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Wonkbook: The Cut, Cap and Balance distraction

By Ezra Klein,

We're four days away from July 22nd, the date that some believe should be our deadline for passing a debt-ceiling deal. We're less than two weeks away from August 2nd, which almost everyone believes is our deadline for passing a debt-ceiling deal. And yet we're wasting our time with this Cut, Cap and Balance nonsense? Really?

As policy, Cut, Cap and Balance is an effort to take the lessons of the past 10 years and then pass a constitutional amendment preventing us from learning them. For instance: if you're worried about deficits today, you're partly worried about them because we passed about $2 trillion in unpaid-for tax cuts over the past decade or so, and then we had a financial crisis that jammed revenues further. CC&B's answer? Editing the Constitution so it includes a brand-new, two-thirds supermajority in both houses of congress to raise taxes. It takes our problem and makes it worse. More specifically, it takes the United States Constitution and rewrites it to ape California's budget process. I'm a Californian. The state's got great weather, waves and food. But you don't want their budget process. Trust me.

Perhaps CC&B would be an understandable policy fantasy in normal times. But three years after the worst financial crisis since the Great Depression? We've been violently reminded that there are times when economies contract, and contract fast. Individuals and businesses stop spending, and states and cities have to cut back sharply. The only way to prevent massive layoffs, the only way to give the unemployed some help and the underpaid some relief, is for the federal government to spend. And yet we want to write into the Constitution a requirement that spending remain at 18 percent of the previous year's GDP? That is to say, a requirement that the federal government needs to make recessions worse rather than drawing on its unique capacity to make them better? Are we mad?

And Republicans, frankly, know much of this. Ronald Reagan's entire presidency would've been unconstitutional under CC&B. Same for George W. Bush's. Paul Ryan's budget wouldn't pass muster. The only budget that might work for this policy -- if you could implement it -- would be the proposal produced by the ultra-conservative Republican Study Committee. But that proposal was so extreme and unworkable that a majority of Republicans voted it down. The only reason CC&B is faring any better is that it doesn't get specific about what it would require. But properly understood, that makes it much worse policy -- and that's before you realize we're talking about a constitutional amendment, not a simple budget.

Ultimately, though, the real sin here isn't that bad policy will pass. It's that we're wasting precious time on bad policy that won't. Everyone involved knows this will never pass the Senate or the White House. Perhaps that would be okay if we didn't have anything better to do. But we have two weeks before we crash the economy into the rocks of the debt ceiling. It's not a good sign that instead of moving towards compromises and tough choices, the House GOP is daydreaming and sloganeering.

Five in the morning

1) The House is moving forward on Cut, Cap, Balance, report Rosalind Helderman and Paul Kane: "Republican lawmakers moved ahead Monday on a doomed plan to amend the U.S. Constitution to require a balanced federal budget, one day after President Obama met with the top two House GOP leaders in hopes of reaching a debt-limit agreement that could win approval from the hostile House...Beyond requiring that the budget be balanced each year, the so-called 'cut, cap and balance' measure...would require that the constitutional provision include annual spending caps and a supermajority to approve tax increases. That plan faces almost certain defeat in the Senate, where many lawmakers moved ahead on Monday with a compromise proposal. The current timeline...would call for the Senate to unveil its bipartisan plan later this week and begin to consider it Saturday."

The White House has promised a veto if the law gets to the president's desk: http://1.usa.gov/nL1pIo

2) The debt fight has been a missed opportunity for Republicans, writes David Brooks: "According to widespread reports, White House officials talked about raising the Medicare eligibility age, cutting Social Security by changing the inflation index, freezing domestic discretionary spending and offering to pre-empt the end of the Bush tax cuts in exchange for a broad tax-reform process...But the Republican Party decided not to pursue this deal, or even seriously consider it. Instead what happened was this: Conservatives told themselves how steadfast they were being for a few weeks. Then morale crumbled. This week, Republicans will probably pass a balanced budget Constitutional amendment that has zero chance of becoming law. Then they may end up clinging to a no más Senate compromise."

3) Moody's wants the debt ceiling gone entirely, reports Walter Brandimarte: "Ratings agency Moody's on Monday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders. The United States is one of the few countries where Congress sets a ceiling on government debt, which creates 'periodic uncertainty' over the government's ability to meet its obligations, Moody's said in a report. 'We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty,' Moody's analyst Steven Hess wrote in the report. The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement."

And so too do a number of former Treasury Secretaries: http://slate.me/qqwvrB

4) Consumer protection nominee Richard Cordray looks like he won't get a vote, reports Scott Wong: "It was clear that Elizabeth Warren wouldn’t be confirmed to lead the Consumer Financial Protection Bureau. And on Monday, the Senate’s top Republican warned that Richard Cordray, President Barack Obama’s pick for the top job at the fledgling agency, could suffer a similar fate. 'I would remind [Obama] that Senate Republicans still aren’t interested in approving anyone to the position until the president agrees to make this massive new government bureaucracy more accountable and transparent to the American people,' Senate Minority Leader Mitch McConnell (R-Ky.) said on the Senate floor, shortly after Obama nominated Cordray as director of CFPB at a White House ceremony. In May, 44 GOP senators signed a letter to Obama vowing to block his nominee until the bureau is reformed."

5) History suggests legal spending caps don't work, reports David Fahrenthold: "For some in Washington, the 'cap' part of this effort sounds like a repeat of history. 'This is like 'Groundhog Day',' said Steve Bell, a former Republican Senate staffer who now works at the Bipartisan Policy Center, referring to the 1993 movie in which Bill Murray’s character is forced to repeatedly re-live the same dismal day. 'We tried that 25 years ago. It didn’t work.' Bell was involved, as a staffer, in one of the earliest attempts to set spending rules for future Congresses, imposed after a debt showdown in 1985. A bill, named Gramm-Rudman-Hollings after its Senate patrons, required future Congresses to limit the deficits they ran. If not, the bill required automatic cuts in spending. But the law did not have the desired impact. Later Congresses found ways around it, and it was effectively terminated in 1990."

Country-rock interlude: Whiskeytown's "Don't Wanna Know Why".

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

Still to come: The debt limit fight could hurt Europe's recovery; HHS has come out with "co-op" rules; states are starting to ignore No Child Left Behind; automakers are fighting the administration's efforts to toughen up fuel economy standards; and a bald eagle couple is reunited.

Economy

The debt limit impasse could hurt Europe's recovery, reports Howard Schneider: "The deadlock in Washington over how to avoid a government default increasingly threatens to strike another blow to Europe’s ailing financial system because of the tremendous sum of Treasury bonds and other U.S. debt held by banks across the Atlantic. If the United States defaults and its top-notch credit rating is downgraded, European banks may have to add to the reserves they set aside as a safeguard because of the heightened risk they would lose money on the U.S. bonds. European banks hold nearly half a trillion dollars in U.S. debt. This demand for a larger buffer would come when many of the banks are under pressure to come up with enough capital in case of losses on bonds issued by Greece, Portugal and other European governments wracked by financial crises."

Dodd-Frank is still being fought a year after passage, reports Edward Wyatt: "In the year since the passage of a sweeping overhaul of the nation’s financial regulatory system after the financial crisis, the stock market is up, banking profits have grown and institutions that invest on behalf of average Americans are praising the tougher stance in Washington...But there remain signs that the tightened regulatory measures could still be undone, creating uncertainty about whether the actions that have helped to stabilize Wall Street will be in place when the next crisis hits. Two dozen bills in Congress seek to dismantle parts of the Dodd-Frank Act, which President Obama signed a year ago Thursday. Business groups have argued that too many new regulations could snuff out the start of an economic recovery."

Tom Coburn has his own $9 trillion plan, reports Jennifer Steinhauer: "Senator Tom Coburn of Oklahoma, who dropped out of the bipartisan group of senators known as the 'Gang of Six' after it failed to come up with a plan to reduce the federal deficit, released his own budget plan Monday. The plan, which he called 'Back in Black,' would cut $9 trillion - or roughly 20 percent of projected federal spending over the next 10 years - through a series of cuts, tax loophole closures and an increase on premiums for Medicare beneficiaries. Calling the 600-page budget document -- whose title appeared to take inspiration from a song by the 1970s rock band AC/DC -- 'bold, necessary and reasonable,' Mr. Coburn blamed partisanship and the failure of Congress to make hard choices for the current inability of members to cut a deal to raise the federal debt ceiling and avert default next month."

Cut, cap, and balance goes too far, writes Ramesh Ponnuru: "Over the past few decades federal revenue has, on average, amounted to 18 percent of gross domestic product. Spending has averaged 20 percent but is now at 24 percent. The amendment would require that spending stay at or below 18 percent (with exceptions when war has been declared or a supermajority of Congress has voted to waive the spending limit)...As a conservative I share the goal of a government that spends no more than 18 percent of GDP, and ideally spends less. But is it really wise to make putting that goal into the Constitution a condition of raising the debt ceiling? The cut, cap and balance campaign assumes that Tea Party zeal, the popularity of balanced budgets and Obama’s need to increase the debt limit can be leveraged to win a policy outcome well to the right of anything that the all-Republican government of a few years ago ever achieved."

A balanced budget amendment would leave us helpless in recessions, writes Norman Ornstein: "A sagging economy requires what we call countercyclical policy, stimulus to counter a downturn and provide a boost. The need for countercyclical policy became apparent in the 1930s, after the opposite response to economic trouble caused a dizzying collapse; its application early in Franklin Roosevelt’s presidency succeeded in pulling the United States out of the Depression (until a premature tightening in 1937-38 pulled us back down into it). Countercyclical policy is what every industrialized country in the world employed when the credit shock hit in late 2008, to avoid a global disaster far more serious than the one we faced. Under a balanced-budget amendment, however, no countercyclical policy could emanate from Washington. Spending could not grow to combat the slump."

My column: Larry Summers and Christina Romer reflect on what the crisis taught us about Keynes: “The first problem was conceptual. What Keynes told us to do simply feels wrong to people. 'The central irony of financial crises is that they’re caused by too much borrowing, too much confidence and too much spending, and they’re solved by more confidence, more borrowing and more spending,' Summers says. The second problem was practical. 'What I didn’t appreciate was the extent to which we only got one shot on stimulus,” Romer says. “In my mind, we got $800 billion, and surely, if the recession turned out to be worse than we were predicting, we could go back and ask for more. What I failed to anticipate was that in the scenario that we found we needed more, people would be saying that what was happening showed that stimulus, in general, didn’t work.'"

Adorable animals irritating each other interlude: A puppy bites a cat while he tries to eat.

Health Care

HHS has set rules for "co-op" health plans, reports Christopher Weaver: "New consumer-controlled health insurance plans could get seed money from the government to increase competition - and maybe cut prices -- under new rules announced Monday by the Department of Health and Human Services. The rules would steer a total of $3.8 billion in low-interest loans to groups such as The Evergreen Project in Baltimore, seeking to launch the so-called Consumer Oriented and Operated Plans. The health department hopes at least one 'co-op' will launch in each state and anticipates funding a total of 57 around the country. The strategy is that new health plans run by consumers...would find ways to improve care, rather than boost profits. The new plans, made possible by the seed money, would also compete with established insurers to drive prices down."

A proposed health care reform change could hurt the disabled, report Julian Pecquet: "Efforts to fix a glitch in the healthcare reform law could backfire on thousands of people with disabilities, The Hill has learned. Republicans want to change a part of the law that made 3 million middle-income people eligible for Medicaid. The law excludes Social Security income when determining eligibility for health insurance exchange subsidies or Medicaid, causing many middle-class people to become eligible for Medicaid starting in 2014. Republicans want to change the law to ensure that Medicaid remains a program for the poor, but several advocates say simply counting Social Security benefits as revenue would hurt people with disabilities. Some 1.8 million people receive Social Security disability benefits but aren't eligible for Medicare, and the law in its current form would allow many of them to get onto Medicaid."

The shape of federal health exchanges is still uncertain, reports Lester Feder: "Will there really be a strong federal health insurance exchange to take over for states that don’t build their own? Or is it a paper tiger? That question is nagging at some policy experts following last week’s release of the proposed federal rules on the new state health insurance marketplaces, which are supposed to be set up in every state by 2014 under President Barack Obama’s health reform law. If states do not meet the requirements in time to launch their own exchanges in January 2014, the law gives the Department of Health and Human Services the power to set up a federally run version for those states. But the law does not give HHS the power to regulate insurance sold outside the exchanges -- which would basically require it to take over the job of the state insurance commissioners."

Domestic Policy

States have just started ignoring No Child Left Behind, reports Stephanie Banchero: "Wisconsin and other states say No Child Left Behind unfairly penalizes schools that don't meet rigid requirements. Tired of waiting for Congress to overhaul the law, some states have taken matters into their own hands. South Dakota, Montana and Idaho recently told federal officials they would disregard key aspects of the law. Wisconsin officials plan to ask the U.S. Department of Education if they can substitute a state-developed accountability policy in place of the law, and Tennessee is considering a similar move. U.S. Secretary of Education Arne Duncan said last month that if Congress didn't overhaul No Child Left Behind soon he would waive certain requirements in exchange for states adopting changes he supports, such as linking teacher evaluations to student achievement and expanding charter schools."

Business groups are pushing hard to reverse new union organizing rules, reports Alec MacGillis: "Employer groups turned out in force Monday to challenge rules proposed by the National Labor Relations Board that would streamline the process for holding union elections and make it easier for workers to organize. The rules would eliminate many of the opportunities for delaying elections that unions say give employers more time to threaten workers against organizing. Unions say the existing rules are tilted in favor of employers, helping to explain why union membership in the private sector has plummeted from 36 percent in the early 1950s to 7 percent today. Employer representatives told the labor board that streamlining the election process would deprive employers, especially small businesses not versed in labor law, of the chance to consult with lawyers and communicate with their workers prior to a vote."

Policy riders are proliferating in House appropriations bill, reports Darren Goode: "Congress doesn’t want Ken Salazar to have a personal chef or Eric Holder to buy first-class airline tickets. Those two Cabinet members have it easy -- an angry appropriations cardinal once saw to it that a Reagan-era Health and Human Services secretary had a smaller car than everyone else. Earmarks may have gone away, but picayune policy riders are still peppering appropriations bills in the new Republican Congress. Some of the riders would save money and make sense in the abstract: Why does the Interior Department secretary need a personal chef, chauffeur or servant on the taxpayers’ dime? Certainly, he’s not asking for one. But other Cabinet secretaries don’t have the same prohibition."

Cheating on standardized tests doesn't mean the tests aren't worthwhile, writes Steven Pearlstein: "The right reaction to the cheating scandals in Atlanta, Washington and elsewhere isn’t to declare testing a failure. It is to string up, metaphorically, the worst offenders as a lesson to anyone else who wants to give it a try. It is to spend the money on software and investigations to create a very credible threat that if you do this you’ll get caught. And it is to reaffirm, absolutely, our commitment to accountability in education and continuous improvement in the ways we measure success of students, teachers and principals. To me, this is one of the critical tests of leadership: to be able to stand firm and stand tall when bad things happen to good ideas or policies or strategies."

Adorable animal love story interlude: A bald eagle couple is reunited after both parties were injured.

Energy

Automakers are pushing back on plans to double fuel economy standards, reports Sharon Terlep: "The Obama administration and auto industry are deeply divided over whether future advancements in battery technology can support a proposal to roughly double fuel economy to 56 miles on a gallon of gasoline by 2025. On Monday, U.S. Department of Energy Secretary Steven Chu headed to Detroit to tout advanced technology initiatives, including the promise of electric vehicles. He was greeted with skepticism from politicians and auto makers...Government officials have estimated the costs of meeting the mileage and emissions target would add between $770 and $3,500 to the cost of a new car in 2025. The Alliance of Automobile Manufacturers, the industry's main trade group, has said research shows such big gains in fuel economy could raise vehicle prices by $6,000 or more."

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

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