House Budget Committee Chairman Paul Ryan, R-Wis., gives the GOP response to President Obama's budget submission for Fiscal Year 2012, on Capitol Hill in Washington, Monday, Feb. 14, 2011. (AP Photo/J. Scott Applewhite) (J. Scott Applewhite/AP)

Back in February, Paul Ryan unveiled what was supposed to be the opening bid from the House Republicans: $32 billion in cuts for the rest of 2011. But the Tea Party demanded more and House leadership quickly caved, doubling their proposed cuts to more than $60 billion -- or almost $100 billion less than barack Obama’s 2011 budget request (quick note: different news stories present these numbers differently, as it depends on whether you use Obama’s budget request or 2010’s funding as a baseline. I’m using the difference from 2010 funding, which makes for lower sums). Now Democrats are offering as a compromise measure $30 billion in total cuts, or exactly what Ryan’s original proposal had called for. Pretty neat, huh?

And that’s not the Democrats’ final offer, either. Odds are good that the eventual compromise will see cuts somewhere between the $30 billion Republican leadership called for and the almost $70 billion the conservative wing of the House GOP demanded. “That’s not much of a compromise if we end up with what the House Republican leadership wanted in the first place,” observe Michael Ettlinger and Michael Linden. And they’re right. But the irony is that it’s entirely possible the press will report that Democrats “won” the negotiations, as Republican leadership is likely to have to lose a lot of conservative votes in the House to get any compromise, no matter how radical, through the chamber. That will make them look bad, and in the weird logic of Washington, make the Democrats look good. But if you just keep your eye on the policy, Republicans are moving towards a win far beyond anything the House leadership had initially imagined. Getting there required learning they had less control over their conservative wing that they’d hoped, but it also taught them that their inability to control their conservative wing gave them credibility in negotiations with Democrats and can lead to pretty remarkable policy wins, as no one doubts that House Republicans really will shut down the government or allow for a default.

Top Stories

Democrats are planning to offer $20 billion in additional cuts, report Janet Hook and Damian Paletta: “The White House and Democratic lawmakers, with less than two weeks left to avoid a government shutdown, are assembling a proposal for roughly $20 billion in additional spending cuts that could soon be offered to Republicans, according to people close to the budget talks. That would come on top of $10 billion in cuts that Congress has already enacted and would represent a deeper reduction than the Obama administration and Senate Democrats had offered previously in negotiations. But it isn’t clear that would be enough to satisfy Republicans, who initially sought $61 billion in spending cuts and face pressure from tea-party activists not to compromise.”

The final compromise is likely to end up matching the the House leadership’s opening bid, write Michael Ettlinger and Michael Linden: “Unfortunately the administration backed away from its budget even before the negotiations started, and the Tea Party is calling the shots in the House. So instead of negotiation between the president’s original level and House leadership’s original level, we’re stuck negotiating between the Tea Party’s $100 billion, and the new status quo’s $50 billion. That means the likely compromise is right where the House Republican leadership always wanted it: around $74 billion. That’s not much of a compromise if we end up with what the House Republican leadership wanted in the first place.”

Mitch McConnell is pushing for a Balanced Budget Amendment, reports Manu Raju: “Senate Minority Leader Mitch McConnell and other senior Republicans are building a united front behind a constitutional amendment that would require a balanced federal budget, a measure that could serve as a bargaining chip in the debate over raising the debt ceiling. McConnell’s leadership team circulated documents on Friday afternoon to GOP Senate offices, laying out a new legislative plan to bridge internal differences, and sent an unambiguous call for unity among the 47-member conference...If all 47 members sign onto the plan, it could give Republicans new leverage to demand a Senate vote as a condition for agreeing to take up the politically thorny issue of raising the national debt limit. Such a deal could help shield Republicans from the ensuing political blowback.”

The economy may be weak, but financial-sector profits have “come roaring back,” reports Kathleen Madigan: “During the darkest days of the financial crisis, when Lehman Brothers and Washington Mutual went belly up and the U.S. government had to bail out other institutions, the finance sector reported an annualized loss of $65.2 billion in the fourth quarter of 2008. It was the only quarterly loss recorded in the government data. Since then, the sector has come roaring back. The GDP report shows finance profits jumped to $426.5 billion. While profits haven’t returned to their high levels of 2006, the gain in finance profits last quarter more than offset a drop in profits posted by nonfinancial domestic industries. After rising like the Phoenix, the financial industry now accounts for about 30% of all operating profits. That’s an amazing share given that the sector accounts for less than 10% of the value added in the economy.”

Republicans will include a Medicaid overhaul in their budget, report Corey Boles and Janet Hook: “House Republicans are preparing to propose a major shake-up of the Medicaid health-care program for the poor, a first step in their drive to overhaul federal entitlements, according to a member of the House Budget Committee. Rep. Mick Mulvaney (R., S.C.) told constituents at a town hall meeting in Lancaster on Thursday that the committee soon would unveil a budget resolution for fiscal 2012 that recommends revamping Medicaid to allow states more latitude in spending federal money. ‘We’re getting ready to offer people the first real, substantive discussion on a major entitlement--Medicaid--in my lifetime,’ the congressman said. Rep. Paul Ryan (R., Wis.), the budget committee chairman, is expected to release his budget proposal by the first week in April.”

Waiting for Godot becomes a video game: Play it here. Here’s an interview with the designer.

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

Still to come: Global instability threatens one of the main drivers of our economy; progressives need to engage more with the Federal Reserve; the Supreme Court is considering the constitutionality of a public financing program; the administration is continuing to back new nuclear reactors; and a conga line of dogs.

Economy

Foreign crises are endangering export-based growth, report Jon Hilsenrath and Sara Murray: “To an extent unique in post-World War II history, the U.S. economy’s climb out of recession has been led by selling crops, natural resources and manufactured goods to the rest of the world. With housing and construction in the dumps and consumer spending pinched by thrift and tight credit, exports have powered nearly half of U.S. economic expansion since the recession ended in mid-2009. Now that important engine for U.S. growth--the rest of the world--is damping the improving outlook. The world’s No. 3 economy, Japan, is reeling from an earthquake and nuclear crisis. Unrest in the Middle East has sent oil prices--and global anxiety--soaring. Fast-growing China, anxious about inflation, and other emerging markets are trying to tap the brakes. And fiscal strain looms over Europe.”

State foreclosure prevention programs aren’t doing much better than federal ones, reports Nick Timiraos: “Government efforts to encourage mortgage companies to reduce loan balances voluntarily for more borrowers haven’t had much success so far. A U.S. program that lets mortgage companies refinance ‘underwater’ loans--those for more than a property is worth--if the borrower’s loan balance is cut has received fewer than 300 applications, according to the Federal Housing Administration. Efforts by some states haven’t fared any better. Arizona and California have allocated a total of $1 billion in federal funds for a write-down program that offers to match as much as $50,000 in principal reductions by banks. Both states have barred borrowers who did a ‘cash-out’ refinancing from being eligible for a write-down, and loan balances aren’t immediately forgiven.”

The economic theories embraced by the House GOP promote job growth through wage cuts, report Tim Fernholz and Jim Tankersley: “In a little-noticed economic report distributed by the office House Speaker John Boehner last week, the Republican staff of the Joint Economic Committee attempted to refute criticisms that the GOP’s economic agenda would deliver too much pain too fast...The paper predicts that cutting the number of public employees would send highly skilled workers job hunting in the private sector, which in turn would lead to lower labor costs and increased employment. But ‘lowering labor costs’ is economist-speak for lowering wages -- does the GOP want to be in the position of advocating for lower wages for voters who work in the private sector?”

My take: http://wapo.st/dLcxx0

Progressives need to follow the example of conservatives and pay more attention to the Federal Reserve, writes Matthew Yglesias: “Few people realize it in part because progressives in general aren’t accustomed to thinking about monetary issues. That, in turn, is largely because in the progressive movement monetary policy doesn’t seem to be anyone’s job. Climate change, health care, labor unions, women’s rights, gay and lesbian equality, and poverty, among other causes, all have their advocates. And faced with an economic downturn, fiscal stimulus is an appealing prospect to liberals. After all, it offers a political free lunch—an opportunity to spend money on key priorities without doing the tough work of coming up with offsetting tax increases. And it’s easy enough to dial around to a dozen interest groups and come up with a laundry list of stimulative fiscal measures. But the vast majority of recessions are fought primarily with monetary tools rather than fiscal ones. And even in especially steep downturns, fiscal policy can work as a stabilization tool only to the extent that monetary policy accommodates it.”

Patent reform is a win for big corporations, reports Amanda Becker: “The proposed changes give the U.S. Patent and Trade Office the ability to set its own fees, manage its own revenue, establish an expedited patent-review system and expand the ways in which a patent can be challenged. But no provision generated more interest among the organizations that weighed in than the switch from a first-to-invent to a first-to-file system used in most other countries, which would grant a patent to the first inventor to file an application even if others conceived of a similar idea first. The shift was a victory for big companies such as Johnson Johnson, Eli Lilly and General Electric, which are adept at filing patents often and early and hope the new system will help keep disputes over patent ownership out of court.”

Steeply progressive income taxes are leaving some states starved for revenue: http://on.wsj.com/eT1Dw5

The average American’s stagnant wages are a disgrace, writes Bob Herbert in his final NYT column: “There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion. Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be. Through much of the post-World War II era, income distribution was far more equitable, with the top 10 percent of families accounting for just a third of average income growth.”

Waiting to balance the budget will only make the cuts and tax hikes more brutal, writes Greg Mankiw: http://nyti.ms/gLlHKu

Depending on how you look at it, Obama’s tax policy is either a cut or a hike, writes Donald Marron: “Relative to current law, the president is proposing a $2.4 trillion tax cut over the next decade. That’s because he would extend most of the tax cuts that expire at the end of 2012, including the 2001 and 2003 tax cuts for ‘middle-income’ taxpayers, the AMT patch, and the estate tax at 2009 levels. Those extensions total $3.1 trillion, which he would partly offset by $700 billion in revenue increases. Relative to current policy -- which we define as 2011 tax law excluding the payroll tax holiday and temporary investment incentives -- the president’s proposal turns out to be a $2.0 trillion tax increase. That’s because he would not extend certain provisions of 2011 tax law, most notably the lower rates on ‘upper-income’ taxpayers and the lower estate tax.”

Adorable animals moving in unison interlude: A conga line of dogs.

Health Care

Medicare premium hikes have wiped out Social Security’s latest cost-of-living increase: http://wapo.st/e14Jjq

Waivers are allowing “mini-med” plans to live on, report N.C. Aizenman and Robert Barnes: “Consumer advocates condemn them as the worst form of health insurance: ‘mini-med’ plans that limit payouts to as low as $2,000 a year, leaving often unsuspecting customers to fend for themselves if they develop a costly and serious disease. So drafters of the new health-care law made eliminating mini-meds a top priority. By 2014, the plans will be gone completely. And starting this year, virtually all are required to up their annual coverage limit to at least $750,000. Yet more than 2.6 million Americans will continue to face far lower annual caps for at least another year because they are in one of 1,040 mini-med plans for which the Obama administration has granted waivers.”

Five babies have died since Nebraska cut prenatal care for poor mothers, writes Andrea Nill: http://bit.ly/fGkJW7

Domestic Policy

The Supreme Court is taking on campaign finance reform again, reports Robert Barnes: “A Supreme Court that is increasingly skeptical of campaign finance restrictions is returning to the issue for the first time since last year’s game-changing ruling that corporations and unions may spend whatever they like on behalf of candidates...The case to be heard Monday concerns a provision in Arizona’s public campaign financing law that increases funding for those facing big-spending opponents or interest groups. It is the first time the court has considered a public finance system since its landmark decision in 1976 that the presidential public funding system was constitutional...The challengers say the system is meant to level the playing field, something the Supreme Court already said is not sufficient for overcoming constitutional speech protections.”

The Court is also considering a sex discrimination suit against Wal-Mart: http://wapo.st/if3Ian

The FEC is split on how to deal with Citizens United, reports T.W. Farnam: “A year after the Supreme Court’s landmark decision easing campaign spending restrictions for corporations and interest groups, the Federal Election Commission has yet to issue regulations spelling out the full implications of the decision. The commission increasingly has been paralyzed by a sometimes bitter standoff between Republicans and Democrats on the evenly divided panel. And although most of the commissioners will soon be serving in expired terms, President Obama and congressional Republicans have not been able to agree on replacements...The effort to write new regulations has been halted by the partisan standoff over how much interest groups must disclose about their financial backers in election spending.”

Citizens United implies that Arizona’s campaign finance system is constitutional, write Charles Fried and Cliff Sloan: http://nyti.ms/hilu5R

Small class size isn’t everything, writes Eve Moskowitz: “The worst public elementary school in Manhattan, 16 percent of whose students read at grade level, has an average class size of 21; PS 130, one of the city’s best, has an average class size of 30. Small class size is one factor in academic success. The question, then, is whether the educational benefits of class-size reduction justify the costs. Some proponents contend that because research shows reducing class size is beneficial, spending on this should be prioritized over anything that is unsupported by research. That’s a neat rhetorical trick but unsound logic. The absence of research on, say, teacher salaries doesn’t prove that we should pay the minimum wage to teachers to dramatically reduce class size.”

All in the game interlude: The Wire as a Victorian novel.

Energy

The administration is clearing the way for more nuclear reactors, report Naureen Malik and Tennille Tracy: “U.S. nuclear regulators on Friday removed a key hurdle facing Southern Co.’s bid to build two nuclear reactors near Augusta, Ga., saying the project doesn’t pose environmental risks. The Nuclear Regulatory Commission said it completed an environmental review of Southern’s proposed Vogtle units and didn’t find anything that would prevent it from issuing licenses to the company, which could be the first time regulators approve the construction of a new nuclear-power reactor in the U.S. in over 30 years. The NRC still needs to complete a safety report on the project and finish a review of the proposed reactor’s design.”

Global carbon markets are floundering: http://wapo.st/fHXJlf

Senate Democrats are promoting a compromise EPA climate bill, reports Robin Bravender: “Senate Democrats hope to siphon votes from a GOP bid to hamstring EPA climate rules by voting first on a Democratic alternative. Top Democrats plan to hold a vote next week on an amendment from Finance Committee Chairman Max Baucus before allowing a vote on a more sweeping climate amendment from Minority Leader Mitch McConnell, a senior Democratic leadership aide told POLITICO on Thursday. Baucus’s amendment -- which aims to exempt agriculture and small industrial facilities from climate rules -- would allow moderate Democrats to support limits on EPA regulations without backing the Republican effort to upend the Obama administration’s climate policies.”

Americans can live without cheap gas, writes Robert Rapier: http://wapo.st/fL5sHD

The GOP should lay off the EPA, write William Ruckelshaus and Christine Todd Whitman: “The Senate is poised to vote on a bill that would, for the first time, ‘disapprove’ of a scientifically based finding, in this case that greenhouse gases endanger public health and welfare...As former administrators of the EPA, both under Republican presidents, we have observed firsthand rapid changes in scientific knowledge concerning the dangers posed by particular pollutants, including lead additives in gasoline, benzene and the impact of contaminants on our drinking-water supply. In each of these cases, the authority of our major environmental statutes was essential to protect public health and the most vulnerable members of our society, even in the face of remaining scientific debate.

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