying and enrolling a hard to serve population...Energy and Commerce Committee Republicans voted last week to strip about $400 million earmarked for a bonus program created by the 2009 law to extend the Children’s Health Insurance Program. The bonus payments run through 2013. The provision, sponsored by Rep. Joe Barton (R-Texas) and passed without Democratic support, is part of a $115 billion package of health care savings included in the House’s reconciliation process. The House Budget Committee plans to mark up the reconciliation package on Monday." Matt Dobias in Politico.

@mattyglesias: The phrase "health care costs" is incredibly ambiguous.

Domestic Policy

Senators want to extend a moratorium on postal closings. "The four original sponsors of Senate postal legislation are urging the U.S. Postal Service to extend a moratorium on closing facilities until Congress finishes its work on the issue. With the moratorium set to lapse in two weeks, Sens. Joe Lieberman (I-Conn.), Susan Collins (R-Maine), Tom Carper (D-Del.) and Scott Brown (R-Mass.) noted that the legislation that passed their chamber included a resolution calling on the Postal Service to push back any plans to close post offices or processing centers...Lieberman and other senators, like Bernie Sanders (I-Vt.), also pressed Donahoe to extend the moratorium last week, as the Senate debated and eventually passed its proposal. Donahoe and postal officials agreed late last year to not close any facilities until at least May 15, at the request of lawmakers who wanted some space to negotiate a postal reform bill." Bernie Becker in The Hill.

Obama administration proposals to relax gun export laws face resistance. "U.S. homeland-security and law-enforcement agencies have objected to Obama administration proposals to relax export restrictions on high-powered firearms, threatening a centerpiece of the president's trade and national-security agenda. The agencies, in internal memos viewed by The Wall Street Journal, warn the changes could help arm drug cartels and terrorists and make it harder for the U.S. to crack down on gun-trafficking. The arms proposal is part of a broader overhaul of U.S. export rules sought by Mr. Obama, with the goal of helping domestic manufacturers compete in global markets, as well as improving U.S. national security by focusing controls on higher-risk items and enhancing the capabilities of allies...The proposed changes to weapons now subject to strict export regulation would cover a range of goods from firearms to drones, satellites and tanks, as well as civilian equipment with military uses." Adam Entous and Evan Perez in The Wall Street Journal.

Tumblr interlude: Reinhold Bieber.

Energy

Plummeting natural gas prices mean less revenue for states. "Energy-producing states are bracing for lower tax revenue from the plummeting price of natural gas, which is just above half of what some states forecast when they put together budgets for 2013 and beyond. Production of natural gas is up nationally largely because of the spread of hydraulic fracturing, a drilling practice that allows tapping of deposits formerly out of reach. A warm winter cut demand, driving the price below $2 per thousand cubic feet in April. That reduces natural gas heating costs for millions of Americans -- the Energy Information Administration estimates they will be 25% lower this year than in 2008 -- but crimps states dependent on natural gas taxes. Some are preparing for lower prices for 2013 and 2014 budget years...New Mexico, which gets one of every six dollars from oil and gas taxes, loses $82 million annually for every $1 drop in the price of natural gas." Chuck Raasch in USA Today.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

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