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Wonkbook: Shutdown averted. Ready for armageddon?

By Ezra Klein,

Brendan Hoffman BLOOMBERG Here’s what we know about the budget deal struck on Friday: 1) It cut $38.5 billion if you use our spending in 2010 as the starting point. That’s $78.5 billion below what President Obama asked for in his 2011 budget, $6.5 billion below what Speaker John Boehner demanded in his opening bid, but about $20 billion more than the Tea Party wanted. If this compromise was truly the center, as the Obama administration has suggested, then Boehner began in the center-left. 2) Most of the extraneous policy riders didn’t make it, but some, like the rider barring the District of Columbia from helping low-income women access abortions, did. 3) Slightly less than half of the cuts came from parts of the budget other than non-discretionary spending. The White House feels like that allowed them to protect their specific spending priorities, like Pell grants and Head Start, even if they had to agree to a lot of cuts. 4) This was just a warm-up.

On Friday, Congresswoman Michelle Bachmann tweeted, “I am ready for a big fight that will change the arc of history. The current fight in Washington is not that fight.” The debt ceiling is that fight. Boehner’s first political act after cutting Friday’s deal was to take to the pages of USA Today to tout Paul Ryan’s work and warn that the debt ceiling will not be lifted in the absence of “spending cuts and budget reforms.” Sen. Kay Bailey Hutchison went on CNN and told Anderson Cooper that the debt ceiling fight would be “armageddon.”

President Obama, meanwhile, intends to join the budget battle on Wednesday when he gives a speech laying out his approach to long-term deficit reduction. The problem for Obama and the Democrats is that it’s hard to fight unrealistic policy with realistic policy. If you get under the hood of Ryan’s budget, the numbers simply don’t work. The caps he’s placing on Medicare and Medicaid are vastly tighter than the ones he used in the Roadmap or Ryan-Rivlin -- or any caps that have ever been used before -- and they have no chance of holding.

A deficit-reduction strategy based on implementing and strengthening the Affordable Care Act and letting the Bush tax cuts expire is far more realistic, but not likely to get anyone fired up. People are tired of hearing about health-care reform, and they don’t want to enter that debate again. Which leaves Obama is a peculiar position: He either has to make up new deficit-reduction proposals that he can layer atop the policies he’s been advocating for some time, or he has to find a new way to sell old policies. Neither strategy is likely to get the sort of admiring media that Ryan’s poorly understood, but superficially sweeping, vision did, but both are likely to be more realistic paths forward on deficit reduction. A realistic path forward on deficit reduction, however, may not be enough to avert “armageddon.”

Five in the morning

1) Obama and Congress averted a government shutdown Friday night, report Sandhya Somashekhar and Paul Kane: “President Obama signed into law on Saturday a provision that will keep the federal government running through most of next week -- long enough for congressional leaders to put the finishing touches on a budget compromise that will keep the federal government funded for the remainder of the fiscal year. Obama’s promise to sign the agreement was critical to averting a government shutdown at midnight Friday. Just before 11 p.m., House Speaker John A. Boehner (R-Ohio) announced that a last-minute deal had been struck that would keep the government in operation...Under the agreement, the current federal budget will be reduced by about $38 billion.”

My take on the deal -- and the peculiar way the Democrats are selling it: http://wapo.st/h691UI

2) The details of the budget deal are still in flux, reports Janet Hook: “Republicans and Democrats continued to haggle over how to spread nearly $39 billion in cuts across a multitude of government programs behind the deal that averted a government shutdown last week. White House officials and Democrats said that they had mitigated proposed cuts to key education and health programs, including the Head Start preschool program, Pell Grants for low-income college students and federal scientific research...A top Republican aide said the aim was to finish and introduce the bill by Monday night, and bring it to a vote by the House Wednesday and the Senate Thursday. While the broad outline of a deal was announced Friday night, the precise details remain so fluid that lobbyists and lawmakers are still working to shape final provisions that affect their interests.”

3) D.C. became a bargaining chip in the budget deal, reports Ben Pershing: ”The measure contains at least one policy rider — a ban on District government-funded abortions — considered onerous by city leaders, as well as the renewal of a controversial private-school voucher plan that has divided local officials. It could end up cutting from the city’s budget. And the whole exercise served as a stark reminder that the District has precious little control over its finances. ‘While I am relieved that Congress reached an agreement so that our employees can work and city services can continue, I am also angry and extremely disappointed that the District of Columbia, once again, suffered collateral damage amidst partisan bickering,’ Mayor Vincent C. Gray (D) said in a statement issued after the deal was completed.”

4) Obama will lay out a long-term debt reduction plan this week, reports Zachary Goldfarb: “President Obama this week will lay out a new approach to reducing the nation’s soaring debt, proposing reductions in spending on entitlements such as Medicare and Medicaid and renewing his call for tax increases on the rich. In an effort to go on the offensive in the battle over government spending, Obama will look for cuts in ‘all corners of government,’ senior adviser David Plouffe said on several Sunday talk shows...In a speech scheduled for Wednesday, Obama will present his most extensive response to date in the debate over controlling federal spending...The question hanging over Obama’s speech is whether it will contain specific new ideas for reducing spending, be a broad but not detailed endorsement of deficit reduction or just offer principles for working with Congress.”

5) Republicans will demand more cuts in exchange for a debt limit increase, writes John Boehner: “The president’s budget is likely to deepen anxiety among families, small business operators and investors -- the people who really create jobs in America. President Obama also wants a debt limit increase, but says spending cuts and budget reforms shouldn’t be attached to it. Americans will not stand for that. We must follow their will. More of the same spending, taxing and borrowing will not make our economy stronger or our future brighter. This is why the spending cut agreement is important. While not nearly enough, these cuts represent a first step in taking our nation off the path to national bankruptcy, to giving employers the confidence they need to expand their businesses, and to sparing our children of lives indebted to foreign countries such as China.”

Boss interlude: Bruce Springsteen and the E Street Band play “(Your Love Keeps Lifting Me) Higher and Higher” live.

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Still to come:What Obama, Boehner, and Reid each got out of the budget deal; how Boehner played the economic conservatives against the social conservatives to get a deal; corporate executives are taking home record salaries; the budget deal makes a couple of major changes to health care reform; farm subsidies are on the table for cuts; the EPA was largely spared in the budget deal; and a cat watches Russian television.

Economy

Obama, Boehner, and Reid all got something out of the deal, report Paul Kane, Perry Bacon, and David Fahrenthold: “House Speaker John A. Boehner (R-Ohio) entered budget negotiations at the head of a rambunctious Republican majority. Quietly, though, he worried that conservative lawmakers might desert him if the deal he struck didn’t meet their expectations. President Obama had his own problem: He was trying to change his public image in midstream, from America’s top Democrat to a chief executive immune from partisan squabbling. Senate Majority Leader Harry M. Reid (D-Nev.) had watched his party lose its momentum. For all his power, his job had shrunk to defending Democrats’ past gains...In the end, Boehner got the huge budget cut conservatives wanted. Obama got to take credit for bringing the sides together. And Reid got a chance -- in a dispute over funding for women’s health groups -- to rally a beleaguered Democratic base.”

The deal taught us a lot about preferences inside the Republican Party, writes Sarah Binder: ”Typically, with a preponderance of closed rules for party priorities, we know little about divisions within the majority party. But H.R. 1 -- and the dozens of roll call votes cast-- solved that problem. Most interestingly, the more you parse the votes, the more apparent it becomes that the key cleavage in the party is not between 87 freshmen and everyone else, but between members of the Republican Study Committee and everyone else. Given the economic and social conservatism of this key bloc, Boehner’s bargaining strategy this past week was brilliant. He strung the Democrats along threatening that his conference would only accept a deal that defunded Planned Parenthood. Hitting the Democrats on their Achilles heel, Boehner extracted additional billions of dollars in cuts-- before finally Friday night trading a Planned Parenthood rider for a separate up or down Senate vote on the rider. Boehner clearly understood which preferences were pivotal in his conference for securing a deal.”

The social conservatives took it on the chin, writes Dave Weigel: “The saga of the Planned Parenthood rider is a good way of looking at this. In February, Rep. Mike Pence introduced the rider to ban Title X funds from going to Planned Parenthood. It would have saved around $363 million, but it was anathema to Democrats. So it served two purposes -- a bargaining chit for the coming debate, and a way to shift the Overton Window on the abortion debate. Tonight, Democrats got the rider stripped, handing a massive victory to the pro-choice movement. So – spitballing before we get exact numbers – Pence’s $363 million was worth an extra $637 million. That’s a pretty good deal for economic conservatives. It’s a lousy deal for social conservatives, and that’s important. In the very first test of their strength in the new Washington, they have been bargained away, yet again. I don’t think the GOP had much of a choice. Just as Democrats let the argument about economics slip away from them, Republicans were almost hysterically flat-footed on Planned Parenthood.”

Obama should be lamenting the budget deal, not praising it, writes Paul Krugman: “let’s give the president the benefit of the doubt, and suppose that $38 billion in spending cuts -- and a much larger cut relative to his own budget proposals -- was the best deal available. Even so, did Mr. Obama have to celebrate his defeat? Did he have to praise Congress for enacting ‘the largest annual spending cut in our history,’ as if shortsighted budget cuts in the face of high unemployment -- cuts that will slow growth and increase unemployment -- are actually a good idea?..Mr. Obama is conspicuously failing to mount any kind of challenge to the philosophy now dominating Washington discussion -- a philosophy that says the poor must accept big cuts in Medicaid and food stamps...and corporations and the rich must accept big cuts in the taxes they have to pay.”

Republicans won the budget fight just as they won the tax fight in December, writes EJ Dionne: http://wapo.st/gYaMrM

CEOs are making record salaries, reports Daniel Costello: “Happy days are back -- in the corner office, at least. After shrinking during the 2008-9 recession, paychecks for top American executives are growing again -- in many cases, significantly so. Rarely has the view from the corner office seemed so at odds with the view from the street corner. At a time when millions of Americans are trying to hang on to homes and millions more are trying to hang on to jobs, the chief executives of major corporations like 3M, General Electric and Cisco Systems are making as much today as they were before the recession hit. Indeed, some are making even more. The disparity is especially stark as companies are swimming in cash. In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years.”

The corporate tax rate should be lower, writes Laura Tyson: http://nyti.ms/h8vZAn

The SEC is considering a crackdown on selling shares of private companies like Facebook or Twitter: http://wapo.st/fCDu0i

New mortgage rules could deter new homebuyers, report Dina ElBoghdady and Zachary Goldfarb: “Most home buyers put down less than 20 percent when they take out a mortgage, a sign of how hard it has become to scrape together enough cash to purchase a home...Prospective home buyers may soon face a rude awakening. Seeking to avoid a repeat of the foreclosure crisis, the Obama administration and regulators have proposed rules that are all but certain to boost the interest rates and fees on many low-down-payment loans. Only borrowers putting down 20 percent could get the best deals. To buy a home for $170,000, the median national price, the borrower would have to come up with $34,000 in cash. It takes the average middle-class family 14 years to save that much money and closing costs, according to the Center for Responsible Lending.”

Using Clinton’s playbook from 1995 may not work for Obama, writes Keith Hennessey: http://bit.ly/gbO004

The current jobless rate is not the “new normal”, writes Christina Romer: “When experts weigh the evidence, they come down strongly on the side that normal unemployment has not risen greatly. Once a year, the Survey of Professional Forecasters asks respondents for their estimate of the natural unemployment rate. In the third quarter of 2010, the median estimate was 5.78 percent, almost exactly one percentage point higher than in the third quarter of 2007, just before the recession started. (The highest estimate was 6.8 percent.) And the Congressional Budget Office uses 5.2 percent as its estimate of the natural rate. All of this suggests that most of our high unemployment is still the consequence of low demand. Consumers remain hesitant to spend because unemployment and debt are high. Companies are unwilling or unable to invest because customers are few and credit is still tight. This diagnosis suggests that the appropriate remedy is to stimulate demand.”

Budget cuts should be designed to increase equality of opportunity, writes Ross Douthat: “Public policy is going to be made from inside a fiscal straitjacket for the foreseeable future. But within that straitjacket, Washington can favor policies that enhance working-class opportunity, while ruthlessly paring back those that subsidize the affluent. The goal shouldn’t just be small government, but what the economist Edward Glaeser calls ‘small-government egalitarianism.’ There are elements of this vision woven into the Ryan budget -- cuts to farm subsidies, means-testing for Medicare, and promises to go after tax expenditures that primarily benefit the rich. But at least in its initial draft, too much of the budget’s austerity is borne by downscale Americans.”

Adorable animals are just like us interlude: A cat nonchalantly watches Russian television.

Health Care

The budget deal promises big changes to health care reform, reports Corey Boles: “The budget deal reached Friday would affect two initiatives contained in last year’s health-care law that were bitterly opposed by businesses, killing one outright and slashing funding for the other. The agreement would eliminate a provision of the health-care law enabling low-income workers to opt out of employer-offered health insurance and shop for more affordable coverage on insurance exchanges to be created in 2014, according to congressional aides and business groups..The budget bill will also cut $2.2 billion in funding from a program that would encourage the development of health-care cooperatives--not-for-profit entities that would compete with private, for-profit health-insurance companies.”

Eight states so far have used health reform to restrict private spending on abortion: http://nyti.ms/dLIlVE

The health law is enabling states to offer health incentives to Medicaid recipients, reports Aimee Miles: “A federal grant program authorized in the health overhaul law is offering states $100 million to reward Medicaid recipients who make an effort to quit smoking or keep their weight, blood pressure or cholesterol levels in check...’Medicaid is almost the sweet spot for financial rewards,’ said George Loewenstein, a behavioral economist at Carnegie Mellon University who has studied the effect of financial incentives on behavior. Medicaid recipients, he explains, are economically disadvantaged and have more to gain from incentives. Loewenstein, however, is dubious about whether incentives, especially those tied to weight loss, could really work. He’s not alone. Behavioral incentive programs have shown some promise in specific settings, but they are largely untested in the Medicaid population.”

Domestic Policy

Farm subsidies are no longer immune to cuts, report Bill Tomson and Siobhan Hughes: “The hunt for cuts has come to this: Even agriculture subsidies--billions in spending both parties have embraced for years--are on the table. With the farm economy booming and Washington on a diet, a program set up in the 1990s that cuts checks to farmers could be trimmed or eliminated next year when Congress writes a new five-year farm bill. A group of conservative lawmakers has set its sights on these direct payments, and even farm-state Democrats who like the program say high crop prices make the outlays of about $5 billion a year harder to justify. Recently, the National Corn Growers Association, an industry lobby group, urged Congress to revamp the program, fearing it would be eliminated altogether.”

A new study shows most lobbyists comply with ethics rules: http://wapo.st/hYZBAc

Congress voted to repeal net neutrality rules, reports Tony Romm: “House lawmakers on Friday voted to roll back the FCC’s net neutrality rules, dealing another political blow to one of Chairman Julius Genachowski’s top priorities. The full chamber cleared the Republicans’ measure on a mostly party-line 240-179 vote, despite the protests of Democrats who said the chamber should have instead been focusing on the looming threat of a government shutdown. An uphill battle now awaits the Republicans’ resolution of disapproval, a vehicle by way of the Congressional Review Act that gives Congress a say in evaluating agency rulemakings. An identical effort is pending action in the Senate, where industry leaders expect the measure to encounter serious political roadblocks.”

School superintendents aren’t important to district outcomes, writes Timothy Hacsi: http://nyti.ms/fg4BNX

Campaign donor disclosure helps incumbents, writes James Huffman: “The reality is that public disclosure serves the interests of incumbents running for re-election by discouraging support for challengers. Here’s how it works. A challenger seeks a contribution from a person known to support candidates of the challenger’s party. The potential supporter responds: ‘I’m glad you’re running. I agree with you on almost everything. But I can’t support you because I cannot risk getting my business crosswise with the incumbent who is likely to be re-elected.’ Sometimes he adds that he has matters pending before a federal agency. Or that she has been working with the incumbent on legislation that will benefit their company. Or that he has a government grant pending.”

RIP, Sidney Lumet interlude: The “mad as hell” scene from Network .

Energy

The budget deal doesn’t include amendments targeting the EPA, reports Andrew Restuccia: “A last-minute spending deal to avoid a government shutdown reached late Friday night does not include a requirement to study the effects of Environmental Protection Agency’s regulations, a spokesman for Senate Majority Leader Harry Reid (D-Nev.) said. Key Senate Democrats said Friday afternoon that they were considering accepting such a study in exchange for Republicans dropping policy riders restricting various EPA rules. Neither the study nor the EPA riders are included in the final agreement, Reid spokesman Jon Summers told The Hill Saturday...President Obama praised the spending deal late Friday night, touting the absence of the environmental riders.”

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

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