Wonkbook: New anger about a mostly old deal
What set off yesterday's debt-deal panic among congressional Democrats wasn't so much information about a new deal as a better understanding of the old deal. What Boehner and Obama appear to be discussing is the $4 trillion deal they were discussing a few weeks ago. In that deal, $1.5 trillion in immediate cuts would be followed by processes for making a further $1.5 trillion in deeper cuts -- many of them to entitlement programs -- and reforming the tax code to raise a trillion more dollars than it does now. The plan would also include some sort of enforcement mechanism that would make sure the future spending cuts and tax increases manifested.
Congressional Democrats spent much of yesterday complaining that this plan doesn't really have revenues while the White House spent much of yesterday swearing that it did. On this, congressional Democrats are mostly right. The revenue in this plan is approximately equal to the revenue from letting the Bush tax cuts on the rich expire -- which is something Democrats could do with zero Republican votes in 2012, when the Bush tax cuts are set to expire automatically. In other words, Democrats are demanding, as part of this deal, that Republicans agree to let them do...something they could do even if Republicans refused to agree to it.
The best way to understand the revenue in this plan, in fact, is that it's a concession to Republicans, not Democrats. It effectively takes the 2012 expiration of the Bush tax cuts and all of the leverage that gives Democrats off the table, but doesn't ask for more revenue in return. Rather, there's about 25 percent as much revenue in this plan as there is in simply doing nothing and letting the Bush tax cuts expire, and half as much revenue in this plan as in the Simpson-Bowles/Gang of Six plans recommended, and this plan also gives up Democrats ability to go for more revenue in 2012 when the Bush tax cuts expire. See this graph/post for a clearer comparison.
But that's not new to this deal. That was true in the original $4 trillion offer Obama made to Boehner. If you want to read more on the thinking that led to the White House offering Boehner such a sweet deal in the first place, head here. What does appear to be new over the last 24 hours are some very odd reports about a trigger that would, among other things, unwind the individual mandate if the two parties didn't make their scheduled cuts/tax increases over the next few years. That sounds more like Boehner's spitballing than an actual part of the deal to me, but I've been wrong before.
Five in the morning
1) Obama and Boehner are near a deal on the debt ceiling, report Lori Montgomery and Paul Kane: "President Obama and House Speaker John A. Boehner rushed Thursday to strike agreement on a far-reaching plan to reduce the national debt but faced a revolt from Democrats furious that the accord appeared to include no immediate provision to raise taxes...Talks focused on sharp cuts in agency spending and politically painful changes to cherished health and retirement programs aimed at saving roughly $3 trillion over the next decade. More savings would be generated through an overhaul of the tax code that would lower personal and corporate income tax rates while eliminating or reducing an array of popular tax breaks, such as the deduction for home mortgage interest...The tax rewrite would be postponed until next year."
2) Congressional Democrats look ready to bolt, reports Paul Kane: "Just as Senate Democrats were sitting down Thursday to a scheduled meeting with White House budget director Jacob J. Lew, rumors of a new debt-limit deal between President Obama and House Speaker John A. Boehner (R-Ohio) flashed across their BlackBerrys. One after another, Sens. John F. Kerry (Mass.), Barbara A. Mikulski (Md.), Maria Cantwell (Wash.) and others demanded that Lew explain what the president was doing. The Democrats were winning, the senators said. The American people were with them on tax increases for the rich and the notion of 'shared sacrifice.' Why give up now? Why cut a deal without guarantees of new tax revenue?...With more concerns than details, Democrats lashed out, saying that deep cuts to federal agency budgets and entitlements were too steep a price to pay."
3) Ratings agencies warned House Republicans to not allow a default, reports Marin Cogan: House Republicans were cautioned Thursday in a closed door meeting with credit rating agency officials that a 'death spiral' in the bond market was one of the possible outcomes in the event of default. One official warned of a worst-case scenario in which a default on the nation’s credit could result in a rapid drop in bond values, sparking chaos in the markets -- a dramatic warning as Washington worked on a possible deal on deficit reduction and an increase in the debt limit. Members who attended the meeting later countered that the tone of the discussion was not nearly as apocalyptic as the phrase initially made it sound. According to sources inside the room, the 'death spiral' term was also used in reference to the collapse of Lehmann Brothers in September 2008 as a historical example."
4) States are reassessing their finances in case the debt ceiling isn't raised, reports Michael Cooper: "The federal debt ceiling debate is already complicating life for state and local governments. Maryland is postponing a bond sale that had been scheduled for Friday, after the state was warned that its credit rating would probably be lowered in the event of a federal downgrade. California, which typically issues short-term bonds at this time of year, is working to arrange bank loans instead, citing the market uncertainty. And state officials across the nation are trying to figure out what will happen to the federal payments they rely on for everything from Medicaid to unemployment to highway construction if a deal is not reached to raise the debt ceiling by the Aug. 2 deadline."
5) Europe has agreed on a rescue package for Greece, reports Howard Schneider: "European leaders moved Friday to stanch the region’s lingering financial crisis, agreeing to $145 billion in new loans to Greece and measures to prop up weak banks and other national governments. A separate initiative allows private bondholders to help but raises the prospect that Greece will be considered in default on some of its debt. The measures approved in Brussels mark a major financial consolidation of the 17 nations that use the euro -- effectively pledging the creditworthiness of stronger countries such as Germany and France, and the resources of their taxpayers, to prop up failing banks or ailing governments throughout the euro zone...The program guarantees Greek banks access to cash and offers the [European Central Bank] billions in guarantees and extra capital so that it will continue its lending."
'90s rock interlude: Pavement plays "Trigger Cut" live in Frankfurt in 1994.
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Still to come: The House voted to replace the head of the Consumer Financial Protection Bureau with a commission; a majority of the House is pushing back at Medicare payment cuts; a House panel voted to block a labor regulator's complaint against Boeing; Obama has threatened to veto the House Interior and EPA funding bill; and a dog who loves rock climbing.
Congress is already hurting the recovery, writes Annie Lowrey: "Congress doesn't have to do much (literally and figuratively) to make economic conditions worse. If, upon hearing the news from Washington, consumers feel more pessimistic and decide to save rather than spend, that hurts the recovery. If bond investors decide to hang on to cash rather than buying corporate debt until this all blows over, that hurts the recovery. If contractors hold off on hiring workers until they are certain they are going to get their check from Washington, it hurts the recovery. And there is evidence that all of those things are starting to happen."
The House voted to eliminate the position of Consumer Financial Protection Bureau director the day the bureau opened, reports Ylan Mui: "The new Consumer Financial Protection Bureau officially opened for business Thursday during rancorous political debate over the structure of the agency and who should lead it. The House approved a bill Thursday that would strengthen the veto power of the Financial Stability Oversight Council over the bureau’s decisions. It would also install a five-member commission rather than a single director to head the agency and delay transfer of powers to the new agency. The bill passed 241 to 173, largely supported by Republicans who have voiced concerns about the scope of the watchdog bureau...The proposal stands little chance of survival in the Democrat-controlled Senate."
The administration is considering renting out foreclosed upon properties, reports Nick Timiraos: "The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter. While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels. Trimming the glut of unsold foreclosed homes on the market is 'worth looking at,' said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week...Renting out homes could cover the costs of holding the properties until they can be resold once markets stabilize."
There's plenty of spending to cut, but it's done through the tax code, writes Ezra Klein: "We’ve got one government program that hands people money to buy houses that, in most cases, they would buy anyway. They get even more money if they buy a more expensive house. Over the next five years, that program alone will cost almost $500 billion...The government pays employers $700 billion to offer health insurance to their employees, which no economist would say is a good idea...Midway through my excavation, however, when I was really just getting warmed up, I realized I had made a mistake. I wasn’t looking at the federal budget -- I was looking at the U.S. tax code. So cutting all those costly programs wouldn’t count as cutting spending to Republicans in Washington. It would count as raising taxes."
Cuts being negotiated in Europe and DC are sure to hurt the economy, writes Paul Krugman: "Even if we manage to avoid immediate catastrophe, the deals being struck on both sides of the Atlantic are almost guaranteed to make the broader economic slump worse...For those who know their 1930s history, this is all too familiar. If either of the current debt negotiations fails, we could be about to replay 1931, the global banking collapse that made the Great Depression great. But, if the negotiations succeed, we will be set to replay the great mistake of 1937: the premature turn to fiscal contraction that derailed economic recovery and ensured that the Depression would last until World War II finally provided the boost the economy needed. Did I mention that the European Central Bank -- although not, thankfully, the Federal Reserve -- seems determined to make things even worse by raising interest rates?"
A half trillion dollar debt limit deal is our best bet, writes Charles Krauthammer: "The Half-Trillion raises the debt ceiling by that amount in return for an equal amount of spending cuts. At the current obscene rate of deficit spending -- about $100 billion a month -- it yields about five months’ respite before the debt ceiling is reached again. In my view, the Half-Trillion is best: It is clean, straightforward, yields real cuts, averts the current crisis and provides until year-end to negotiate a bigger deal...Obama had threatened to veto any short-term debt-ceiling hike. Which has become Obama’s most vulnerable point. Is the catastrophe of default preferable to a deal that gives us, say, five months to negotiate something more significant -- because it doesn’t get Obama through Election Day?"
Adorable animals in treatment interlude: A tortoise gets a wheel to replace his leg.
A majority of the House is pushing for Medicare to reverse a hospital payment cut, reports Sam Baker: "A bipartisan majority of House lawmakers is pressing Medicare to reverse a proposed cut to hospital payments. The Medicare agency recently proposed a 3.5 percent cut in payments to hospitals as well as a 2.9 percent adjustment to offset payments that it said are the result of changes in how come claims are filed...'If the proposed rule is enacted, the net impact for hospitals would be an average decrease in inpatient payments,' the lawmakers said in a letter to Medicare Administrator Don Berwick. 'This is a decrease that hospitals can ill afford.' The letter says hospitals could lose more than $6 billion from the proposal. It was signed by 95 Republicans and 124 Democrats. A similar letter in the Senate garnered 45 signatures."
A Senate bill that would speed generic drug approval is moving forward, reports Julian Pecquet: "The Senate Judiciary Committee on Thursday cleared a bill that would severely curtail pharmaceutical industry deals to delay the entry of low-cost generic drugs on the market. The bipartisan bill seeks to put an end to the practice of brand-name drugmakers settling patent challenges from generic manufacturers by paying them to delay their products. The Federal Trade Commission has said that ending the so-called 'pay for delay' deals would save American consumers at least $3.5 billion a year in cheaper medications, but the industry disputes that. The Generic Pharmaceutical Association said in a statement Thursday that patent settlements have never prevented competition beyond a patent's expiration."
The House is fighting the National Labor Relations Board's complaint against Boeing, reports Melanie Trottman: "Republicans on the House workforce committee passed a bill Thursday that would bar the government from dictating where companies can do business - taking direct aim at the National Labor Relations Board’s complaint that Boeing Co. illegally shifted work from union plants in Washington state to a new nonunion facility in South Carolina. The Protecting Jobs from Government Interference Act is aimed at stopping the NLRB from moving ahead with its complaint, which, if successful, would make Boeing move the production line for the 787 Dreamliner jet to Washington state. The company has said its decision to place the 787 assembly line in South Carolina wasn’t intended to punish union workers in Washington state for past strikes, as the NLRB alleged."
A balanced budget amendment would send the budget process to the courts, writes Walter Dellinger: "Court is where the whole budget process would likely wind up. Unlike older versions of the amendment, which left enforcement a mystery, the current proposals clearly contemplate judicial involvement and even provide that members of Congress can bring lawsuits to enforce the limits. What a nightmare. Allowing federal judges to make fundamental decisions about spending whenever outlays threatened to exceed receipts would be an extraordinary expansion of judicial authority. Absolutely nothing in the training or experience of judges remotely equips them to decide whether weapons systems or Social Security should be cut, and by how much."
We need to make more wireless spectrum available, writes Douglas Holtz-Eakin: "The benefits of additional wireless capacity are widespread. The FCC estimates that releasing an additional 275 MHz of spectrum by 2014 will save carriers in excess of $120 billion in capital costs. According to former Director of the National Economic Council Lawrence Summers 'total surplus from expanding wireless [is] estimated to be $40 to $50 billion every year.' The High Tech Spectrum Association estimates that additional investments in 4G wireless technologies will create 205,000 jobs in the next five years...When local television and radio stations are sitting on spectrum that would be worth hundreds of times more if it were repurposed for wireless broadband, everyone loses. Making additional wireless spectrum available is the ultimate public policy magic trick: economic growth out of thin air."
Adorable animals without harnesses interlude: A Jack Russell terrier who loves to rock climb.
Obama has threatened to veto the House Interior/EPA funding bill, reports Dan Berman: "President Barack Obama on Thursday afternoon threatened to veto the House Interior-EPA appropriations bill. In a five-page Statement of Administration Policy, the White House blasted various policy riders as well as the overall funding level for the EPA, which it says would leave the agency 'unable to implement its core mission of protecting human health and the environment.' The laundry list of policy riders the White House opposes includes language preventing the EPA from regulating greenhouse gas emissions from stationary sources, blocking Interior from stopping uranium mining claims near the Grand Canyon and stopping new regulations on mountaintop removal mining."
Automakers are amping up their lobbying against new gas mileage rules, report Darren Samuelsohn and Dave Levinthal: "The two major U.S. automakers rescued by the Obama administration have spent millions of dollars on lobbying and campaign donations this year as the White House weighs tough new fuel economy limits...GM over the last six months has spent $5.52 million. Chrysler, now controlled by Fiat SpA, has spent $2.37 million. During the same period in 2010, GM spent about $4 million, while Chrysler’s lobbying bill totaled about $1 million. Foreign-based auto companies with a stake in the fuel economy standards have also been active in Washington, with Toyota spending $2.33 million on lobbying this year and Honda reporting $1.1 million."
The US is instituting new electrical grid rules, reports Matthew Wald: "Federal regulators laid down principles on Thursday for planning and paying for new power lines, part of a long-term policy effort to help the nation’s electricity grid grow enough to meet the demands of renewable energy and a competitive electricity market. The rule, which has been in the works for several years, is intended to push the organizations that manage the grid into cooperating with one another, so that developers can build power lines across several states and multiple electrical jurisdictions. Such cross-jurisdictional transmission lines are becoming more important as states seek to reach their goals of integrating large amounts of wind and solar power, generally available in remote deserts and mountaintops, into the energy mix...Generators of power, including renewable energy advocates, generally praised the rule."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.