Earlier this week, Senate Republicans voted to close out some ethanol subsidies in the tax code and use the savings to reduce the deficit. That was an explicit signal that they're willing to increase revenues so long as the mechanism is closing loopholes, ending tax breaks and shaving expenditures. Now, it's a lot easier to close $6 billion of reviled energy subsidies than raise hundreds of billions in new revenues by attacking popular tax breaks like the mortgage-interest deduction. But it's at least clear we can now move onto that discussion.

Meanwhile, AARP has quietly dropped their blanket opposition to Social Security cuts. The reason? They figure they're inevitable. "The ship was sailing," John Rother, AARP's policy chief, told the Wall Street Journal. "I wanted to be at the wheel when that happens." That makes it much likelier that Social Security will see reform later this year. But perhaps more importantly, it shows that the major players in Washington are entering dealmaking mode. And that's usually a pretty good predictor that some deals are about to be made.

Five in the morning

1) Joe Biden says the "hard part" in debt negotiations starts now, reports Lori Montgomery: "After six weeks of talks with congressional leaders aimed at restraining the spiraling national debt, Vice President Biden emerged Thursday with a blunt message: Now, the hard part begins. Next week, Biden said, negotiators from the White House and Capitol Hill will begin working 'around the clock' to bridge the yawning philosophical divide between the two parties, as Democrats press for fresh revenue and Republicans push for significant cuts to federal health programs as part of the debt-reduction package...The two sides appear to agree on the magnitude of the package: at least $2 trillion in savings -- not including interest on the debt -- to pair with an increase in the debt limit of a similar size, according to people familiar with the talks."

2) But the eventual deal could more than double the $2 trillion in savings promised, report Corey Boles and Kristina Peterson: "Negotiators working to reach a budget compromise want to get $4 trillion in savings over the next decade, Vice President Joe Biden said Thursday as a group of lawmakers indicated they would step up the pace of deficit talks next week...The $4 trillion in savings over 10 year figure was initially established last year by a deficit commission chaired by Erskine Bowles, the former Clinton White House Chief of Staff, and former Republican Sen. Alan Simpson...Republicans have insisted throughout that the amount of savings must equal or exceed the needed $2 trillion increase in the debt ceiling. Should negotiators get to $4 trillion they will have doubled the $2 trillion savings figure that has also come up as the negotiations progressed."

3) The Senate has reversed course and voted to cut ethanol subsidies, report Steven Mufson and Lori Montgomery: "The Senate on Thursday approved an amendment that would end tax credits for ethanol that refiners blend into motor fuel...In a 73-to-27 vote, the Senate backed an amendment by Sens. Dianne Feinstein (D-Calif.) and Tom Coburn (R-Okla.) that would abruptly eliminate the tax credits, which cost the federal government about $6 billion a year, on July 1. In addition to ending a 45- cent-a-gallon subsidy, the amendment would eliminate the 54-cent-a-gallon protective tariff that discourages imports. The victory could prove symbolic since the amendment is attached to the Economic Development and Revitalization Act, which has little chance of winning final approval in the Senate."

4) Business executives lashed out in a meeting with Bill Daley, report Peter Wallsten and Jia Lynn Yang: "It was supposed to be the White House’s latest make-nice session with corporate America -- a visit by Chief of Staff William M. Daley to a meeting with hundreds of manufacturing executives in town to press lawmakers for looser regulations. But the outreach soon turned into a rare public dressing down of the president’s policies with his highest-ranking aide. One by one, exasperated executives stood to air their grievances on environmental regulations and stalled free-trade deals. And Daley, the former banker tasked with building ties with industry, found himself looking for the right balance between empathy and defending his boss...Even as the White House pledges more receptivity to corporate concerns, business continues to spar with the administration on numerous fronts."

5) AARP is signaling openness to Social Security cuts, reports Laura Meckler: "AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington's debate over how to revamp the nation's entitlement programs. The decision, which AARP hasn't discussed publicly, came after a wrenching debate inside the organization. In 2005, the last time Social Security was debated, AARP led the effort to kill President George W. Bush's plan for partial privatization. AARP now has concluded that change is inevitable, and it wants to be at the table to try to minimize the pain...The shift, which has been vetted by AARP's board and is now the group's stance, could have a dramatic effect on the debate surrounding the future of the federal safety net, from pensions to health care, given the group's immense clout."

Intergenerational cover interlude: The Tallest Man on Earth plays "Graceland" by Paul Simon.

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

Still to come: Not having a director could lead to more aggressive action from the Consumer Financial Protection Bureau; Senate Dems want Medicare cuts to build on the Affordable Care Act; the House voted to cut funding for food safety and food aid for the poor; the ethanol subsidy vote could signal the end to other energy subsidies; and a two year old gives the most rousing rendition of the Jack and the Beanstalk tale you've ever seen.


Not having a director could make the Consumer Financial Protection Bureau tougher, reports Josh Boak: "The new Consumer Financial Protection Bureau won’t necessarily be handicapped by President Barack Obama’s delay in naming a director. If the bureau launches on July 21 without a director, Wall Street analysts and attorneys for the financial services industry are bracing for a slew of enforcement actions against major banks. With no director to issue rules and guidance for banks, the bureau most likely will set policy by conducting investigations, suggested Jaret Seiberg, an analyst for the brokerage firm MF Global. 'The ability of the CFPB to investigate financial firms and then bring enforcement actions for violating existing laws is the most potent weapon the agency has absent a director,' he wrote in a recent report. 'It is also one that will garner politically attractive headlines.'"

IMF candidate Augusto Carstens wants the World Bank involved in Greece, report Bob Davis and Owen Fletcher: "Mexican central banker Agustin Carstens, campaigning here for the top job at the International Monetary Fund, said to ease the cost of a rescue package for Greece, the World Bank should get involved...Mr. Carstens' comments come as voters in euro-zone countries are balking at spending more on a Greek bailout--and protesters in Greece are resisting further cutbacks. World Bank funding and technical expertise, Mr. Carstens argued, could help ease the political and financial problems in Europe. Although the World Bank provided financing to Eastern European countries during the global financial crisis, it hasn't been involved in rescue packages for euro-zone nations."

Fannie Mae's is the most important scandal you've never heard of, writes David Brooks: "the Fannie Mae scandal is the most important political scandal since Watergate. It helped sink the American economy. It has cost taxpayers about $153 billion, so far. It indicts patterns of behavior that are considered normal and respectable in Washington. The Fannie Mae scandal has gotten relatively little media attention because many of the participants are still powerful, admired and well connected. But Gretchen Morgenson, a Times colleague, and the financial analyst Joshua Rosner have rectified that, writing “Reckless Endangerment,” a brave book that exposes the affair in clear and gripping form."

Reservoir Cats interlude: A cat rolls around in a hamster ball to "Stuck in the Middle With You".

Health Care

Senate Democrats are insisting any Medicare cuts build on those in the Affordable Care Act, reports Jennifer Haberkorn: "Top Senate Democrats argue that if Republicans want to find savings in Medicare, they can build on the health care reform law passed last year instead of cutting benefits. 'The Affordable Care Act makes significant changes to our health care system to control health care costs, changes that are already under way,' several Senate Democrats write in a letter to be sent to Republican Leader Mitch McConnell today. 'To protect Medicare, we should build on these kinds of delivery system reforms, rather than cut seniors’ benefits.' The Thursday letter marks one of the strongest uses of the health law, which Democrats muscled through Congress last year, to push back against the House's budget and Republican demands that Medicare be part of the debt ceiling negotiations."

Serious conservatives acknowledge the individual mandate is constitutional, writes Simon Lazarus: "[Sixth Circuit Judge Jeffrey] Judge Sutton is not the first person to observe that the ACA’s allegedly freedom-destroying mandate is operationally indistinguishable from commonplace tax incentive provisions. But, apart from having actual decisional authority on the matter, Sutton enters this space with formidable ideological and professional credentials. One of the first batch of appeals court nominees picked by President George W. Bush, Sutton, though only 42 years old, earned his front rank position as the energizer bunny of the Rehnquist Court’s late 1990’s drive to shrink Congress’ domestic regulatory authority in the name of 'federalism.'"

Better treating 'double eligibles' could cut Medicare and Medicaid costs, writes Ezra Klein: "These are the people who are so sick and so poor that they qualify for Medicare and Medicaid. Typically, Medicare might cover their hospital costs, but Medicaid will cover their long-term care. And they are really, seriously, no-joke expensive. They account for 40 percent of Medicaid’s spending even though they make up only 15 percent of its members, and if you add in Medicare’s spending, you’re looking at more than $200 billion a year for this group alone. But expensive care isn’t necessarily good care. These people are often disabled and in no real shape to navigate multiple government and medical bureaucracies. There’s little coordination among their various doctors and hospitals and nursing homes. If their cases were managed better, they’d cost a lot less and the people would be a lot healthier."

Domestic Policy

The House GOP is cutting funding for food safety, food for the poor, reports Lyndsey Layton: "Arguing that the U.S. food supply is 99 percent safe, House Republicans cut millions of dollars Thursday from the Food and Drug Administration’s budget, denying the agency money to implement landmark food safety laws approved by the last Congress. Saying the cuts were needed to lower the national deficit, the House also reduced funding to the Agriculture Department’s food safety inspection service, which oversees meat, poultry and some egg products. And lawmakers chopped $832 million from an emergency feeding program for poor mothers, infants and children. Hunger groups said that change would deny emergency nutrition to about 325,000 mothers and children...No Democrats voted in favor of the agriculture appropriations bill, which passed by a vote of 217 to 203."

A bill to cut filibusters...got filibustered, reports Manu Raju: "So much for that 'gentleman's agreement.' In a rare feat of bipartisanship earlier this year, Majority Leader Harry Reid and Minority Leader Mitch McConnell reached an agreement to make the Senate more workable by allowing for a more open amendment process, reducing the number of filibusters and streamlining the bogged-down confirmation process. But on Thursday when Reid and McConnell wanted to actually get a vote on a bill to eliminate some 200 minor executive posts that would require Senate confirmation, it was filibustered. Reid and McConnell said in January they would try to avoid filing cloture - a time-consuming process - on motions to proceed to debate on legislation and nominations...But any senator can object to that request, forcing a cloture motion to be filed, which requires 60 votes to proceed."

Pentagon officials are preparing $500 billion in budget cuts, reports Nathan Hodge: "U.S. service chiefs and other senior military leaders are preparing to hash out a process for meeting the White House's target to cut $400 billion in defense spending by 2023, according to the top Marine general...The Defense Department budget stands at just under $700 billion a year, including about $160 billion for the wars in Iraq and Afghanistan. Military spending is already under considerable pressure, and some defense insiders predict that Central Intelligence Agency Director Leon Panetta, President Barack Obama's pick to succeed Secretary of Defense Robert Gates, may oversee cuts at the Pentagon beyond the planned $400 billion. The Marines have already been forced to adapt to the new fiscal realities in Washington...The Marine Corps will be shrinking from a wartime size of 202,000 to a leaner force of 186,800."

It's time to end the drug war, writes Jimmy Carter: "In an extraordinary new initiative announced earlier this month, the Global Commission on Drug Policy has made some courageous and profoundly important recommendations in a report on how to bring more effective control over the illicit drug trade...It recommends that governments be encouraged to experiment 'with models of legal regulation of drugs ... that are designed to undermine the power of organized crime and safeguard the health and security of their citizens.' For effective examples, they can look to policies that have shown promising results in Europe, Australia and other places. But they probably won’t turn to the United States for advice. Drug policies here are more punitive and counterproductive than in other democracies, and have brought about an explosion in prison populations."

Adorable children telling stories interlude: This two year old is really, really into Jack and the Beanstalk.


After the ethanol vote, other subsidies could come in for cuts, report Darren Goode and Darren Samuelsohn: "Senate Democrats immediately looked to broaden the ethanol vote, saying it means lawmakers shouldn’t be afraid to raise taxes on well-established energy players. The White House and Democratic leaders have sought to end various tax breaks awarded to Big Oil, an idea that 52 senators supported in May but is still opposed by Republicans as an unfair and selective tax increase. 'This is a landmark vote, and even if this provision does not pass the House, it is a signal that those negotiating the debt ceiling must heed the bipartisan majorities in the Senate that want to end ethanol subsidies and end oil subsidies for the Big Five oil companies,' said Sen. Robert Menendez (D-N.J.). Senate GOP conference Chairman Lamar Alexander suggested putting other energy incentives under the microscope."

Agriculture Secretary Tom Vilsack slammed the ethanol vote, reports Ben Geman: "Agriculture Secretary Tom Vilsack called Thursday’s Senate vote in favor of quickly killing a major ethanol industry tax break 'ill advised,' alleging it will cost jobs. He took aim at the amendment approved Thursday and a separate plan the Senate rejected that would have blocked use of federal funds for ethanol infrastructure. Vilsack called biofuels a central part of Obama administration plans to curb oil import reliance...'We need reforms and a smarter biofuels program, but simply cutting off support for the industry isn’t the right approach. Therefore, we oppose a straight repeal of the Volumetric Ethanol Excise Tax Credit (VEETC) and efforts to block biofuels infrastructure programs.'"

The stimulus' weatherization programs ran into a whole host of problems, reports Louise Radnofsky: "West Virginia's stimulus-funded weatherization program was riddled with problems including nepotism, poor workmanship and billing errors, Department of Energy investigators have found. Local agencies in charge of using $38 million in federal funds to insulate the homes of low-income families carried out shoddy work, sent in invoices before they had finished, failed to keep accurate accounting records and gave preferential treatment to employees and relatives who qualified for the program, according to a new audit report by DOE Inspector General Gregory Friedman. Both the state and local agencies said in official responses to the report that they have begun to fix the problems found."

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