Wonkbook: Obama’s budget will start in the middle. But where will it end?

April 5, 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.

(REUTERS/Jason Reed)
(REUTERS/Jason Reed)

President Obama's 2014 budget proposal will "incorporate the compromise offer Obama made to House Speaker John Boehner last December in the discussions over the so-called “fiscal cliff”," reports Zachary Goldfarb in The Washington Post. That means it will include, among other things, cuts to Social Security through chained-CPI, and a variety of cuts to Medicare.

The upside of this strategy is clear: Obama gets "caught trying" on a budget compromise. House Republicans have put forward a series of extremely conservative budget proposals that show no interest in a compromise. Senate Democrats have a more modest plan, but one that doesn't include any notable concessions to Republicans. Obama will position himself in the middle. His budget will incude high-profile concessions to Republicans -- though he will emphasize that he'll only accept those concessions if they come with significant new revenues. No one will be able to say he isn't trying to reach a deal, and the cries from liberals will prove that he's forcing his base to accept very tough medicine.

Moreover, all this will come at a moment when sequestration is truly beginning to bite. In the days immediately following the sequester's imposition, there were few visible consequences, and many in Washington convinced themselves the cuts were merely hype. But they were, in fact, just slow moving, and now unemployment checks are about to be slashed, cancer patients are being turned away, layoffs and furloughs are beginning, services are being curtailed, and both politicians and voters are looking for relief.

The White House points out that the concessions they're offering in this budget aren't new. They didn't just exist in the final, private offer to Boehner. They existed in public on the White House's web site. For that reason, the White House didn't see much reason to hold them back from the budget. Obama is already on record supporting this deal. Why not get the credit for it, and why not use it to burnish credibility with the Senate Republicans who he's courting to serve as the nucleus for a deal. Plus, it puts the pressure on Republicans to respond with something serious, or be seen as intransigent and at fault for the sequester's continued cuts.

But by starting in the middle, liberals worry that Obama risks pushing a final compromise to the right. It is unlikely that Republicans can accept Obama's initial budget offer, no matter how much good will it embodies. They will have to respond with a counteroffer. If the White House wants to continue pursuing a deal, they'll then have to respond with something more compromised than even their initial compromise. And so on.

The budget itself is the product of this process. Obama's initial offer during the fiscal cliff negotiations called for $1.6 trillion in taxes. His second offer asked for $1.4 trillion. His third offer, which the White House thought would be very close to the final compromise and which now serves as the basis for their budget, called for $1.2 trillion. That's when Boehner ended the negotiations and attempted his ill-fated "Plan B" maneuver.

Obama's third offer from December is, in this set of negotiations, his first offer. The question is what his final offer will be.

Wonkbook's Number of the Day: 91. That's the percentage of Americans who said they supported universal background checks for firearm purchases in the latest Quinnipiac poll. Yet nearly half worried that such checks would lead to confiscation of guns.

Wonkblog's Graph of the Day: This map of America’s female mortality rates is pretty terrifying.

Wonkbook's Top 5 Stories: 1) Obama budget proposal will cut Social Security, Medicare; 2) why monetary exit strategy is like threading a needle; 3) Medicaid bids adieu to fee-for-service medicine; 4) extreme rains, another thing to worry about from global warming; and 5) 51 senators now support gay marriage.

1) Top story: Next week, Obama's budget proposal

Obama's budget will begin where the fiscal cliff negotiations ended. "President Obama will release a budget next week that proposes significant cuts to Medicare and Social Security and fewer tax hikes than in the past, a conciliatory approach that he hopes will convince Republicans to sign onto a grand bargain that would curb government borrowing and replace deep spending cuts that took effect March 1...the document will incorporate the compromise offer Obama made to House Speaker John Boehner (R-Ohio) last December in the discussions over the so-called “fiscal cliff” – which included $1.8 trillion in deficit reduction through spending cuts and tax increases." Zachary Goldfarb in The Washington Post.

Obama budget to include a 28 percent cap on tax breaks for wealthy. "The president's plan would limit the value of itemized deductions and other income-tax breaks at 28% for higher-income households—defined by the administration as couples earning more than $250,000 a year. For example, $100,000 in deductions would be worth up to $39,600 for a very high-income household now, because the top tax rate is 39.6%; the proposal would limit that tax break to $28,000...Mr. Obama has gradually broadened his proposal. Originally it limited only itemized deductions, such as those for mortgage interest, charitable giving and state and local taxes. But in recent years it has been expanded to include breaks for municipal-bond interest, workplace health insurance, retirement-savings contributions and some small-business deductions." John D. McKinnon and Siobhan Hughes in The Wall Street Journal.

@damianpaletta: Lew to testify at Senate Finance April 11, day after White House budget and day after Obama dinner with GOP. Should offer good barometer.

As furloughs loom, officials take up self-sacrifice. "By Thursday, the Obama administration’s stampede to embrace the politics of self-sacrifice was on. Cabinet secretaries practically tripped over themselves to hand over parts of their paycheck as federal workers brace for furloughs because of the across-the-board budget cuts known as the sequester." Jeremy W. Peters in The New York Times.

@RichLowry: re obama, kerry, and holder talking pay cuts, can we furlough them instead?

The U.S. tax code might not be as progressive as you think. "A new report from Citizens for Tax Justice, a left-leaning tax analysis shop...finds that the tax code is still progressive, but much more mildly so than you might think...And while the richest Americans pay more than their share of income in taxes, the margins aren’t dramatic. The top one percent pays 24 percent of all taxes but makes 21.9 percent of the money." Dylan Matthews in The Washington Post.

Music recommendations interlude: Jesse Cook, "Havana."

Top op-eds

ELKINS: Redraft the Second Amendment. "This constitutional uncertainty should suggest to both sides the possibility of agreeing on a formal clarification of the constitutional text. Zealots will scoff, but many reasonable people would find reassurance in a revised Second Amendment that was properly balanced. Those who propose responsible limits, like background checks, would welcome constitutional support for common-sense safeguards. Those who worry about the slippery slope of encroachments on gun rights would find comfort in an explicit reassertion and reinforcement of the general right to bear arms." Zachary Elkins in The New York Times.

KRUGMAN: The urge to purge. "How naïve we were. It turns out that the urge to purge — the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering — is as strong as ever...The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight." Paul Krugman in The New York Times.

BROOKS: The practical university. "The best part of the rise of online education is that it forces us to ask: What is a university for?...The problem is that as online education becomes more pervasive, universities can no longer primarily be in the business of transmitting technical knowledge." David Brooks in The New York Times.

KRAUTHAMMER: The border-control trigger in immigration reform. "The 11 million get near-instant legalization — on the day, perhaps six to nine months after the bill is signed, when Homeland Security submits a plan (with the required funding) to achieve within a decade 90 percent apprehension and 100 percent real-time surveillance...A mere DHS enforcement plan is a very weak trigger. I would prefer legalization to occur later, once the plan is actually carried out and some independent body certifies that the border is essentially closed." Charles Krauthammer in The Washington Post.

CARTER: The politics of blame. "To be sure, political scientists have insisted for years that it is possible to explain most of the behavior of elected officials by the incentive to win the next time around. But there is something to be said for subtlety. The blatant jockeying for advantage by politicians and their familiars in the media has become a repulsive spectacle. One longs for a leadership class devoted to a principle other than smashing the opposition." Stephen L. Carter in Bloomberg.

RIP interlude: Roger Ebert, movie critic extraordinaire. Watch him review "Jurassic Park" with the late Gene Siskel in 1993.

2) Monetary exit strategy is like threading a needle 

Fed weighs how it should react to incipient economic recovery. "Federal Reserve officials are grappling publicly with a better kind of problem than most they’ve confronted in recent years: what if the labor market continues to improve more rapidly than they had expected?...Some Fed officials have suggested in recent weeks that if economic growth continues on its present trajectory, the central bank should begin to roll back its economic stimulus campaign by the middle of the year, ahead of expectations." Binyamin Appelbaum in The New York Times.

Businesses likely slowed hiring in March. "The Labor Department is slated to release its official tally of job creation Friday. Economists have forecast that 190,000 new jobs were added in March — nearly 50,000 fewer than in February...The recovery gained momentum during the winter, with job growth topping 200,000 for several months. But similar wintertime surges in the past two years went on to dissipate by the summer, and some economists worry that the trend will repeat this year." Ylan Q. Mui in The Washington Post.

...But watch out for that labor participation rate! "A calculator from the Federal Reserve Bank of Atlanta helps explain why. The unemployment rate could drop as much in the next 12 months, by 0.6 percentage point, as in the last 12, even if the economy only gained 107,000 new jobs a month. That would be so if workforce participation fell at the same rate as it did during the previous period. But if participation recovered to year-ago levels, the economy would have to add 251,000 jobs a month for the unemployment rate to fall at the same pace. Clearly, the same jobless rate can mean drastically different results for the economy." Spencer Jakab in The Wall Street Journal.

Jobless claims rise by 28,000. "Initial jobless claims, a measure of layoffs, increased by 28,000 to a seasonally adjusted 385,000 in the week ended March 30, the Labor Department said Thursday. That was the highest figure since the end of November." Jeffrey Sparshott and Sarah Portlock in The Wall Street Journal.

Explainer: 10 things you probably didn't know about central bankingNeil Irwin in The Washington Post.

Interview: Binyamin Appelbaum talks with Neil IrwinThe New York Times.

CFTC slows rule-making after flurry. "Rule making at the CFTC has slowed sharply in recent months amid internal squabbling, lobbying pressure from the financial industry and the sheer complexity of the rules themselves.The delays threaten to undermine a central plank of Dodd-Frank, which was to push the trading of swaps—contracts in which two parties swap assets or cash flows—into the open. Conflicts inside the commission have repeatedly delayed votes on rules governing the creation of new trading venues required by lawmakers to make swaps trading more transparent." Scott Patterson and Jamila Trindle in The Wall Street Journal.

We need to find a rate fairer than Libor. "To put it mildly, there is no reason to think the interbank lending market fits that bill now, and there are reasons to think it will be even less true in the future...Libor has clearly become ridiculous. But long before that happened, it became ubiquitous. Europe wants to preserve the latter, even if it does leave the former in place indefinitely. A better course would be to find a rate whose meaning will not change over time, and base future contracts on it. A rate based on secured loans makes the most sense." Floyd Norris in The New York Times.

Mark your calendars interlude: Tomorrow is "International Pillow Fight Day."

3) Medicaid moving away from fee-for-service

Study: Managed Medicaid plans are handling more prescriptions. "Medicaid is quickly abandoning the traditional fee-for-service model when it comes to handling patient prescriptions, according to a new study. The IMS Institute for Healthcare Informatics reported Thursday that Medicaid managed care plans handled 19 percent of the program's prescriptions in September 2011.That share more than doubled by June 2012, less than one year later, the researchers found. The figures come out to 4.9 million monthly Medicaid prescriptions handled by Managed Medicaid plans (MMCs) in 2011 compared with 12.5 million in 2012." Elise Viebeck in The Hill.

Readers respond: Your insane health care storyEzra Klein in The Washington Post.

Will the sequester's cancer cuts get fixed? "Medicare said Thursday that it does not have the power to reverse automatic spending cuts that are causing cancer clinics to turn away thousands of patients. “We are unaware of any authority that could exempt Part B drugs from the sequestration requirements,” Medicare spokesman Brian Cook said." Sarah Kliff in The Washington Post.

Wonktalk: The sequester's impact on cancer patientsEzra Klein and Sarah Kliff in The Washington Post.

Is this a common-ground Medicare reform opportunity? "A long-standing idea of combining what consumers pay for their portion of Medicare hospital and doctor treatment costs is gaining new attention as lawmakers search for ways to slow the growth of what the government pays for the programs. The concept of merging the deductibles for Medicare Part A insurance, which covers hospital stays, and Part B, which covers doctors' services, is one of the few ideas that appeals to both parties. Seniors who have a serious illness could pay less, but for most seniors, the net effect would be an increase in their out-of-pocket expenses." Louise Radnofsky and Janet Hook in The Wall Street Journal.

Rush Limbaugh is wrong. The sequester does cut Medicare. "Yes, the sequester does cut Medicare, although to a lesser degree than other federal programs. We don’t need any analyst or cancer group to tell us that. We can look at the legislation that created the sequester, the Budget Control Act of 2011...Medicare is subject to a maximum cut of 2 percent under the automatic budget reductions. It is true, though, that the Medicaid program, which covers low-income Americans, was exempted from the sequester cuts altogether." Sarah Kliff in The Washington Post.

Health maps: The rise and fall of female mortality across the U.S., 1992 to 2006Sarah Kliff in The Washington Post.

More studies! How can we limit premium increases? "State regulators are looking for ways to protect consumers against increases in health insurance rates that they expect to occur next year as major provisions of the new health care law take effect. A paper drafted by a panel of the National Association of Insurance Commissioners analyzes steps that states can take to “mitigate expected premium increases.” The options include tighter regulation of premiums, forcing insurers to cut costs or operate at a loss; financial assistance to consumers, in addition to subsidies that will be provided by the federal government; and programs to ensure that the costs of the sickest patients are shared by all insurers." Robert Pear in The New York Times.

Not your normal animal interlude: Animal eyes, up really, really close

4) Global warming will make it rain. And rain. And rain.

Federal study: Global warming means extreme rains will become, well, more extreme. "The report, released by the National Oceanic and Atmospheric Administration, forecasts an “accelerated water cycle with heavier extreme rains.” The study shows “a 20-30 percent expected increase in the maximum precipitation possible over large portions of the Northern Hemisphere by the end of the 21st century if greenhouse gases continue to rise at a high emissions rate,” NOAA said...The study will help inform infrastructure planning such as the design of dams and other “runoff control” structures, the authors say." Ben German in The Hill.

Why Denis McDonough could put climate change on the agenda. "Denis McDonough, the White House chief of staff, is best known for two things: his national security chops—he had key roles on the White House National Security Council—and the high regard in which he’s held by President Obama...Here’s what a lot of people don’t know about McDonough: He has a background on climate change, and he takes the issue very seriously." Coral Davenport in NationalJournal.

Methane leaks are undermining the shale-gas boom. Here's how to fix that. "In theory, burning natural gas for electricity emits about half the carbon-dioxide that you get from burning coal. But if the methane “leakage rate” from all that natural-gas infrastructure starts creeping up past 3.2 percent, a recent PNAS study found, then suddenly natural gas starts to lose its climate advantage...And the current estimate by the Environmental Protection Agency that leakage is only around 2.4 percent is essentially an educated guess, based on a number of assumptions rather than direct measurements." Brad Plumer in The Washington Post.

Lawmakers scrutinize EPA gas standards. "The costs of implementing a tough new gasoline standard introduced by the Obama administration are coming under scrutiny from U.S. lawmakers. The standard, proposed by the Environmental Protection Agency last week, requires refiners to reduce the amount of sulfur in gasoline. The move will improve the performance of emissions-control equipment in cars and reduce smog pollution." Tennille Tracy in The Wall Street Journal.

Watch interlude: A Bluth family reunion.

5) And then there were six (Senate Democrats who opposed gay marriage)

Sen. Bill Nelson (D-FL) endorses gay marriage. "Sen. Bill Nelson, one of the last Democratic hold-outs against gay marriage, reversed course on Thursday...Nelson, considered a conservative Democrat, called marriage an institution between men and women as recently as last week." Katie Glueck in Politico.

How do we explain the surge of support for gay marriage in the Senate? "I’m interested in whether we can replicate the increase in support through a reasonably elegant mathematical model...The two variables that show up as highly statistically significant are the senator’s ideology rating and the estimated support for same-sex marriage among voters in his state...It may further stand to reason that senators seek to time their announcements with when they perceive support for same-sex marriage has reached a majority, both within their states and nationally." Nate Silver in The New York Times.

Marry young to be happy. Marry old to be rich. "So should you wait to tie the knot? As tends to be the case in thorny areas like this, the evidence is decidedly mixed. In what should come as a shock to no one, the answer to when you should get married depends a lot on what you want out of a marriage, your career and life in general." Dylan Matthews in The Washington Post.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

Will the sequester’s cancer cuts get fixed? Sarah Kliff.

Readers respond to the $1,206 toenail clippingEzra Klein.

Methane leaks are undermining the shale-gas boom. Here’s how to fix thatBrad Plumer.

This map of America’s female mortality rates is pretty terrifyingSarah Kliff.

U.S. tax code isn’t as progressive as you thinkDylan Matthews.

Rush Limbaugh is wrong: The sequester does cut MedicareSarah Kliff.

WonkTalk: The sequester’s impact on cancer patientsEzra Klein.

People who marry young are happier, but those who marry later earn moreDylan Matthews.

Et Cetera

A majority of Americans now say they favor marijuana legalizationScott Clement in The Washington Post.

91 percent of Americans support background checks for firearm purchasesAaron Blake in The Washington Post.

Obama administration seeks to overhaul international food aidRon Nixon in The New York Times.

What to name the immigration reform bill? Molly K. Hooper in The Hill.

Maryland legislature passes gun-control laws, including assault-weapons banTrip Gabriel in The New York Times.

Hillary Clinton's new book will be coming in 2014Rachel Weiner in The Washington Post.

Path to citizenship divides Congress and, a poll shows, the country. Julia Preston in The New York Times.

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

Wonkbook is produced with help from Michelle Williams.

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