Wonkbook: Into the sequester, onto the shutdown?

March 4, 2013

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook's Number of the Day: $7 billion. That's the amount Republicans want to restore in defense spending from the sequester's cuts. Of course, Democrats have their spending priorities, too -- and they have called for a "balanced approach" including tax revenue. That would risk a federal government shutdown. More below.


(REUTERS/Jonathan Ernst )

Wonkblog's Graph of the Day: We wouldn't have a fiscal deficit if (fill in the blank).

Wonkbook's Top 5 Stories: 1) Introducing the "continuing resolution"; 2) the sequester goes into effect; 3) clock running on immigration reform; 4) a grim long-term look at the U.S. economy; and 5) the NIH study you need to read.

1) Top story: Will the continuing resolution be Washington's next fight?

Congress looks to make deal to avert a government shutdown. "Congress returns to work this week with no plan to reverse across-the-board spending cuts that took effect Friday, but with hope on both sides of the aisle of averting an end-of-the-month showdown that could result in a government shutdown. The House plans to vote Thursday on a spending measure that would keep the government running after its current funding mechanism elapses March 27." Kimberley Kindy and Rosalind S. Helderman in The Washington Post.

Read: The final sequester breakdown, from the Air Force to zoosDylan Matthews in The Washington Post.

House GOP wants to restore $7b in defense spending under CR. "House Republicans are proposing this week to restore upward of $7 billion to operations and maintenance accounts for the four military services hit hard by the automatic cuts that went into effect Friday night...Republicans know they can’t sustain a long fight without addressing this vulnerability, but the CR is also a political tinderbox that could blow up despite all sides now insisting that they want to avoid a government shutdown." David Rogers in Politico.

@Goldfarb: One wonders if a better administration play would have been to let sequester start at start of year so pain is clear by CR.

Obama, hoping to forge big budget deal, looks beyond Boehner and McConnell, and towards McCain and Graham. "With few avenues left for winning a comprehensive budget deal that can reverse the across-the-board spending cuts that took effect over the weekend, President Obama has begun reaching out to senators in a bid to isolate Republican leaders in Congress and force a compromise. In conversations last week with Senators Lindsey Graham of South Carolina and John McCain of Arizona..." Jonathan Weisman in The New York Times.

@Goldfarb: POTUS will fight sequester but wants to make room for other issues -- immigration, guns, etc. -- so he'll sign CR, it seems

...But Democrats feel let down on taxes. "With about $85 billion in spending cuts — and no new revenue — kicking into gear on Friday, it appears that the exuberance expressed by many Democrats at the beginning of the year was misplaced. Efforts to avert the sequester never achieved liftoff, and Democrats are realizing that new tax revenues are off the table for the immediate future." Steven Sloan in Politico.

Why the poor will get slammed by the sequester. "[T]he sequestration cuts, as they are called, still contain billions of dollars in mandatory budget reductions in programs that help low-income Americans, including one that gives vouchers for housing to the poor and disabled and another that provides fortified baby formula to the children of poor women." Annie Lowrey in The New York Times.

@PIMCO: Gross: Sequester is small stuff: don’t sweat it. Big stuff is the “continuing resolution” and of course continuing dysfunction of govt.

CILLIZZA: Our fiscal fights will get worse. "Nothing that has happened over the past month should give the average American any reason to think that things won’t get worse before they get better, because they almost certainly will...The reason for pessimism is simple: The parties are deeply divided over the right path forward when it comes to healing the economy and lowering the debt." Chris Cillizza in The Washington Post.

KLEIN: Why Obama can't make a deal with Republicans. "[A] lot of Republicans [have set] out to explain what the president should be offering if he was serious about making a deal. Then, when it turns out that the president did offer those items, there’s more furious hand-waving about how no, actually, this is what the president needs to offer to make a deal. Then, when it turns out he’s offered most of that, too, the hand-waving stops and the truth comes out: Republicans won’t make a deal that includes further taxes, they just want to get the White House to implement their agenda in return for nothing." Ezra Klein in The Washington Post.

Music recommendations interlude: This YouTube playlist for the musician Graham Nash.

Top op-eds

ROMER: What you should think about increasing the minimum wage. "The economics of the minimum wage are complicated, and it’s far from obvious what an increase would accomplish. If a higher minimum wage were the only anti-poverty initiative available, I would support it. It helps some low-income workers, and the costs in terms of employment and inefficiency are likely small. But we could do so much better if we were willing to spend some money. A more generous earned-income tax credit would provide more support for the working poor and would be pro-business at the same time...Why settle for half-measures when such truly first-rate policies are well understood and ready to go?" Christina D. Romer in The New York Times.

KRUGMAN: Mooching off Medicaid. "When it comes to conservatives with actual power, however, there’s an alternative, more cynical view of their motivations — namely, that it’s all about comforting the comfortable and afflicting the afflicted, about giving more to those who already have a lot. And if you want a strong piece of evidence in favor of that cynical view, look at the current state of play over Medicaid." Paul Krugman in The New York Times.

SOLTAS: What Republicans have to lose from the sequester. "Republicans think they have nothing to lose from the sequestration. But nobody knows what the effects of the federal agencies’ spending cuts will be. Will it be chaos? Or will it be bearable? Your guess is as good as mine. Until we have the answer, Republicans do have something to lose: the credibility of their own argument for spending cuts...Republicans hope to convince the public that the U.S. can make substantial cuts in federal spending. Showing them that the first incision leads to furloughs of air traffic controllers, for example, is precisely the wrong way to do it." Evan Soltas in Bloomberg.

BAUCUS: Pass a transatlantic trade deal. "After almost four years of digging their way out of the global financial crisis, the US and the EU are eager to get their economies growing. Increased trade is crucial to a balanced plan for stimulating growth and job creation on both sides of the Atlantic. A comprehensive transatlantic trade and investment deal would not only lower barriers but also raise the level of confidence in the US and EU – sparking significant growth in the world’s two largest economies." Max Baucus in The Financial Times.

BROOKS (not David): The faulty moral calculus of Republicans. "Conservatives are fighting a losing battle of moral arithmetic. They hand an argument with virtually 100% public support—care for the vulnerable—to progressives, and focus instead on materialistic concerns and minority moral viewpoints. The irony is maddening. America's poor people have been saddled with generations of disastrous progressive policy results, from welfare-induced dependency to failing schools that continue to trap millions of children." Arthur C. Brooks in The Wall Street Journal.

DAYNARD: The policy frontier against smoking. "What we need is an all-out push to reduce smoking rates to well below 10 percent. The notion is nothing new to tobacco-control advocates, many of whom gathered last week in Cambridge, Mass., for a conference on the governance of tobacco, sponsored by Harvard with support from the World Health Organization. But outside of such academic meetings and journals, little has been said about two possible approaches that could have an immediate impact." Richard A. Daynard in The New York Times.

COCHRANE: Treasury needs to refinance. "[T]he Fed and the Treasury can buy a lot of time by lengthening the maturity of U.S. debt. Suppose all U.S. debt were converted to 30-year bonds. Then, if interest rates rose, Treasury would pay no more on its outstanding debt for 30 years. And if the country couldn't solve its fiscal problems by that time, it would deserve a Greek crisis. Alas, the maturity structure of U.S. debt is quite short. I estimate that our government rolls over 40% of its debt every year, and 65% within three years." John H. Cochrane in The Wall Street Journal.

JOHNSON: Why higher bank equity is in the public interest. "The people who run banks will always want to have less equity, because this enables them to get more upside when times are good, and they can rely on various forms of government downside support when decisions go wrong. It is very expensive for the rest of us if banks fund themselves with so much debt and so little equity, because this creates a fragile and distorted financial system that doesn’t provide reliable support to the economy." Simon Johnson in Bloomberg.

Video interlude: You should watch this great explainer video on wealth inequality in America.

2) The sequester, day three

The sequester went into effect on Friday. Here's how. "President Obama late Friday officially triggered $85 billion in sequestration cuts to the federal government’s discretionary budget for this year. His signature makes official a failure by the administration and Congress to come to a deal on cuts that both sides, to one degree or another, believe are foolish." Erik Wasson and Amie Parnes in The Hill.

Explainer: Sylvia Mathews Burwell nominated to be next OMB director, and six things you should know about herPhilip Rucker and Dylan Matthews in The Washington Post.

The Obama administration is trying to walk back its hype over sequester pain. "After warning that across-the-board spending cuts would have catastrophic effects, White House officials are trying to play down fears that people will suffer hardships right away, instead preparing them for a fight that won't be quickly resolved...If the sequester doesn't turn out to be as much of a burden as the president advertised, that could weaken a White House that has been portraying the Republicans as an unreasonable partner." Peter Nicholas and Damian Paletta in The Wall Street Journal.

Gene Sperling thinks the GOP will cave. "A senior White House official says congressional Republicans who see the damage caused by billions in automatic spending cuts will eventually agree to raise taxes. Gene Sperling, director of the National Economic Council and assistant to the president for economic policy, said that Republicans will eventually 'choose bipartisan compromise over an ideological position,' on Sunday on ABC's 'This Week.'" Vicki Needham in The Hill.

GOP clings to spending cuts as anchor of agenda. "Four months after Mr. Obama won a second term, the only issue that truly unites Republicans is a commitment to shrinking the federal government through spending cuts, low taxes and less regulation. To have compromised again and agreed to further increase taxes or roll back spending cuts would have left Republicans deeply split and, many of them say, at risk of losing the core of the party’s identity...One of the most striking characteristics about the political climate in the months since Mr. Obama’s re-election is that on issue after issue, it is no longer entirely clear what it means to be a Republican. The party is more divided than ever on domestic policy, and a debate is breaking out over how best to invigorate the conservative movement." Richard W. Stevenson in The New York Times.

...But Sen. Kelly Ayotte is OK with more revenue. "Ayotte said she would accept larger tax revenues in such a deal if they were coupled with broader tax reforms that lowered rates and went towards reducing the debt." Megan Wilson in The Hill.

Humorous interlude: SNL on the sequester.

3) Clock running on immigration reform

Pressure builds to move on immigration reform. "A bipartisan Senate group working on immigration reform plans to set a timeline for unveiling legislation, as it feels subtle pressure from the chairman of the Judiciary Committee to act. Sen. John McCain (R-Ariz.), a lead negotiator of the ad hoc group on immigration reform, says he and his colleagues realize the clock is ticking. They hope to soon have a timeline for unveiling legislation." Alexander Bolton in The Hill.

Should we give visas to entrepreneurial immigrants? "For those who fear that immigrants will take away jobs from native-born workers, Sen. Jerry Moran (R-Kan.) has a new proposed solution: Give visas to immigrants who create jobs. Two weeks ago, Moran introduced a bill in the Senate that would give a new kind of visa to a fixed pool of 75,000 foreign-born individuals who launch startups that create jobs in the United States, with a path to permanent residency if their businesses continue to hire more workers." Suzy Khimm in The Washington Post.

The path to citizenship is already long and winding. "[I]mmigrants must shell out at least $680, pass an oral exam, present five years' worth of tax returns and submit to a background check for things such as criminal convictions...Individuals who have trouble navigating the red tape often hire a lawyer, who typically charges $500 to $2,000." Miriam Jordan in The Wall Street Journal.

Durbin says Senate immigration reform group is a model. "Senate Majority Whip Dick Durbin (D-Ill.) said Sunday he was optimistic the Senate’s bipartisan work on immigration reform could pave the way to other agreements. In an interview on CBS’s 'Face the Nation,' Durbin said that despite frustration over deadlocked sequester talks, the Gang of 8 could be a model for bipartisan cooperation in the upper chamber." Megan R. Wilson in The Hill.

Adorable animals interlude: Kitten cleaning a baby bunny.

4) The grim long-term view for the American economy

Is slow growth America's new normal? "What if the economy isn’t particularly unlucky? What if it’s basically doing what we should expect it to? What if something has changed, thanks to fallout from the recession, or a string of bad policy choices, or both, and growth has shifted into a lower gear? What if this slow and fragile expansion is as good as we’re likely to get for a while?" Jim Tankersley in The Washington Post.

Explainer: The coming week in economic dataAmrita Jayakumar in The Washington Post.

Investors are beginning to doubt the "long-live-the-American-consumer" story. "Consumers have been resilient during the past few years, despite slow economic growth. As 2013 began, many investors were ratcheting up expectations for the economy after the worst of the fiscal-cliff spending cuts were avoided. With the job market slowly improving and housing stabilizing, many thought that while the economy wasn't going to boom this year, it might be able to achieve a higher level of growth. But now investors are rethinking that scenario. They worry that the new burdens may soon take a toll, prompting Americans to pare back on nonessentials and seek out cheaper versions of staple items." Jonathan Cheng in The Wall Street Journal.

It's a wonderful world for corporate profits. But not for you. "With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months..The result has been a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.." Nelson D. Schwartz in The New York Times.

Auto sales climbed 3.7 percent in February, though. "Sales of new vehicles in the U.S. continued to rise in February, albeit at a slower pace than a year earlier, as the prospect of job cuts and tax hikes amid budget wrangling in Washington appeared to damp car buying at month's end. U.S. auto sales rose 3.7% to 1.2 million. The rate of sales, adjusted for seasonal fluctuations, equates to a full year of sales of 15.38 million, according to Autodata Corp." Mike Ramsey and Jeff Bennett in The Wall Street Journal.

The poor and middle class aren't spending like they used to. "[The] consumer sector is increasingly split in two: Wealthier households, buoyed by improving home values and a rising stock market, are spending more. Poorer ones, hammered by higher taxes and rising gas prices, are holding back." Brenda Cronin and Ben Casselman in The Wall Street Journal.

The link you're going to send to everyone right now interlude: "The Pyschology of Human Misjudgment" by Charlie Munger, 1995.

5) You need to read this ER study

Obama administration to require reporting of all health insurance rate hikes. "The Obama administration says it will require health insurance companies to report all price increases, no matter how small, to the federal government so officials can monitor the impact of the new health care law and insurers’ compliance with it...Federal health officials said they needed the additional data to monitor trends in premiums as major provisions of the law take effect and more people buy insurance." Robert Pear in The New York Times.

An ER visit is a month in rent. "A new, NIH-funded study takes the idea even further: A team of four researchers looked at medical expenditure bills that represented more than 8,303 emergency room visits. They found, essentially, two things. First, huge variation in prices: Bills sent out for sprained ankles ranged from $4 to $24,110. Second, overall, really high prices: The average emergency room visit now costs 40 percent more than a month’s rent.Sarah Kliff in The Washington Post.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

The economics of Somali piracyBrad Plumer.

When mayors matter, and when they don'tDan Hopkins.

This is why Obama can't make a deal with RepublicansEzra Klein.

Does Dodd-Frank really end "too-big-to-fail"Mike Konczal.

Six things to know about the OMB director nomineeDylan Matthews.

Is slow growth the new normalJim Tankersley

An average ER visit is an average month in rentSarah Kliff.

Should we give visas to the immigrants who want to launch startupsSuzy Khimm.

Et Cetera

Start Monday off with a longread: "The new normal in Baghdad," by Peter Harling, Le Monde Diplomatique (English).

Read: Romney's interview on "Fox News Sunday." Philip Rucker in The Washington Post

Another report will ease approval for Keystone pipelineJohn M. Broder in The New York Times.

Regulators realize how big the foreclosure mess really isAlan Zibel and Dan Fitzpatrick in The Wall Street Journal.

Obama is pushing to make the federal judiciary more diversePhilip Rucker in The Washington Post.

It looks more and more like Ernest Moniz is the favored candidate for Energy SecretaryBen German in The Hill.

Kansas is trying to eliminate its state income taxRichard McGregor in The Financial Times.

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

Wonkbook is produced with help from Michelle Williams.

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