(Andrew Harrer/BLOOMBERG)

Boehner and Reid say they’ve “narrowed the issues.” That means they’re very close on total spending cuts (somewhere around $35 billion) and very clear on what’s left to negotiate. The problem, however, is that as small as a policy rider over federal funding for Planned Parenthood might be, the distance between the two parties on the underlying issue is great. Democrats were appalled yesterday when Republicans made a one-week stopgap contingent on a rider barring Washington, DC from using its own money to fund abortion for low-income women (so much for home rule). The stop gap went nowhere, even though the issue of how DC can use its own funds is, in the national context, small.

And the problem isn’t just the policy. What the two parties are trying to prove about themselves, and about their relationship going forward, is very big. John Boehner is trying to convince Republicans in the House and Republicans in the country that they can trust him, that he’s conservative enough and steely enough to represent their interests in negotiations with the Democrats. And Democrats are trying to show that they will not be rolled over in negotiations simply because the Tea Party is unwilling to compromise, that they still control the Senate and the White House and they plan to act like it. These negotiations are really about the next negotiations, and the negotiations after that. Both parties worry that if they compromise now, they only embolden the other side later. And later is when the stakes get really high.

For that reason, more than a few observers and participants have suggested to me that perhaps a shutdown tonight would be healthy. Better, they say, that Democrats and Republicans test what happens if they refuse to compromise now, when the consequences can be contained, than later, when the fight will be over the debt ceiling and the consequences could be catastrophic. That they may be right is a depressing commentary on the forces buffeting our political system right now, and the very real, very large risks they pose to the country.

Five in the morning

1) A budget deal still hasn’t been reached, report Philip Rucker, Perry Bacon, and William Branigin: “A Thursday-night meeting between congressional leaders and President Obama failed to resolve an impasse over federal spending that, barring an agreement on Friday, would result in a government shutdown. After the session, which lasted nearly 90 minutes, Obama said in brief remarks to reporters that differences between the two parties remained, adding, ‘I’m not yet prepared to express wild optimism.’ He did not detail the remaining disagreements between Democrats and the White House and congressional Republicans...House Speaker John A. Boehner (R-Ohio) and Senate Majority Leader Harry M. Reid (D-Nev.) issued a joint statement that simply said, ‘We have narrowed the issues, however we have not yet reached an agreement.’”

2) The parties are about $5 billion apart on spending, reports Paul Kane: “Republicans and Democrats on Capitol Hill say they are about $5 billion apart in their haggling to reach a deal to fund the federal government for the rest of the year. That amounts to 0.005 of the trillion dollars in spending Congress doles out each year. Five one-thousandths...The only question on the minds of everyone in the capital -- Will a shutdown happen? -- is now being asked with increasing urgency. If the two sides cannot come to terms by midnight Friday, Washington will effectively run out of money and the government will close. With no deal in sight, agencies began preparing more than 800,000 federal workers nationwide for that possibility, letting them know whether they should show up for work on Monday morning if a shutdown occurs.”

3) Funding for abortion remains a major sticking point, reports Laura Meckler: “The policy fight threatening to blow up budget negotiations involves an issue that has been on the sidelines in recent months: abortion. Until this week, social issues have been largely overshadowed by economic matters amid suggestions from Republican leaders that such debates be put aside while the nation tackles its debt. But now, social conservatives are flexing their muscles, insisting that Planned Parenthood be stripped of federal funding in the spending bill for the rest of the current fiscal year...Both Republicans and Democrats say abortion is among a handful of matters holding up final agreement on the spending bill and threatening a partial government shutdown.”

4) The White House threatened to veto a House-passed stopgap bill, reports Felicia Sonmez: “With less than 34 hours remaining until the measure currently funding the government is set to expire, the House on Thursday passed a measure that would keep federal agencies funded for one week - and the Defense Department funded through the end of the fiscal year - while also enacting $12 billion in cuts. The measure has little chance of progressing, however. The White House announced Thursday morning that President Obama would veto the bill, which the administration described in a statement as ‘a distraction from the real work that would bring us closer to a reasonable compromise for funding the remainder of Fiscal Year 2011 and avert a disruptive Federal Government shutdown that would put the Nation’s economic recovery in jeopardy.’”

5) John Boehner and Harry Reid’s chiefs of staff are leading the negotiations, reports Philip Rucker: “The real negotiations to reach a budget deal occur in unscheduled visits and late-night phone calls between two men you’ve probably never heard of. At one end of the Capitol is Barry Jackson: quiet and unflappable, a plump, shaggy and rumpled Midwesterner who loves auto racing (he’s a regular at the Indy 500) and settled in Washington 20 years ago as John Boehner’s right-hand man. At the other end is David Krone: hard-nosed and crafty, a multi millionaire former cable lobbyist who travels around playing the best golf courses, prefers fine shirts and custom-tailored suits, usually pinstriped (’Definitely not Jos. A. Bank,’ says an associate), and looks up to his boss, Harry Reid, the way a son idolizes his father.”

’90s vintage interlude: Neutral Milk Hotel play “Two Headed Boy” live.

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Still to come: The world’s central banks are diverging on monetary policy; a shutdown won’t affect health care reform’s implementation; Krugman, Brooks and Krauthammer on the Ryan budget; federal workers are set to receive unemployment benefits in the event of a shutdown; the House voted to strip the EPA of the power to regulate climate change; and a dog pushes a stroller.


Central banks are moving apart on monetary policy, reports Neil Irwin: “During the financial crisis, the world’s central banks united around one goal: cutting interest rates and flooding the global economy with cash. Now, the great divergence has begun. The European Central Bank raised its interest rate target Thursday, ending a more than two-year span of keeping the rate at an all-time low of 1 percent. The 17 nations that use the euro thus join a handful of other nations, including China and Australia, where authorities are trying to tighten the money supply to cool their economies and combat rising prices. In contrast, the Bank of England and Bank of Japan, in meetings Thursday, affirmed their very low interest rate policies. And the Federal Reserve has pledged to keep its target for interest rates near zero for an ‘extended period’.”

Unemployment claims are falling: http://on.wsj.com/eAqw6J

The administration needs to appoint a slew of new economic regulators, reports Victoria McGrane: “Democratic Rep. Barney Frank of Massachusetts said Thursday he expects the White House to nominate the Federal Deposit Insurance Corp.’s No. 2 official, Martin Gruenberg, to succeed Sheila Bair as chairman of the agency when her term expires at the end of June...By tapping Mr. Gruenberg, President Barack Obama would fill one vacancy and create another among many openings at top government financial posts. More than a dozen senior positions spread across seven regulatory bodies and the Treasury Department lack permanent occupants. Among them are the post of insurance expert at the Financial Stability Oversight Council, two openings on the Federal Reserve Board, the director of the new Consumer Financial Protection Bureau, and five Treasury posts.”

The Republican Study Committee and Congressional Progressive Caucus have released their own 2012 budgets: http://wapo.st/eL3xbE

Financial reform opponents are adopting a piecemeal repeal strategy, report Maya Jackson Randall and Jessica Holzer: “Republicans and business groups concede they lack the votes to repeal the Dodd-Frank financial-overhaul law, so they are attacking it piece by piece. Moreover, key Senate Democrats have given them the green light to try to modify some aspects of the law. House Republican lawmakers have announced a slew of bills aimed at making targeted, incremental changes, often described as ‘corrections’ or ‘technical fixes,’ to the law. One bill would exempt private-equity fund advisers from a new requirement that they register with the Securities and Exchange Commission. One would shield certain types of financial-derivative instruments from new regulations. Another would delay caps on the fees banks charge retailers for debit-card transactions.”

The Financial Stability Oversight Council is not detached enough from politics, writes Neel Kashkari: “Over the past century Congress has recognized the importance of keeping financial regulators independent of politics. Most agree that election results and polls shouldn’t affect, say, the Federal Reserve’s stance on monetary policy or the FDIC’s assessment of a bank’s safety and soundness. Regulators have fought hard to strengthen their independence. So the FSOC already has a conflict. The Treasury secretary is not an independent regulator: He is a member of the president’s Cabinet and the chief economic spokesman for the executive branch...An FSOC that is independent of political considerations could provide important cover for frightened politicians by dispassionately assessing and reporting the risks we face from out-of-control deficit spending.”

The US is undertaxed, writes Charles Morris: http://politi.co/fUCECC

Paul Ryan’s budget relies on voodoo economics, writes Paul Krugman: “The Ryan proposal trumpets the results of an economic projection from the Heritage Foundation, which claims that the plan’s tax cuts would set off a gigantic boom. Indeed, the foundation initially predicted that the G.O.P. plan would bring the unemployment rate down to 2.8 percent -- a number we haven’t achieved since the Korean War. After widespread jeering, the unemployment projection vanished from the Heritage Foundation’s Web site, but voodoo still permeates the rest of the analysis. In particular, the original voodoo proposition -- the claim that lower taxes mean higher revenue -- is still very much there. The Heritage Foundation projection has large tax cuts actually increasing revenue by almost $600 billion over the next 10 years.”

Liberal criticisms of Paul Ryan’s budget are unserious, writes David Brooks: “The Democrats are on defense because they are unwilling to ask voters to confront the implications of their choices. Democrats seem to believe that most Americans want to preserve the 20th-century welfare state programs. But they are unwilling to ask voters to pay for them, and they are unwilling to describe the tax increases that would be required to cover their exploding future costs. Raising taxes on the rich will not do it. There aren’t enough rich people to generate the tens of trillions of dollars required to pay for Medicare, let alone all the other programs. Democrats, thus, face a fundamental choice. They can either reverse President Obama’s no-new-middle-class-taxes pledge, or they can learn to live with Paul Ryan’s version of government.”

Ryan’s plan is a test of the American people, writes Charles Krauthammer. “Paul Ryan has just released a recklessly bold, 73-page, 10-year budget plan. At 37 footnotes, it might be the most annotated suicide note in history. That depends on whether (a) President Obama counters with a deficit-reduction plan of equal seriousness, rather than just demagoguing the Ryan plan till next Election Day, (b) there are any Republicans beyond the measured, super-wonky Ryan who can explain and defend a plan of such daunting scope and complexity, and (c) Americans are serious people. My guesses: No. Not really. And I hope so (we will find out definitively in November 2012).”

Stupid pet tricks interlude: A dog walks a stroller.

Health Care

A shutdown won’t slow health care reform’s implementation, reports Lester Feder: “Implementation of the health reform law will not stop if there is a government shutdown, an HHS official says. ‘If it’s funded by mandatory spending in the Affordable Care Act, implementation can continue,’ the official said. However, regulation writing would likely be ‘significantly hindered’ because those staff salaries are funded by discretionary dollars...Bruce Fried, who was an official with the agency that oversaw the programs during the shutdowns in 1995 and 1996, says Medicare and Medicaid will be minimally affected by a shutdown unless it drags on for several months...Medicare Part A, which covers hospitals, is paid for by a trust fund and is unaffected by a shutdown.”

A Senate duo wants to open up a Medicare database, report Mark Schoofs and Maurice Tamman: “Two senators have introduced legislation to overturn a 1979 court injunction that bars the government from revealing what individual physicians earn from Medicare. That information is stored in the Medicare-claims database, widely considered one of the best tools for finding fraud and abuse in the $500 billion federal health-insurance program for the elderly and disabled. The Medicare Data Access for Transparency and Accountability Act, or DATA Act, was introduced Thursday by Sens. Ron Wyden (D., Ore.) and Charles Grassley (R., Iowa). They both serve on the Senate Finance Committee, which has jurisdiction over Medicare.”

Health care vouchers for everyone, not just seniors, could make for a good compromise, writes Will Wilkinson: http://econ.st/g7RGDI

Domestic Policy

Federal workers would still receive unemployment benefits during a shutdown, reports Louise Radnofsky: “If Congress shuts down the federal government, Washington would still end up paying hundreds of thousands of employees who are sent home. Idled federal workers can apply for unemployment compensation from the states in which they work, and the federal government would pick up the tab. Whether they get their full back pay once a shutdown is resolved is less clear. After the 1995 and 1996 federal government shutdowns, Congress approved back pay for furloughed employees. Federal employee unions say they will fight for a similar measure again. The Department of Labor has told state unemployment agencies during daily conference calls not to expect Congress to approve back pay.”

Reform to legal immigration procedures is needed, write James Zigler and Edward Alden: http://on.wsj.com/f1LTVH

Adorable animals stealing food interlude: A racoon eats bread off of a porch.


The House voted to strip the EPA of its power to regulate climate change, reports Felicia Sonmez: “The Senate on Wednesday evening rejected a Republican measure that would limit the Environmental Protection Agency’s authority to regulate greenhouse gas emissions. The measure, proposed by Senate Minority Leader Mitch McConnell (R-Ky.) and Sen. James Inhofe (R-Okla.) as an amendment to a small-business bill that the Senate has been working on since mid-March, failed Wednesday on a 50-to-50 vote. Sixty votes were necessary for passage. Four Democrats - Sens. Joe Manchin (W.Va.), Ben Nelson (Neb.), Mary Landrieu (La.) and Mark Pryor (Ark.) - joined most Republicans in voting for the measure; one Republican, Sen. Susan Collins (Maine), joined Democrats in voting against it.”

The Department of Energy will stay open during a shutdown, reports Darius Dixon: “The rest of the federal government may be preparing to furlough massive amounts of workers and shut down operations, but the Energy Department says it’s open for business -- at least for a little while. Money from previous spending measures will allow the department to remain open even if President Barack Obama and congressional Republicans can’t get together on a fiscal 2011 spending plan by Friday night, a DOE official told POLITICO. ‘DOE has some no-year funds that would allow us to continue operating even if there is a government shutdown,’ the official said, although it’s unclear how much they have. DOE said Thursday that the money won’t last very long.”

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