Wonkbook: What will President Obama do in his second term? Whatever Congress lets him do.
By Ezra Klein,
What will President Obama do if he wins a second term? Well, as David Fahrenthold and Peter Wallsten report, it depends who you ask. Gay rights groups are sure he'll endorse gay marriage. Gun rights groups are certain he'll take away their guns. Environmentalists know deep in their bones that he'll take another run at pricing carbon. But the answer is, for the most part, simpler than all that: If Obama wins a second term, he'll do what Congress lets him do.
President Obama delivers a speech at the American Israel Public Affairs Committee annual policy conference in Washington March 4.
One of the key questions the president is answering in the facilitator model is, "where's Congress?" Because most every change the president wants to make is actually and ultimately a change that Congress has to make. The president has some influence over Congress, of course, but vastly less than we commonly assume. And that influence drops to nearly nothing when the president is facing an opposition Congress beholden to voters who don't much like him anyway. Indeed, those voters might see it as a plus if Congress ignores the president's agenda.
If you want to know what Obama will do in a second term, you have to begin by asking what sort of Congress he's going to face in a second term. Will it be led by Republicans or Democrats? Will the Republicans be more extreme after a second defeat at the presidential level, or will they be chastened and ready to attempt a more cooperative style of governance? Will the balance of power in the House Democratic Caucus lie with the progressives, the Blue Dogs, or neither? Will Mitch McConnell's top priority be tax reform or the 2014 midterm election?
The answers to these questions will decide what Obama can do, and thus what he will do. In comparison, asking what he wants to do is only a bit better than asking after his March Madness bracket. There's plenty the president might like to do. But as we've seen over the last year, he can't get much of it done without a cooperative Congress.
1) The return of the grand bargain? "A small, bipartisan group of lawmakers in both the House and Senate are secretly drafting deficit grand bargain legislation that cuts entitlements and raises new revenue. Sources said that the task of actually writing the bills is well underway, but core participants in the regular meetings do not yet know when the bills can be unveiled...The House members are working in tandem with Senate negotiators who are looking to turn the outline produced by the Senate’s Gang of Six into legislative language. The goal of both groups is the same: make sure the debt is not growing bigger than the size of the economy. The Obama 2013 budget does stabilize the debt in the latter half of the decade, but since it does not cut entitlements, the debt balloons again after 2020 due to Baby Boomer retirements...A source close to the effort said the focus is on drafting now, and negotiators will address when to unveil the result later." Erik Wasson in The Hill.
@DKThomp: Breaking news abt imminent bipartisan deficit deals are DC's version of Bigfoot pictures. Yes, there are lots. No, don't believe them.
2) The speculation game for Obama's hypothetical second term has begun. "If President Obama wins a second term, he will finally endorse same-sex marriage. Gay rights groups are almost certain. He will also make a new, historic effort to fight climate change -- environmentalists are pretty sure. And Obama will finally do just what the Congressional Black Caucus wants. According to some members of the Congressional Black Caucus. Conservative groups are equally confident that Obama, freed from the fear of losing his reelection bid, would deliver on far-reaching left-wing dreams. GOP candidate Mitt Romney forecasts a runaway spending spree. Newt Gingrich envisions a 'war' on the Catholic Church. The National Rifle Association predicts a crackdown on gun owners. The funny thing about all this is: Obama himself hasn’t said he’ll do any of it. In his speeches -- over the first few months of his reelection campaign -- the president has only sketched out a vague agenda for his next term." David Fahrenthold and Peter Wallsten in The Washington Post.
3) Big public companies' effective tax rate is at a 10-year low. "The effective tax rate paid by large US public companies fell to its lowest in a decade in the fourth quarter last year as an increasing amount of revenue was generated outside of the country. Though a handful of corporates, including General Electric, paid more tax than a year ago, many other companies are continuing the trend of paying less as a share of pre-tax income. Corporate tax reform has been a major presidential campaign issue. Barack Obama and his Republican rivals are promising to slash the US’s 35 per cent rate, one of the highest statutory rates in the developed world, to encourage a return towards domestic investment. According to figures compiled by Morgan Stanley, the unweighted average tax rate paid by the largest 1,500 US public companies by market value in the fourth quarter was 31.9 per cent of pre-tax income. About 100 companies are yet to report for the quarter." Telis Demos in The Financial Times.
4) Deepwater drilling is back. "Nearly two years after an explosion on an oil platform killed 11 workers and sent millions of gallons of oil gushing into the Gulf of Mexico, deepwater drilling has regained momentum in the gulf and is spreading around the world. The announcement of an agreement late Friday by BP and lawyers representing individuals and businesses hurt by the disaster represented something of a turning of the page, though BP and its drilling partners continue to face legal challenges. After a yearlong drilling moratorium, BP and other oil companies are intensifying their exploration and production in the gulf, which will soon surpass the levels attained before the accident. Drilling in the area is about to be expanded in Mexican and Cuban waters, beyond most American controls, even though any accident would almost inevitably affect the United States shoreline. Oil companies are also moving into new areas off the coast of East Africa and the eastern Mediterranean." Clifford Krauss and John Broder in The New York Times.
5) The Fed is taking a break. "The Federal Reserve is pausing after a six-month campaign to boost growth, while policy makers assess a puzzling economic outlook. Fed officials meeting next week are unlikely to take any new actions to spur the recovery, and they are likely to emerge with a slightly more upbeat--but still very guarded--assessment of the economy's performance. This comes after a series of moves in recent months, including recasting its securities portfolio in January as a way to spur growth. Then the central bank signaled in January that short-term interest rates are likely to stay near zero through most of 2014. A big question is whether the Fed will launch a new bond-buying program in an effort to push down already low long-term interest rates. The Fed tries to ensure interest rates are low when the economy is weak to stimulate investment and spending, and it guides rates higher when the economy is strong to prevent overheating and inflation." Jon Hilsenrath in The Wall Street Journal.
1) Obama could take some lessons on Keynesian policymaking from Reagan. "If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs. And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage." Paul Krugman in The New York Times.
2) The recovery is on track -- time to cut deficits. "In case you haven’t noticed, the economy is actually getting better. Noticeably better. Yes, it’s been painfully slow in coming, as we continue to tack against strong headwinds coming from Europe and the Middle East as well as the strong ebb tide created by the wind-down of fiscal stimulus. And certainly the recovery has been halting and uneven. But the recovery has reached a point where it looks to be self-sustaining, that magic point when growth begets more growth, hiring begets more hiring, spending begets more spending...The positive economic news also means that the economy is in the process of shifting workers and capital to new and more productive sectors and companies. At this point in the recovery, the focus of public policy ought to be on supporting and accelerating that process, not on trying to delay and thwart it with more stimulus." Steven Pearlstein in The Washington Post.
@BenjySarlin: Biggest sign the economy is in recovery so far is this week's political news cycle
@pourmecoffee: Obama needs to prepare nation for slow economic growth this quarter as March Madness bracketology cuts productivity in half.
3) It's the health care prices, stupid. "There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher. That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive. There are many possible explanations for why Americans pay so much more. It could be that we’re sicker. Or that we go to the doctor more frequently. But health researchers have largely discarded these theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan put it in the title of their influential 2003 study on international health-care costs, 'it’s the prices, stupid.'" Ezra Klein in The Washington Post.
4) The presidential candidates have been almost silent on education. "Until former senator Rick Santorum called President Obama 'a snob' last month for wanting all Americans to attend college, education had been practically invisible in this presidential campaign. Only 1 percent of the time and questions in Republican debates have touched on schools since an education forum I co-moderated in New York in October. This is crazy. Does any parent or CEO in America think education is 1 percent of the agenda in an age of global competition? Unless voters insist that candidates give education the attention it deserves, this will be another political season in which both sides offer pablum without seeking a mandate for the ambitious reforms our schools require...The countries out-educating us view education as central to their success. When the future of our economy and society turn on our ability to dramatically upgrade the skills of all our children, how can we view it as anything less?" Joel Klein in The Washington Post.
5) Confessions of a bad teacher. "I’m a bad teacher. That’s not my opinion; it’s how I’m labeled by the city’s Education Department. Last June, my principal at the time rated my teaching “unsatisfactory,” checking off a few boxes on an evaluation sheet that placed my career in limbo. That same year, my school received an “A” rating. I was a bad teacher at a good school. It was pretty humiliating." William Johnson in the New York Times.
Cover interlude: Gnarls Barkley plays Radiohead's "Reckoner" live at Astoria 2.
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Still to come: Lenders are letting some homeowners stay; a Medicaid reform proposal draws heat; food inspection is due for an overhaul; natural gas trucks are on the way; and a dog plays the piano while singing.
The stock market is in for election year jitters. "The Dow is off to its best start to a year since 1998. But if history is a guide, this exuberance soon could give way to the first pangs of electoral anxiety. In a typical presidential-election year, stocks start well but slip into a funk by spring, according to Ned Davis Research, which has measured election-year trends back to 1900. At least in part, the slump reflects the electoral unknowns, Ned Davis has concluded. In a good year, investors deal with their jitters by late summer or early autumn and stocks recover. People get more comfortable with the November election outlook and put money back into stocks. This year, with the Dow Jones Industrial Average up 6.2% in just over two months, many investors and analysts expect a pullback soon. The looming election adds to ambient uncertainty about European debt and U.S. and Chinese growth prospects." E.S. Browning in The Wall Street Journal.
@Reddy: Only four presidents elected since 1900 have seen the Dow rise 50% or more during their first 3 years. One is Obama.
More lenders are letting delinquent homeowners remain in their homes. "Forced by the harsh realities of the real estate market, lenders are increasingly likely to allow defaulting owners to remain in their homes -- a change in attitude and strategy that is helping to buoy some neighborhoods while further slowing the nation’s foreclosure process. Some lenders are now willing to make deals with owners to let them stay after defaulting, offering to pay home insurance, for example, while the resident pays for utilities. Other lenders simply look the other way, quietly putting off foreclosure sale dates, knowing that the costs of the ordeal probably exceed the diminishing value of the properties. The evolution in thinking was perhaps inevitable, experts say. Across the country, more than 644,458 properties were lingering in bank ownership at the end of January, but even more -- some 710,725 -- were coming down the foreclosure pipeline, according to RealtyTrac, a real estate and foreclosure analysis firm." Susan Saulny in The New York Times.
Home prices hit new lows in 2011. "Home prices in the United States, which seemed to begin to recover in 2009, fell to new lows in 2011, according to the Standard & Poor’s/Case-Shiller index of prices...It is possible that the home price situation is not as bleak as portrayed by the Case-Shiller indexes. A major challenge for any home price index is assuring comparability. Case-Shiller does that by comparing prices of homes with the price of the same home when it was previously sold. The risk is that such comparisons may overlook changes to the home between transactions. During the boom, that meant the index might overstate gains because a home rose in value in part because of the addition of a new bedroom or swimming pool. Now, it may overstate losses because a disproportionate portion of sales in some markets are foreclosures, which are less likely to have been well maintained and in some cases may have been abandoned and vandalized before a new sale takes place." Floyd Norris in The New York Times.
Some big banks are trying to limit how much stress tests will reveal about them. "Some very large banks are clashing with the Federal Reserve over how much detail the central bank will reveal about them when it releases the results of its latest stress test. The 19 biggest U.S. banks in January submitted reams of data in response to regulators' questions, outlining how they would perform in a severe downturn. Now, citing competitive concerns, bankers are pressing the Fed to limit its release of information--expected as early as next week--to what was published after the first test of big banks in 2009. Three years ago, as the financial crisis was abating, the Fed published potential loan losses and how much capital each institution would need to raise to absorb them. This time around, the Fed has pledged to release a wider array of information, including annual revenue and net income under a so-called stress scenario in which the economy would contract and unemployment would rise sharply." Dan Fitzpatrick and Victoria McGrane in The Wall Street Journal.
The pressure for Fannie and Freddie to write down principal is growing. "The debate over Washington's efforts to stabilize the troubled housing market escalated last week, as the Obama administration and the nation's top mortgage regulator butted heads over how to rein in foreclosures. Housing and Urban Development (HUD) Secretary Shaun Donovan said his agency wants to encourage more principal write-downs to keep people in their homes, even when those loans are backed by Fannie Mae and Freddie Mac...That feeling isn't shared, however, by the head of the independent agency that regulates Fannie and Freddie. Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), told the same Senate panel that while he has the authority to reduce mortgage principal to prevent foreclosures, he won't use it because other tools are more effective." Mike Lillis in The Hill.
Greece's planned debt swap faces doubts. "Greece faces a decisive week in its struggle to avert a sovereign default, with a planned debt swap poised on a knife-edge amid doubts over the level of participation by private bondholders. The government’s tender offer has got off to a slow start, with its advisers trying to round up non-institutional bondholders and even Greek investors showing reluctance to sign up quickly, according to insiders. Private holders of €206bn in Greek bonds have until Thursday evening to decide whether to take part in a swap where they would trade bonds for a package of bonds and cash that would knock about €100bn off Athens’ debts. Greece must get 75 per cent of holders to participate to avoid forcing the deal on holdouts through so-called 'collective action clauses' which were inserted retroactively into Greek bonds by the government last week. If less than 66 per cent participate, even the CACs would become invalid, scuppering the entire deal." Kerin Hope, Richard Milne, and Peter Spiegel in The Financial Times.
There's no easy answer on capital gains tax reform. "Throughout almost the entire history of the United States income tax, the tax rate on capital gains has been lower than that on ordinary income. Today, the top rate is 15 percent for capital gains and 35 percent for ordinary income. There are good reasons for this -- including, for example, the fact that capital gains are not indexed for inflation. But put that aside. If we are going to tax capital gains at a lower rate, one question necessarily arises: What is a capital gain, and how can we distinguish it from ordinary income?...Critics of current law think it is unfair that these private equity partners are taxed at capital gains rates, whereas other high-income individuals like doctors and lawyers pay the much higher tax rates for ordinary income. It is a reasonable point, and some reform may well be appropriate. But as the tax situations of Abe through Earl illustrate, it is not obvious what the best approach would be. Not all problems have easy answers." Gregory Mankiw in The New York Times.
@TheStalwart: Really psyched for jobs week.
Toy ball interlude: A baby gets 650 toy balls, celebrates.
A GOP Medicaid reform proposal is drawing skepticism. "Several Republican governors are raising concerns with a House GOP Medicaid reform proposal that's expected to be reintroduced shortly. The Republican budget that the House approved last year would have replaced the Medicaid program with a block grant that gives states more flexibility to run their programs while cutting federal funding for the health program for low-income Americans. Budget Committee Chairman Paul Ryan (R-Wis.) is expected to propose a similar approach again when he releases his FY 2013 budget this month or next. A couple of former Republican governors however told The Hill this past week that the block grant proposal may not work for their states." Julian Pecquet in The Hill.
@ezraklein: Has anything in the health-care law done as much political good for Dems as the regulatory ruling on employer plans and contraception?
The U.S. is rethinking it's food inspection processes. "Every day, inspectors in white hats and coats take up positions at every one of the nation’s slaughterhouses, eyeballing the hanging carcasses of cows and chickens as they shuttle past on elevated rails, looking for bruises, tumors and signs of contamination. It’s essentially the way U.S. Department of Agriculture food safety inspectors have done their jobs for a century...But these days, the bulk of what Americans eat -- seafood, vegetables, fruit, dairy products, shelled eggs and almost everything except meat and poultry -- is regulated by the Food and Drug Administration...The USDA and the FDA are under pressure to overhaul their dramatically different procedures, in essence bringing them closer together. There’s a growing recognition among food-safety experts that the government can be smarter about tackling food-borne hazards that sicken one in six Americans each year and kill about 3,000." Dina ElBoghdady in The Washington Post.
Alternative educational credentials are on the rise. "What’s so special about a diploma? With the advent of Massive Open Online Courses and other online programs offering informal credentials, the race is on for alternative forms of certification that would be widely accepted by employers...Mozilla, the John D. and Catherine T. MacArthur Foundation and others are working to devise a system of online educational 'badges' certifying exactly which skills had been learned. Some companies, like Microsoft, already offer their own certificates for trained computer technicians. Some educators doubt that such credentials will ever command as much respect as a diploma from a well-known college. And of course, to be trustworthy, alternative credentials would have to be at least as cheat-proof as traditional ones. And that is not so simple." Tamar Lewin in The New York Times.
Adorable animals who play musical instruments interlude: A dog plays the piano and sings.
BP reached a spill settlement, but the federal case still looms. "The $7.8 billion oil spill settlement between BP PLC and thousands of residents and businesses along the Gulf of Mexico clears the way for what may become a far more expensive battle between the oil giant and the U.S. government. Legal experts said the size of the settlement, announced Friday night, suggests that if the government pursues criminal environmental penalties against BP the potential penalties could reach $17 billion to $40 billion, though a settlement likely would reduce any fine to far less. Potential civil penalties, which are based on the amount of oil spilled but increased by any finding of negligence, could top an additional $20 billion. That amount also would be subject to reduction through a settlement. The indefinite delay of a civil trial that was to begin today is expected to lead to the resumption of settlement talks among the remaining parties, including the Department of Justice." Tom Fowler in The Wall Street Journal.
U.S. automakers will introduce natural gas powered pickup trucks. "U.S. auto makers are introducing pickup trucks powered by natural gas as they look to catch the growing wave of interest in the fuel as an alternative to gasoline. On Tuesday, Chrysler Group LLC plans to disclose it will build the first production-line pickup truck powered by natural gas. The auto maker is promising to build at least 2,000 heavy-duty Ram bi-fuel trucks that run on a combination of compressed natural gas and gasoline starting in June. General Motors Co. on Monday plans to disclose it will offer bi-fuel Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter. The trucks will be built by GM and sent to a supplier that will retrofit them to use compressed natural-gas tanks. In 2009, the American Gas Association and America's Natural Gas Alliance met with a variety of auto makers to urge them to build complete CNG-powered pickups at the factory." Jeff Bennett in The Wall Street Journal.
Obama may have to resort to gimmicks on gas prices. "One of Barack Obama’s finest moments in the long campaign of 2008 was when he mocked Hillary Clinton and John McCain’s call for a 'gas tax holiday' to curb rising petrol prices. 'It’s a stunt,' Mr Obama said before the primaries in North Carolina and Indiana, where Mrs Clinton was making her final stand. 'It’s what Washington does.' Four years later, America faces the prospect of another summer of rising prices and an election that could hinge on how far they go. The world oil price has risen by almost 30 per cent since October. A further jump of 20 per cent would take it above $150 a barrel, which would endanger America’s recovery. In the past few days US pump prices have been inching towards $4 a gallon - a traditional panic threshold for consumers and therefore also politicians...All of which will increase the temptation to indulge in the type of gimmick Mr Obama so disdained in 2008." Edward Luce in The Financial Times.
@zerohedge: Goldman: "oil prices have moved high enough to be an impediment to growth"
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.