There are two ways of looking at the theory behind the president's new deficit plan. One is that he's finally doing what he needs to do to reverse his slide in the polls and craft a message for the next election. In this telling, he has given up on governing and turned his attention to campaigning. The other is that he's finally doing what he needs to do to strike a deal with the Republicans and get something done before the election. In this telling, he has finally given up on campaigning and turned his election to governing.
The case for the second view is that nothing in the past year provides even a scrap of evidence for the view that offering concessions to Republicans is the way to get them to come to a deal. Rather, the most successful bipartisan negotiation the administration held, the one where both sides gave up something big to get something big, was the 2010 tax deal. And that was a situation in which the administration was hammering Republicans with a more popular, more populist message centered around raising taxes on the rich, and that was the one case where Republicans felt clear political pressure to come to the table and cut a deal.
Conversely, the negotiations where the Obama administration has started in the middle, or started by inviting Speaker John Boehner or Majority Leader Eric Cantor to a room and asking them to move to the middle, went nowhere. The White House had no leverage. And when there's no leverage, there's no reason for Republicans to help Obama bolster his brand and his job approval numbers by cutting a big, tough deal with him.
If you buy into this theory, Obama's strategy may or may not work, but at least there's some plausible story for how it might succeed: if the new message resonates and Republicans see Obama's electoral chances rising and their lock on retaking the Senate and making gains in the House slipping away, they will act to defuse the attacks that are causing them so many problems. And just as was true during the tax deal, that will mean coming to some negotiated compromise with the Obama administration, which is what the White House really wanted all along.
The smart money is still on nothing big getting done this year or next. In Washington, the smart money is almost always on nothing big getting done this year or next. But it's not at all clear that the chances of something big getting done are lower under the White House's confrontational strategy than they were under its conciliatory strategy. After all, the conciliatory was tried, and it failed. This new approach would have to be pretty bad for the chances to dip beneath zero.
1) Obama unveiled his debt plan yesterday, report Zachary Goldfarb and Rosalind Helderman: "President Obama made a defiant call on Monday for $1.5 trillion in new taxes as part of a plan to find $3.2 trillion in budget savings over the next decade, issuing his most detailed proposal yet to tame the soaring federal debt. Abandoning earlier compromises, Obama adopted a posture that cedes far less ground in cutting the nation’s social safety net and demands much more in terms of new levies on millionaires, other wealthy Americans and some industries. The proposal drew an angry response from key Republicans, underscoring the considerable opposition to his plan on Capitol Hill as a special bipartisan committee on deficit reduction ramps up its work in coming weeks...Some Democrats offered only modest support for Obama’s plan."
Read the full plan: http://1.usa.gov/pcTy1c
See how it breaks down by savings type: http://wapo.st/og56km
Five unexpected ideas in the plan: http://wapo.st/pMsQZz
2) Senate Democrats aren't crazy about it, report Scott Wong and Jake Sherman: "Liberals on Monday cheered President Barack Obama’s plan to hike taxes on the wealthy to cut the deficit on Monday...Centrist Democrats, a dwindling breed on Capitol Hill, were quickly faced with another rough choice once Obama went public with his plans: Reject their president or back what Republicans are already calling the largest tax increase in the nation’s history. Florida Sen. Bill Nelson, who is up for reelection in 2012, has supported raising taxes on millionaires but was still weighing whether he’d support higher taxes on those who make more than $200,000 a year, said spokesman Dan McLaughlin. Sen. Ben Nelson (D-Neb.), a key moderate who’s up for reelection next year, didn’t mince words: 'There’s too much discussion about raising taxes right now, not enough focus on cutting spending.'"
@PaulBegala : "One of Begala's Laws of Politics: if Republicans accuse you of "class warfare", you're winning."
3) The plan includes a veto threat, reports David Corn: "The one sentence in the White House fact sheet that is in boldface: 'The President will veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share.' his is known as a message. Obama is saying that he won't take anything away from Medicare beneficiaries--and he'll continue to point out that the Republicans are on record as supporting ending the Medicare guarantee for seniors. But there is, it seems, wiggle room here. If the GOPers relent on revenues and okay a tax hike on the wealthiest Americans and biggest corporations, might Obama consider trimming benefits for some seniors? With this statement, Obama looks as if he's both prepping to stand firm--while still being open to a grand bargain that includes more extensive entitlement cuts."
4) Much of Obama's debt plan savings comes from war drawdowns, report Lori Montgomery and Jia Lynn Yang: "The plan...relies on an array of well-worn budget ploys that do little to advance the cause of bipartisan cooperation in taming the nation’s spiraling debt, the experts said...The most disheartening development, MacGuineas and others said, is Obama’s decision to count $1.1 trillion in savings from the drawdown of troops in Iraq and Afghanistan toward his debt-reduction total. Because Obama has no intention of continuing war spending at last year’s elevated levels, that $1.1 trillion would never have been spent. Congressional Republicans are resisting the move to count war savings toward deficit reduction. But congressional Democrats are preparing a major push to count such savings in the budget blueprint under development by a bipartisan joint committee on Capitol Hill."
5) My take: The White House's plan is a compromise with political reality: "Since the election, the Obama administration’s working theory has been that the first-best outcome is striking a deal with Speaker John Boehner and, if that fails, the second-best outcome is showing that they genuinely, honestly wanted to strike a deal with Speaker John Boehner. That was the thinking that led the White House to reward the GOP’s debt-ceiling brinksmanship by offering Boehner a “grand bargain” that cut Social Security, raised the Medicare age, and included less new revenue than even the bipartisan Gang of Six had called for. It was also a theory that happened to fit Obama’s brand as a postpartisan uniter and his personal preferences for campaigning on achievements rather than against his opponents. But though it came close to happening, the “grand bargain” ultimately fell apart. Twice. The collapse of that deal taught them two things: Boehner doesn’t have the internal support in his caucus to strike a grand bargain with them, and the American people don’t give points for effort."
6) Obama has rejected Obamaism, writes David Brooks: "Yes, I’m a sap. I believed Obama when he said he wanted to move beyond the stale ideological debates that have paralyzed this country. I always believe that Obama is on the verge of breaking out of the conventional categories and embracing one of the many bipartisan reform packages that are floating around. But remember, I’m a sap. The White House has clearly decided that in a town of intransigent Republicans and mean ideologues, it has to be mean and intransigent too. The president was stung by the liberal charge that he was outmaneuvered during the debt-ceiling fight. So the White House has moved away from the Reasonable Man approach or the centrist Clinton approach."
7) Forget the jobs plan, only the Fed can create new jobs now, writes Joe Nocera: "In the 1930s, the Fed’s tight money policy compounded the lack of credit and sent the country into the Depression. Decades later, Milton Friedman was the economist who most persuasively proved that point. Bernanke, a student of the Depression, took that lesson to heart; his willingness to flood the system with liquidity during the financial crisis prevented a repeat...The main argument against the printing of money is that it raises the odds of inflation; even the esteemed Paul Volcker is worried about it, as he wrote in Monday’s Times. But Kasriel is convinced that the bigger fear right now is deflation, and that the expansion of credit by the Fed should be seen in combination with the contraction by the banks. In that larger context, the Fed’s move no longer looks inflationary. It looks instead like the only means we’ve got right now to create badly needed credit."
Studio session interlude: Surfer Blood plays "Swim".
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Still to come: European officials want Greece to move faster on cuts and reforms; considering Mitt Romney and Rick Perry's braintrusts; what Obama's debt plan means for health care; the Justice Department is challenging Texas' redistricting plan; House Republicans want a Solyndra probe; and a cat tries to sleep on a printer.
European officials want Greece to move faster, report Michael Birnbaum and Howard Schneider: "European economic officials said Monday that Greece must make deeper, faster budget cuts and economic reforms, pushing the debt-strapped nation to meet promised targets to free up more international help. With the country perhaps within a few weeks of default on its international loans, top Greek officials conferred with European and international monetary officials about what the country needs to do to free $11 billion of upcoming aid. Talks ended late Monday night in Athens and were to resume on Tuesday. Greek Finance Minister Evangelos Venizelos said in a news release that the talks had been productive...Europe has been battling for nearly two years to show convincingly that Greece and other heavily indebted nations such as Italy and Spain will pay all their bills.
Who will be in Mitt Romney and Rick Perry's economic braintrusts, asks David Weigel: "Romney's economic advisers are pretty mainstream center-right types: Glenn Hubbard, Greg Mankiw. He's close to Meg Whitman, who could be the first-ever female Treasury secretary in a Romney administration. All three of these people have mused about the importance of dealing with climate change, and none are particularly Laffer-ian in their views. Who are Perry's economic advisers? He doesn't have anyone holding that title in his campaign yet...The most famous economic mind that's close to Perry is former Sen. Phil Gramm...He's an incredibly influential Republican thinker on tax cuts and de-regulation. On the perennial question of whether more people should pay taxes, and the rich should not pay so much more than the poor, he once worried that highly progressive taxation was making America unstable...It's very easy to imagine him being Perry's Treasury secretary, or head of his Council of Economic Advisers."
Short-term stimulus won't lead to long-run prosperity, writes Glenn Hubbard: "The president’s advocacy for higher marginal tax rates on the well-to-do dampens both job creation and asset prices. And, it is a collapse in job creation that lies at the core of the present unemployment problem...A second problem with the president’s plan is that repeated efforts to use stimulus to revive the economy increase the federal debt. The ratio of federal debt held by the public to GDP, now at almost 60 percent as opposed to less than 40 percent at the beginning of the financial crisis, is likely to rise to 90 percent by 2020, according to the Congressional Budget Office’s Long-Term Budget Outlook, published last summer. Without addressing longer-term fiscal concerns, new stimulus is likely to lead to a loss of investor confidence."
Big countries should leave the Euro, writes Ramesh Ponnuru: "If the ECB were now to loosen its monetary policy considerably, one would expect inflation to hit disproportionately in the countries with the fewest idle resources, such as Germany and France. Thus the troubled peripheral countries could benefit from a kind of internal devaluation while staying in the euro. Devaluation would lower real wages in the periphery to sustainable levels. If the weaker members stick with the euro and the ECB balks at inflation in the core, however, then the only way for the periphery to adjust is through nominal wage cuts...The Greeks -- as well as the Irish, Spaniards and Portuguese -- would be far better off if they, too, could have devalued their currencies. And so would the rest of the euro area, where taxpayers wouldn’t be facing pleas for bailouts.
Cats hate printers interlude: A cat learns the hard way not to sleep on a printer.
Obama's plan gets $320 billion in savings from health care, reports Sarah Kliff: "The White House proposed $320 billion in health-care cuts, largely from Medicare and Medicaid, in Monday’s deficit-reduction proposal. The big differences from its April deficit-reduction proposal? More cost-sharing in Medicare, fewer cuts to Medicaid and a big hit to the Prevention and Public Health Fund. Savings found by increasing costs for Medicare beneficiaries, as opposed to providers, are arguably the biggest departure from the previous White House proposal on deficit deduction. The administration sees four places to increase Medicare cost-sharing, including $20 billion in savings by increasing how much higher-income beneficiaries contribute to their Part B and D premiums, which cover physician and drug coverage, respectively. These proposals do edge close to the third rail of politics, cutting into benefits rather than provider payments."
Most stakeholders are upset with the cuts, reports Sam Baker: "There’s something for just about everyone to dislike in the $320 billion of healthcare savings President Obama proposed Monday...AARP blasted sections of the plan that would require seniors to pay more for certain Medicare benefits. The proposals would raise deductibles and require co-pays for some services...State Medicaid programs also could face a major hit from Obama’s proposal. The advocacy group Families USA said Obama’s Medicaid proposals would simply shift costs to the states and then on to low-income families...'PhRMA opposes implementing Medicaid’s failed price controls in Medicare Part D.,' the group said in a statement. 'Such policies would fundamentally alter the competitive nature of the program, undermine its success and potentially cost hundreds of thousands of American jobs.'"
States will be allowed to partner with the federal government on health exchanges, reports Julian Pecquet: "States will be able to get federal help in setting up their health insurance exchanges without having the government take over, under new rules proposed Monday. The healthcare reform law requires states to have insurance exchanges up and running by 2014 if they don't want the federal government to run the show. New alternatives timed for this week's visit by state officials anxious for more clarity would create state-federal partnerships that offer a middle path, where both parties work together to operate different functions of the exchange. The partnership model would allow states to tailor their exchange to local needs and market conditions, according to HHS, while offering states a way to transition to fully operating their own exchanges."
HHS is starting to determine which benefits are "essential," report Lester Feder and Kate Nocera: "The Department of Health and Human Services is about to get a key report it will need to move ahead on one of the most important -- and politically sensitive -- health reform regulations it has to write: the rule spelling out what 'essential benefits' health plans will have to cover...Within weeks, HHS is supposed to get a report from the Institute of Medicine that will recommend the methods the department should use for deciding the requirements for a benefits package. Once HHS has the report, officials will have to decide when the rule should come out. Officially, HHS can’t make any decisions before then, but well-placed health experts divide into two schools of thought: Either the rule is mostly written and HHS will issue it as soon as possible after receiving the IOM report, or they will wait until after the 2012 elections to avoid a political land mine."
The administration is challenging Texas' redistricting in court, reports Jess Bravin: "Texas' Republican-controlled statehouse violated the Voting Rights Act by adopting congressional and legislative districts for the 2012 election that disenfranchise minority voters, the Justice Department told a Washington federal court Monday. Due mainly to growth of Texas' Hispanic population, the state's delegation in the U.S. House will increase by four to 36 representatives next year. But the redistricting plan Republican Gov. Rick Perry signed in June provides no additional Hispanic or 'opportunity' districts, generally defined as having a majority of voting-age Hispanics, say critics, including civil-rights groups, the Hispanic and black caucuses of the Texas state House and the Texas Democratic Party...Texas says its maps are lawful."
Obama's jobs plan includes $10 billion for an infrastructure bank, reports Brad Plumer: "One of the key aspects of President Obama’s jobs plan is an idea that’s been knocking around Washington for some time: a national infrastructure bank that would leverage private investment to fund new roads, bridges, mass transit and other public-works endeavors. Here’s how it would work. The proposal, modeled after a bipartisan bill in the Senate, would take $10 billion in start-up money and identify transportation, water or energy projects that lack funding. Eligible projects would need to be worth at least $100 million and provide 'a clear public benefit.' The bank would then work with private investors to finance the project through cheap long-term loans or loan guarantees, with the government picking up no more than half the tab -- ideally, much less -- for any given project."
Obama's debt plan includes ending Saturday mail delivery, reports Ed O'Keefe: "The Obama administration inserted itself Monday into a years-old fight over the future of the U.S. Postal Service, backing proposals to end Saturday mail delivery and to raise postage rates beyond the rate of inflation. The support for the proposals came as part of broader White House ideas to pay down the federal deficit. But the administration declined to endorse the Postal Service’s request that Congress allow it to break labor contracts and lay off as many as 120,000 employees, a key piece of the Postal Service’s plans to cut $20 billion in costs. Postmaster General Patrick R. Donahoe voiced tepid support for the White House plan, thanking President Obama for presenting 'helpful recommendations.'"
Too much of government is hidden, writes Suzanne Mettler: "What I call the 'submerged state,' is largely invisible because its benefits are channeled through the tax code and subsidies to private organizations. These include the home-mortgage-interest deduction and the exemption from taxes on employer-provided health and retirement benefits. Using 'submerged' benefits is nearly as common as using more visible policies...The greater the number of visible policies used, the higher the rate of agreement that 'government has provided me opportunities to improve my standard of living'; by contrast, those who had used more submerged policies were more likely to disagree. The hidden policies left beneficiaries with the false impression that their economic security was owed merely to their own efforts. The submerged state obscures the role of government and exaggerates that of the market. It leaves citizens unaware of the source of programs and unable to form meaningful opinions about them."
Renewable energy interlude: A bicycle-powered washing machine.
The House is pushing for a Solyndra probe, report Carol Leonnig and Joe Stephens: "The chairman of the House Judiciary Committee has called for the Justice Department to appoint a special examiner to investigate the bankruptcy of a failed solar firm favored by the Obama administration...Rep. Lamar Smith (R-Tex.) wrote to Attorney General Eric H. Holder Jr. in a letter released Monday that taxpayers deserve to know why the Energy Department agreed in February to release more loan money to Solyndra -- and put more taxpayer money at risk -- when the company was on the brink of collapse...There are now at least four investigations into Solyndra...a joint probe by the Justice Department and the Treasury Department’s inspector general, and probes by the Energy and Treasury departments and the House Energy and Commerce Committee."
DOE is moving ahead on renewable energy loans in spite of the controversy, reports Darius Dixon: "Even as it takes fire over its $535 million loan guarantee to Solyndra, the Energy Department intends to keep pushing billions of dollars in additional guarantees in the next week and a half. For the department, it’s a matter of bad timing: Last month’s collapse of Solyndra has thrown a cloud of suspicion over the entire clean-energy loan guarantee program, just as DOE nears a Sept. 30 deadline to close on $9.3 billion in pending applications. Some Republicans have accused DOE of slapping together the remaining guarantees to beat the clock...DOE faces a dilemma: Continue finalizing projects and endure more GOP fury about potentially putting taxpayers on the hook for billions of dollars. Or terminate the pending applications, leaving the companies and their projects out in the cold."
The White House will threaten to veto House bills seeking to reverse EPA regulations, reports Ben Geman: "President Obama’s advisers will recommend that he veto pending House legislation that would block two key Environmental Protection Agency air-pollution rules, a White House official said. 'As the President has made clear, the administration will continue to take steps to defend the authority of the Clean Air Act, and the important progress we have made to protect the air we breathe,' the official said. The move could ease concerns among activists who were bitterly disappointed with the White House's retreat on planned ozone standards earlier this month. The House is slated to vote later this week on a GOP-led measure that would mandate new interagency analyses of the cumulative economic effects of several EPA rules."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.