Wonkbook: The two parties have just begun to fight

at 07:57 AM ET, 06/30/2011


(Carolyn Kaster - AP)
Yesterday, the White House officially admitted the failure of the debt-ceiling talks and took their case to the public. You can see why it's something they tried hard to avoid. A week ago, what separated the two parties was the GOP's steadfast refusal to include any taxes in the final deal. But as the negotiations broke down, both parties have begun moving towards positions their bases will like better, and the other side will find even harder to support.

Senate Republicans are taking the opportunity to unify around a balanced budget amendment. Oh, and their balanced budget amendment caps spending at about 18 percent of the previous year's GDP. It's so tight, it'd rule the Ryan budget unconstitutionally profligate. That might sound good to the Tea Party, who will begin to make that their key demand in the budget talks. But how far do you think it's going to get with Democrats?

Democrats, meanwhile, are beginning to wonder whether they need to have these discussions at all, or whether they can simply declare the debt ceiling unconstitutional and get the whole thing over with. There's a plausible legal argument behind the theory, but an enormous amount of practical risk. And even if they don't go quite that far, Senate Democrats are finally set to release a budget of their own next week, and it's expected to come in not just to the left of the deal Democrats were ready to cut with the Republicans, but to the left of Obama's long-term budget proposal. After spending a few weeks defending this budget as the smart path forward, how likely is it that the Democratic base will want to reward Republican intransigence by moving far back to the right to cut a deal?

In other words, in the absence of a deal on the table, the parties are moving to the sort of policies they'd prefer if they didn't have to make a deal at all, which are also the sort of policies their bases will prefer. As their bases come to like the new positions better and demand their legislators stop wavering and rewarding the other side's insane negotiating posture, it'll get tougher and tougher for either group to seriously return to the table. And Republicans, meanwhile, are returning to the task of convincing themselves that nothing seriously bad will happen if we simply blow through the debt limit. Which means we're probably going to have to wait for the debt limit to begin shutting down parts of the government or panicking portions of the market before we get the sort of outside pressure capable of convincing both sides that the practical consequences of continued inaction are worse than political consequences of action. This is exactly where we didn't want to be.

Five in the morning

1) Obama got tough at yesterday's presser, report Peter Wallsten and Zachary Goldfarb: "President Obama belittled congressional Republicans for taking vacations amid difficult deficit-reduction talks. He contrasted lawmakers with his young daughters...Wednesday’s appearance offered Obama a chance to regain the upper political hand that he has lost in recent weeks as gasoline prices rise, employment numbers continue to disappoint and a deficit-reduction deal with the GOP that would raise the country’s debt limit remains elusive. He accused Republicans -- no less than six times -- of favoring corporate-jet owners over average folks in the party’s refusal to consider tax increases as part of a deficit deal. And, showing a combative side that Americans rarely see, he said that Republicans 'need to do their job.'"

2) This is now about which party can endure the consequences of delay, writes Ezra Klein: "The conventional wisdom is that now this fight moves to the people. I’d put it differently. Now this fight moves to the consequences. Neither side is going to give in the face of purely rhetorical salvos. The White House is expecting Republicans to accuse them of wanting to raise taxes. The Republicans are expecting the White House to accuse them of putting the interests of large corporations and wealthy donors in front of the needs of seniors, children and the poor. Both parties have seen the poll numbers behind their positions. If a few news conferences were going to be sufficient to end this, it would never have started. What the two parties are really doing is trying to position themselves politically to survive the consequences of their failure. We don’t yet know if we’ll get to the point where the market will panic, but it could. We’re very likely to get to the point where we have to stop funding certain government services, which could mean as little as delaying payments to military contractors and hospitals or as much as halting Social Security checks. Either way, the public is likely to ignore the political breakdown until the consequences begin. At that point, both parties are hoping they will have framed the debate such that the electorate’s fury falls squarely on the other’s shoulders. That’s what today’s news conference was about."

3) More and more Democrats think the debt limit is unconstitutional, report Ryan Grim and Sam Haass: "Growing increasingly pessimistic about the prospects for a deal that would raise the debt ceiling, Democratic senators are revisiting a solution to the crisis that rests on a simple proposition: The debt ceiling itself is unconstitutional. 'The validity of the public debt of the United States, authorized by law... shall not be questioned,' reads the 14th Amendment. 'This is an issue that's been raised in some private debate between senators as to whether in fact we can default, or whether that provision of the Constitution can be held up as preventing default,' Sen. Chris Coons (D-Del.), an attorney, told The Huffington Post Tuesday...The White House referred questions on the constitutionality of the debt ceiling to the Treasury Department. Treasury declined to comment."

My take: the debt limit might be unconstitutional, but this is a very bad time to try and find out.

4) Senate Republicans refuse to concede that a failure to hike the debt limit will lead to default, report Andrew Ackerman and Jeffrey Sparshott: "Key Senate Republicans on Wednesday brushed aside fresh warnings from U.S. Treasury Secretary Timothy Geithner that Congress must increase the U.S. borrowing cap before an Aug. 2 deadline...[Geithner] also criticized a Republican proposal for the government to develop a contingency budget plan that could be used if the debt cap isn't raised...'We're not going to default even if there is no debt-ceiling increase,' Sen. Tom Coburn (R., Okla.) said in an interview...Sen. Rob Portman (R., Ohio), a former White House budget director, said that in any given year there's enough federal revenue to cover the government's debt service payments."

5) An appeals court -- including a Bush-appointed, ex-Scalia clerk -- upheld health care reform, reports Jerry Markon: "A federal appeals court on Wednesday upheld the most contentious provision of the health-care overhaul law, ruling that Congress can require Americans to carry insurance coverage. In backing the individual mandate, the U.S. Court of Appeals for the 6th Circuit in Cincinnati became the first appellate court to rule on President Obama’s signature domestic initiative. The decision also marked the first time a Republican-appointed judge has sided with the administration in evaluating the law’s constitutionality. 'We find that the minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause,' Judge Boyce F. Martin Jr., a Democratic appointee, wrote for the majority. He was joined by Republican appointee Jeffrey Sutton."

Girl group pop interlude: Cults play "Abducted" live.

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

Still to come: Senate Democrats have settled on a budget; an appeals court has backed health care reform; the Senate voted to reduce the number of Senate confirmation-requiring appointments; the administration is fighting a European climate change rule; and a corgi and a puppy get into a fight.

Economy

Senate Democrats have settled on a budget, reports Alexander Bolton: "Senate Budget Committee Chairman Kent Conrad (D-N.D.) announced Wednesday that Democrats had finally reached an agreement on a budget plan. His announcement came as the leadership met with President Obama to inform him that their members had unified around a message for the debt-limit showdown. Conrad’s proposal, which he said he plans to introduce as soon as next week, would cut more than $4 trillion from the deficit, a greater reduction than what Obama’s fiscal commission had recommended. 'We’ve reached an agreement after weeks of work,' Conrad told The Hill on Wednesday afternoon. 'I think it’s big.' Democrats have also settled upon the message they want Obama to push in the public battle with Republicans over the $14.3 trillion debt limit, which Treasury says must be raised by Aug. 2."

QE2 worked, but not well enough, reports Neil Irwin: "Thursday morning, a half-dozen or so staffers will gather in a small room on the ninth floor of the Federal Reserve Bank of New York building in Lower Manhattan...When they finish, well before lunchtime, the Fed’s much-debated effort to strengthen the U.S. economy by buying $600 billion in bonds, launched in the fall, will be over. The effort, which became known in financial circles as the second round of quantitative easing, or QE2, was the Fed’s effort to avert a slip into another recession and toward deflation, or falling prices. As it ends, it shows more than anything the limits of the power of monetary policy to correct what ails the U.S. economy...It’s not that QE2 had no impact. Inflation was well below the Fed’s unofficial target of around 2 percent last summer, and the chance that deflation, or falling prices, might take hold seemed real. That risk is now minuscule, and inflation is roughly in line with the Fed’s target."

Banks successfully lobbied the Fed to loosen debit card fee rules, reports Ylan Mui: "The Federal Reserve raised its limit Wednesday on how much merchants must pay to banks each time a debit card is swiped, an eleventh-hour reprieve for the financial industry after a massive lobbying campaign. The so-called swipe fee, or interchange, will increase from a maximum of 12 cents proposed by the Fed last year to a base charge of 21 cents. Banks can also collect .05 percent of the amount of the transaction to recoup losses from fraud. In addition, the Fed will consider allowing them to receive another cent for each transaction if they take steps to prevent fraud. The new rules will take effect Oct. 1. Congress directed the Fed to craft the regulations as part of sweeping reforms of the financial system passed last year."

The IMF has warned the US on the debt limit, reports Reid Epstein: "Failure to raise the nation’s debt ceiling would deal a 'severe shock' to world financial markets still struggling to recover from a worldwide recession, the International Monetary Fund said Wednesday. 'The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,' the IMF statement read...As others have predicted, the IMF -- which on Tuesday announced Christine Lagarde of France as its next managing director -- said a failure of President Barack Obama and congressional leaders to reach an agreement before the August deadline could lead to a downgrade of the nation’s credit rating and interest rate hikes. The IMF also urged the U.S. to stabilize the nation’s debt ratio, which it deemed unsustainable."

Bad mortgage are hitting banks worse than Fannie and Freddie, reports Nick Timiraos: "U.S. banks hold a much higher rate of defaulted mortgages on their books than do mortgage giants Fannie Mae and Freddie Mac, according to a report issued Wednesday by the Office of the Comptroller of the Currency, which regulates national banks. The report said 19.7% of mortgages in banks' portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by Fannie and Freddie were nonperforming, as were 11.4% of all mortgages. Nevertheless, Fannie and Freddie are more hobbled than the biggest banks: Their mortgage holdings are large, the firms hold little capital and they don't have other business lines to offset mortgage losses. Fannie and Freddie guarantee more than $5 trillion of mortgages, double the amount held by all the nation's banks and thrifts combined."

Greece may not be out of the woods yet, reports Howard Schneider: "Greek lawmakers helped the world skirt a renewed financial crisis on Wednesday when they faced down massive protests and public opposition to approve a package of tax increases and budget cuts to avoid a default. Although world markets cheered the outcome, the relief may be temporary: The emergency loans expected to be made available to Greece will pay its bills for perhaps only two more months. Unless international negotiators agree to a long-term plan for the country, it will be back to the brink by the end of summer. Those talks are proceeding and -- it is hoped -- will be completed in September along with an agreement by major banks and financial institutions that hold Greek bonds to leave much of their money invested in the country."

We need another round of stimulus, writes David Wessel: "Perhaps state-owned enterprises Fannie Mae and Freddie Mae should be deployed more aggressively to refinance credit-worthy underwater borrowers. Perhaps the federal government should buy foreclosed homes from banks and give them to local governments to fix up and rent...Nudge employers to hire with a tax credit for every worker they add or extra dollar they spend on payrolls. Yes, it will reward some employers who would have hired otherwise. But 4.4 million Americans have been unemployed for more than a year, their prospects for ever going back to work diminishing. Watchful waiting is costly and cruel...How about a quick round of infrastructure maintenance, putting unemployed to work today on chores we'll have to do someday anyhow?"

Corgis are excellent interlude: A corgi and a puppy get into a fight.

Health Care

Medicaid cuts are looking like they'll be part of a debt deal, reports Lester Feder: "Defenders of Medicaid have been fighting hard against Republican proposals to cut the program, but they’re just waking up to the threat of one proposed by the Obama administration. It’s an idea to change the way federal matching funds work and save money in the process -- and it would probably do it by shifting costs to the states...In the budget blueprint unveiled in April, President Barack Obama proposed adjusting the way federal matching funds paid to the states are calculated for Medicaid and its companion, the Children’s Health Insurance Program. Sources close to the administration tell POLITICO that White House officials have been trying to develop the idea into a version that could become part of a deal in the ongoing deficit reduction talks."

Medicare reform should target the "doc fix", writes Ezra Klein: "Buried within Medicare is a formula called the sustainable growth rate. The SGR was passed in 1997 by a Republican Congress and signed into law by a Democratic president in order to slow the growth in doctor payments. But the formula soon began mandating huge cuts in those payments. If the cuts were enacted -- they’re up to 30 percent now -- few doctors would stay in the Medicare program. Consequently, Congress routinely passes 'doc fixes' that negate the SGR’s cuts...The SGR should be repealed -- with its demise paving the way for deep reforms to the system. As part of the deal, Republicans could get increases in the fees patients pay for services. Democrats could get a structural redesign of the system, increasing payments for treatments backed by solid evidence and decreasing payments for treatments that are less effective."

Domestic Policy

The Senate voted to reduce the number of positions that require confirmation, reports Al Kamen: "The Senate Wednesday voted 79-20 to approve legislation to streamline its confirmation process by reducing the number of positions requiring full Senate confirmation and requiring fewer nominees to go through a full confirmation procedure. The action, which removes 169 of the total 1,416 jobs now requiring Senate approval, had been something of a foregone conclusion since a bipartisan group of senators, including Majority Leader Harry Reid (D-Nev.) and Republican leader Mitch McConnell (Ky.) signed on in January. The jobs in that category -- such as assistant secretaries of public affairs -- are generally ones that rarely spark partisan Senate battles. The House of Representatives, which has no role in confirming nominees, has indicated it will pass the measure."

The Supreme Court is not against all kinds of public financing, reports T.W. Farnham: "The Supreme Court ruled this week that Arizona’s system of public campaign funding is unconstitutional, but the decision does not signal that the court is ready to reject all public financing for elections. The finding focused on one aspect of the law, a trigger that increases money for publicly funded candidates who face high-spending challengers...The day after that ruling was announced, the court declined to hear a separate campaign finance case, a decision that drew less attention but signaled something just as significant: Not all forms of public financing will raise the ire of the justices. In that case, the court turned down plaintiffs challenging a Connecticut public financing law, leaving in place a lower-court decision upholding the statute."

Democrats are seeking to raise money through "super PACs", reports Kenneth Vogel: "The Federal Election Commission on Thursday morning will consider a Democratic request that could further empower the independent political groups vowing to spend hundreds of millions of dollars on hard-hitting campaign ads in the run-up to the 2012 election. The request, filed by groups with close ties to Democratic congressional leaders Harry Reid and Nancy Pelosi, asks whether it’s legal for federal candidates - such as Reid, Pelosi, other members of Congress and even President Barack Obama - to solicit unlimited contributions from corporations, unions and individuals for a new breed of independent political action committee known as super PACs. Advocates of strict political money rules - and even one prominent opponent - are urging commissioners to bar the proposed new fundraising."

The Supreme Court is consistently ruling for the powerful over the powerless, writes EJ Dionne: "This court has created rules that will have the effect of declaring some corporations too big to be challenged through class actions, as AT&T customers and female employees at Wal-Mart discovered. And remember how sympathetic conservatives are supposed to be to the states as 'laboratories of democracy,' pioneering solutions to hard problems? Tell that to the people of Arizona. They used a referendum to establish a highly practical system of financing political campaigns that the court, in a 5-4 decision Monday, eviscerated. It was designed to reduce corruption and give a fighting chance to candidates who decide to forgo contributions from special interests."

Great moments in photoshop interlude: Historical figures at modern parties.

Energy

The administration's effort to block EU global warming rules is drawing fire, reports Daniel Michaels: "U.S. environmental groups are attacking the Obama administration's opposition to the European Union's plan to regulate greenhouse gas emissions from airplanes, arguing Washington is reneging on its commitment to fight global warming. American diplomats last week for the first time presented EU officials with formal U.S. objections to the 27-country bloc's plan to regulate airline emissions at talks in Oslo. Under EU law, any airline operating to or from an EU airport after January 1 must participate in the bloc's cap-and-trade system. The U.S. government and U.S. airlines contend the legislation shouldn't apply to U.S. carriers, arguing the EU lacks jurisdiction over foreign companies outside its borders."

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

 
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