(Bill O'Leary)

Many on the Hill and in the White House expect that the debate will ultimately come down to two alternatives: the McCaskill-Corker spending cap, which would hold federal spending at 20.6 percent of GDP -- more than three percentage points lower than it is now, and much lower than it’s projected to be later -- and the deficit-reducing trigger that the president included in his budget.

I’ve spent some time looking at the McCaskill-Corker cap and haven’t come away impressed: it focuses on spending rather than debt, sets unrealistic targets given the aging of the population and rising health-care costs and poses a substantial risk of creating a strong incentive for politicians to shift their spending into the tax code, where it wouldn’t count against the cap. But the GOP has repeatedly shown itself more interested in attacking spending than in attacked debt (see “Bush tax cuts, the”) and would like budget strictures that lead to policy being driven through tax credits rather than through direct spending. In a way, the McCaskill-Corker cap forces an approach much like Paul Ryan’s, where the government saves money not by making reforms so much as by shedding obligations.

Obama’s deficit trigger works quite differently: it’s focused on how much debt we have rather than how much spending we’re doing, and when triggered, it makes automatic cuts in both a variety of categories of spending (though with some major exemptions, like Medicare and Social Security) and a variety of tax expenditures. In that way, one of its solutions to debt is to raise taxes, which is a reason Republicans don’t much like it. But a lot of the Democrats I speak to aren’t particularly confident about winning this debate. The case for a spending cap or balanced budget amendment is intuitive, while the case against, though ultimately more persuasive, is technical, relating to the need for macroeconomic flexibility, the dangers of prizing indirect spending over direct spending, etc. And as you’ll see in Wonkbook today, the GOP is organizing on this early, while Democrats are still milling around, and in some cases, finding themselves accidentally on the other side, as in Claire McCaskill’s support for a spending cap that she didn’t realize would get attached to the debt-ceiling debate.

Five in the morning

1) The GOP is increasing its demands for a debt limit deal, report Jake Sherman and Jonathan Allen: “One day after being named to a presidential task force to negotiate deficit reduction, House Majority Leader Eric Cantor fired off a stark warning to Democrats that the GOP ‘will not grant their request for a debt limit increase’ without major spending cuts or budget process reforms. The Virginia Republican’s missive is a clear escalation in the long-running Washington spending war, with no less than the full faith and credit of the United States hanging in the balance...Cantor says he’s ready to plunge the nation into default if the GOP’s demands are not met. People close to Cantor say that he hopes to make clear that small concessions from Democrats, including President Barack Obama, will not be enough to deliver the GOP on a debt increase.”

2) The GOP should demand a balanced budget amendment alongside spending and debt caps as their price for raising the debt ceiling, writes Karl Rove: “It’s not enough for the GOP to insist on a vote on a balanced budget amendment. Even if the amendment were to muster the two-thirds vote required in Congress, it could take years to be ratified by three-fourths of state legislatures. Robust spending and deficit caps requiring rescissions and cuts if spending or deficits breach historic norms would be better and effective almost immediately.”

3) Obama friended Facebook and Zuckerberg friended taxes, reports Cecilia Kang: “President Obama on Wednesday ramped up his criticism of the Republican Party’s budget proposal, calling it ‘radical’ and ‘not courageous’ in a town hall meeting at the headquarters of Facebook. To a generally friendly audience at the social networking Web site’s sprawling corporate campus, the president outlined how his plan to reduce the deficit through spending cuts and raising taxes on the rich would be done without sacrificing what he described as key social safety nets...When Obama said wealthy taxpayers such as Zuckerberg and himself should pay their share, the youthful Facebook CEO quipped, ‘I’m cool with that,’ to an outburst of laughter and applause from the audience of high-tech executives, Democratic politicians and Facebook employees.”

4) The stakes for Ben Bernanke’s first press conference are high, reports Jon Hilsenrath: “Next Wednesday, Federal Reserve Chairman Ben Bernanke will do something no Fed chief has done before: Stand before a room full of journalists after officials conclude a policy meeting and answer questions about the central bank’s decisions. Washington churns out press conferences the way Kansas cranks out wheat. But this briefing will carry more import than most: Mr. Bernanke has been on a campaign since taking the helm of the Fed in 2006 to make it more transparent and consensus-driven. The financial crisis severely shook public confidence in the Fed, the economy has recovered unevenly since then, and Mr. Bernanke faces disagreement on his own policy-making committee...In stepping out now, the chairman has a chance to assert his voice over the Fed’s cacophonous internal debates—before any of his colleagues can get to a microphone—and reassure the public that he’ll keep inflation under control.”

5) Support for the Clean Air Act shouldn’t be a partisan issue, writes Arnold Schwarzenegger: “Hobbling the Clean Air Act will also hurt the economy. More air pollution causes more sick days, and thus hurts productivity. And, as I know from California’s experience, clean-air rules have led to innovation and new technologies that have created hundreds of thousands of new jobs and billions in clean-energy investment. Congress should not substitute political calculations for scientific and medical facts. According to a recent poll by the American Lung Association, 69% of Americans believe that EPA scientists should set health standards, rather than members of Congress. Yet one proposal under consideration would actually overturn a finding by EPA experts on the impact of carbon pollution on our atmosphere.”

Handclap interlude: Cults play “Abducted” live.

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

Still to come: America’s debt problem is manageable; the government spending that just won’t die; why block-granting Medicare isn’t like block-granting welfare; companies are spending less on lobbying Congress; analyzing environmentalists’ legislative defeat last year; and cats frolicking in slow motion.


The degree of debt reduction needed is totally manageable, writes Ryan Avent: “If America were to finally get its act together and address the fiscal situation, it would have a lot of room to make things better in a relatively easy fashion. America’s tax system is woefully inefficient. Improvements to the efficiency of the tax code would allow relatively small tax increases to generate substantial amounts of revenue. Other parts of the budget look hugely bloated relative to peer nations. American military spending dwarfs the spending of its allies and rivals alike. America spends a fortune on health care without doing much better on health outcomes. Its budget fixes would be painful in the sense that established interests hate to see change, but they would not be painful in the sense that there’s no fat to cut.”

Programs that both Obama and the GOP want to cut are somehow surviving, reports David Fahrenthold: “The programs sound innocuous enough: One spends federal money to store cotton bales. Another offers scholars a chance to study Asian-American relations. Two others pay to market U.S. oranges in Asia and clean up abandoned coal mines. But in Washington’s wonkier circles, these are the federal budget’s equivalent of Jason Voorhees, the hockey-masked movie villain who could take an ax in the skull and come back for the sequel. They are the Line Items That Won’t Die. In recent years, leaders in both parties -- including, in some cases, presidents from both parties -- have singled out these four programs, worth a total of about $337 million, to either be eliminated or lose millions in funding. But they have survived, again and again, thanks to powerful lobbies or high-placed patrons in Congress.”

An (increasingly necessary) guide to the acronyms of Dodd-Frank: http://on.wsj.com/ftIvRk

The Justice Department is increasing its regulatory role over mergers, reports Jia Lynn Yang: “The Justice Department recently concluded that a deal by Google to buy a travel search firm would ‘substantially’ reduce competition, stifle innovation and leave consumers with fewer choices. Then it approved the merger -- after adding limits on Google’s behavior that will require years of monitoring by the department’s antitrust division. In two other high-profile mergers, involving Comcast and Ticketmaster, the government threatened to take the cases to court but instead greenlighted the deals after laying out rules for the companies, which the Justice Department will now have to watch...Some experts worry that the agency, now reviewing the blockbuster deal between AT&T and T-Mobile, is trying to regulate complex businesses when it should instead be blocking controversial mergers in court.”

Existing home sales are on the rise: http://wapo.st/f1ymVW

We should shift taxes from wages to investment income, writes Harold Meyerson: “From 1959 through 2007, the share of Americans’ personal income that came from wages and salaries declined from 68 percent to 57.6 percent, according to the Economic Policy Institute’s newly released ’The State of Working America.’ Meanwhile, the share from dividends rose from 3.3 percent to 7.1 percent and the amount from interest from 5.8 percent to 11.3 percent. The share of income from realized capital gains rose during those years from 1.6 percent to 8.2 percent... And yet, we tax income derived from long-term capital gains and dividends at a rate of 15 percent, while we tax income from Americans’ labor at a rate that goes up to 35 percent... Only bankers and the depraved believe that income from other people’s labor rates a moral discount over income from one’s own labor.”

Countries spared by the financial crisis could be experiencing their own housing bubble, writes David Wessel: http://on.wsj.com/hFAKWK

Adorable animals looking momentous interlude: Clips of cats playing in slow motion.

Health Care

Block-granting Medicare would not end like Medicare reform, writes Jonathan Cohn: “The most obvious difference between welfare and Medicaid is that the welfare is a program of cash assistance designed to help purchase basic goods and services--clothing, shelter, and so on. Medicaid is a program of subsidized health insurance designed to purchase medical care. The cost of medical care consistently and predictably rises more quickly than costs of other goods and services. But, under the Republican budget, the value of the block grant would rise only as quickly as the price of other goods and services. That formula would mean the federal government spends far less money on Medicare, relative to current levels, over the next ten years--$771 billion, according to the official estimates.”

Keith Hennessey summarizes how “Medicare as we know it” works: http://bit.ly/ijB8rV

Domestic Policy

Companies are spending less on lobbying this Congress, reports T.W. Farnam: “Spending by the U.S. Chamber of Commerce dropped in the first quarter of the year to $10.9 million, according to a lobbying report filed Wednesday. That compares with more than $100 million last year, including millions of dollars on election ads and lobbying on two huge pieces of legislation on health care and financial regulation. The Chamber spent $25 million in the first quarter of 2010 as the health-care bill was finalized. Chamber officials said the lobbying activity ‘remained consistent with previous non-election years.’..The Blackstone Group, a financial services company...reported a 40 percent increase in lobbying spending in the first quarter compared with a year earlier. The company disclosed $1.3 million in spending on the implementation of the new financial regulation law, as well as tax issues.”

The federal government is cracking down on employers of illegal immigrants: http://on.wsj.com/fWo4vG

NASA is proving impervious to cuts, report Manu Raju and John Bresnahan: “For all the rhetoric about cutting government spending, NASA’s space mission remains sacred in Congress. A handful of powerful lawmakers are so eager to see an American on the moon -- or even Mars -- that they effectively mandated NASA to spend ‘not less than’ $3 billion for a new rocket project and space capsule in the 2011 budget bill signed by the president last week...Congressional approval of the plan -- all while $38 billion is being cut elsewhere in the federal government -- reflects not only the power of key lawmakers from NASA-friendly states, but the enduring influence of major contractors like Lockheed Martin and Boeing in those states.”

Unions are counting on the Senate to block a House ploy to hamper airline worker organizing: http://bit.ly/dIbHvs

The White House is considering forcing contractors to reveal political donations, report Perry Bacon and T.W. Farnam: “President Obama is considering an executive order that would force government contractors to disclose their donations to groups that participate in political activities, a move Republicans slammed Wednesday as an attempt to restrict political speech...The provision is similar to one in a bill that Democrats pushed before the midterm elections called the Disclose Act. That legislation was part of a broader effort by Democrats and the White House to limit the influence of interest groups, which played an expanded role in last year’s midterm elections...A string of Supreme Court decisions has freed corporations, labor unions and other interest groups to participate in elections as long as they operate independently of candidates.”

It’s important to have hobbies interlude: A prom dress made out of thousands of Starburst wrappers.


The green movement might have done everything right and still lost the cap and trade fight, writes Brad Plumer: “On Tuesday, Matthew Nisbet, a communications professor at American University, released a hefty 84-page report trying to figure out why climate activism flopped so miserably in the past few years. Nisbet’s report is already causing controversy: Among other things, he argues that, contrary to popular belief, greens weren’t badly outspent by industry groups and that media coverage of climate science wasn’t really a problem...Reading through it, I started to wonder if there was another option worth considering. Maybe none of the theories about what went wrong are correct. It’s quite possible that climate activists basically did a competent job: After all, they did get a big, complicated bill to the 20-yard-line in a legislative body that rarely passes big, complicated bills--and they just got unlucky.”

China has not made much progress on green energy, writes Bjorn Lomborg: “China indeed invests more than any other nation in environmentally friendly energy production: $34 billion in 2009, or twice as much as the United States. Almost all of its investment, however, is spent producing green energy for Western nations that pay heavy subsidies for consumers to use solar panels and wind turbines. China was responsible for half of the world’s production of solar panels in 2010, but only 1 percent was installed there. Just as China produces everything from trinkets to supertankers, it is exporting green technology -- which makes it a giant of manufacturing, not of environmental friendliness. In wind power, China both produces and consumes. In 2009, it put up about a third of the world’s new wind turbines. But much of this has been for show.”

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