There are two interpretations of the Republican offer to extend the payroll tax cut without any offsets or preconditions. Interpretation the first: Huge cave by the GOP! Interpretation the second: Look out, Democrats! It's a trap!

House Speaker John Boehner (R-Ohio) announces an agreement on the extension of the payroll tax holiday during a news conference at the U.S. Capitol in Washington on Dec. 22, 2011. (JONATHAN ERNST/REUTERS)

Interpretation the second is a little more complex. The "payroll tax cut negotiations" actually include three items: The payroll tax cut, unemployment benefits, and the perennial patch to Medicare's physician payments. Republicans haven't ended the negotiations. Rather, what they've said is that if Democrats can't come to an agreement with them on how to pay for all three, they'll simply move the payroll tax cut and leave the other two to languish. For Democrats, that would be an awful outcome. Extending unemployment insurance is crucial to the economy, not to mention crucial to millions of unemployed workers. And the Medicare fix is a must-pass, too. What Republicans have done is take away Democrats' public leverage by preemptively agreeing to the payroll tax, but at the same time, they have privately taken UI and the Medicare fix hostage.

TPM's Brian Beutler reports that Senate Democrats aren't concerned. If push comes to shove, they'll just amend the payroll tax cut with the unemployment benefits and the Medicare patch complete with pay-fors on those items that the two sides agree on. If Republicans want to block a tax cut for all Americans because they're offended by the idea of helping the unemployed and keeping grandma's doctor from taking a 30 percent pay cut and fleeing the Medicare program, let them.

Whether Republicans would find that as intimidating a prospect as Democrats hope is anyone's guess. I asked staff from both Boehner and Cantor's office whether Republicans would pass UI benefits and a Medicare patch if Democrats didn't come to a deal with them on the payroll tax cut, but the response was a little delphic. "Unless there's a deal, we'll move forward to ensure no worker faces a tax hike," e-mailed Brad Dayspring, communications director for Eric Cantor. Make of that what you will.

Update: Some evidence for the “it’s a cave” thesis.

Top stories

1) Obama rolled out his 2013 budget proposal, reports Lori Montgomery: "President Obama rolled out an election-year budget on Monday that would delay action to reduce the national debt in favor of fresh spending on Democratic priorities aimed at rebuilding the American middle class. In his final budget request before facing voters in November, Obama called for $350 billion in new stimulus to maintain lower payroll taxes, bolster domestic manufacturing, lure jobs back from overseas, hire teachers, retrain workers and fix the nation’s crumbling infrastructure. There would be only modest trims to federal health-care programs and no changes to Social Security, the biggest drivers of future borrowing, despite last year’s raucous political debate over the federal debt. Instead, Obama would reduce deficits by raising taxes by nearly $2 trillion over the next decade on corporations and the wealthy, in part by letting expire George W. Bush-era tax cuts on household income over $250,000 a year."

READ OBAMA'S BUDGET: The full 256 page document.

INTERACTIVE: Explore every nook and cranny of President Obama's federal budget proposal..

GRAPH: The federal government is an insurance company with a large, standing military.

@EdwardGLuce: I would describe Obama's budget as severely hypothetical.

2) BEHIND THE NUMBERS -- The budget relies on a very cautious, probably overly cautious, economic forecast, reports Kristina Peterson: "The White House based its budget for fiscal-year 2013 on a cautious economic forecast that predicts gradual growth still threatened by European instability. The economic assumptions underpinning President Barack Obama's budget, released Monday, show a subdued recovery that is 'projected to gain momentum in 2012-2103 and to strengthen further in 2014.' Because the administration's projections were completed in mid-November, however, the outlook doesn't reflect the stronger economic data that have since been released, including labor-market strengthening. The unemployment rate fell to 8.3% in January, down from 8.7% in November 2011. Still, the White House predicted the economy would bounce back from the recession over time, including a gradual housing-market recovery. The administration expects real gross domestic product to grow at an annual rate of 3% in 2012-2013, measured from the fourth quarter, and strengthen to 4% annual growth in 2014 as the job market recovers."

@greg_ip: Obama thinks Fed won't stick to rate pledge: his budget sees short rates at 1.4% end of 2014.

@jimtankersley: Buried in Obama budget: "When unemployment is as high as it is today, budget deficits are essential 2 support demand in the private economy"

Suzy Khimm has the five things you missed in Obama’s budget.

3) Republican leaders agreed to a payroll tax cut extension without offsets, reports Paul Kane: "House Republican leaders said Monday that they will support extending the federal payroll tax holiday through the end of the year without demanding spending cuts to pay for it, a concession aimed at averting another po­litically damaging showdown in Washington. The House leadership could offer a pared-down measure to extend the tax cuts later this week. But the top three GOP leaders backed off previous demands that the tax break’s extension be accompanied by spending reductions to shore up the finances of the Social Security program, which is funded through withholding taxes...But with the payroll pay-fors off the table, the two sides are now haggling over ways to pay for the remaining $50 billion needed to cover the extension of unemployment benefits and the Medicare reimbursements for doctors."

@morningmoneyben: Wait, did Republicans finally remember they don't care about "paying for" tax cuts? How did it take this long? Insanity

@jbarro: This is, I think, a trap for Democrats, because it separates the payroll tax holiday and the UI extension

4) Obstacles remain for a Greek bailout, reports Matthew Dalton: "European Union negotiators have yet to settle key elements of a complex bailout and debt-restructuring package for Greece--including how euro-zone governments will contribute to a desired cut in the country's debt burden--ahead of a pivotal meeting this week. The Greek Parliament's backing for a deeply unpopular package of spending, wage and pension cuts, which sent European stocks and the euro higher on Monday, has shifted the focus of negotiations back to Brussels, ahead of a meeting of finance ministers due to start here Wednesday afternoon. Central to the negotiations is resolving the thorny issue of how Greece's official creditors in Europe--other euro-zone governments and the European Central Bank--should participate in the debt restructuring. Euro-zone leaders are expected to make the final decision on the new bailout at their summit in March."

5) FILE UNDER THINGS THAT KEEP DAVID PLOUFFE UP AT NIGHT -- Congress may face the debt ceiling right before the election, report Zach Carter and Ryan Grim: "Last year's torturous congressional debate over raising the federal debt ceiling eventually resulted in a deal that President Barack Obama and congressional leaders believed would keep the federal government funded through the 2012 elections. Not so fast. In what one top congressional aide calls a 'nightmare scenario,' the federal government could wind up hitting the debt ceiling at the height of the presidential campaign. The Treasury Department is now contemplating the prospect of invoking 'extraordinary measures' to keep the government funded through November. Barring a major economic shock -- a financial meltdown in Europe, for instance -- the emergency measures should be enough to get the federal government past the election. But even under a rosy scenario, the next Congress will be forced to raise the debt ceiling as one of its first orders of business in 2013, if the lame duck outgoing body doesn't do it."

Top op-eds

1) Obama's budget, and Romney's budget promises, offer the best way to evaluate the two candidates, writes Ezra Klein: "Obama’s plan would raise revenue to 19.2 percent of GDP. Most of that would come from people making more than $250,000 a year. In September, the nonpartisan Tax Policy Center ran the numbers on his proposal -- unchanged in the budget -- and estimated that taxpayers in the bottom 20 percent would pay an average federal tax rate of 1.8 percent, those in the middle 20 percent would pay 15.2 percent, and the top 1 percent would pay 36.3 percent. Romney’s plan cuts taxes to about 17 percent of GDP. Most of those cuts would accrue to upper-income Americans. According to the Tax Policy Center, under Romney’s plan, taxpayers in the bottom 20 percent would pay a rate of 3.4 percent, those in the middle 20 percent would pay a rate of 15.6 percent, and the top 1 percent would pay 25.9 percent. So low- and middle-income families would pay a bit more under Romney’s tax plan, and high-income families would pay a lot less."

2) The budget is grim news for the working class, writes Jeffrey Sachs: "Consider the bottom line of the Obama budget. The policy is to cut total primary (non-interest) federal spending from about 22.6 to 19.3 per cent of gross domestic product from 2011 to 2020, while revenues would rise from recession lows of about 15.4 per cent of GDP in 2011 to some 19.7 by 2020. Compare that with Republican congressman Paul Ryan’s budget a year ago. Mr Ryan’s budget aimed for about 17 per cent of GDP in primary outlays by 2020, with revenues at about 18 per cent of GDP. The difference is modest, but the important fact is this. Both sides are committed to significant cuts in government programmes relative to GDP...Even as Democrats today praise Mr Obama and Republicans castigate him for his headline proposals to tax the rich, the budget is actually more grim news for America’s poor and working class. The poorer half of the population does not interest the Washington status quo."

3) Greece must leave the euro-zone, writes John Kallianiotis: "The deal signed by Greece Monday is a disastrous anti-growth plan. The Parliament would be wise to vote against it. If we allow the 'Troika' -- the European Commission, the International Monetary Fund and the European Central Bank -- to impose this plan on Greece, we will soon learn that a country cannot grow with high taxes and draconian reductions in salaries. We need exactly the opposite public policies to restore the Greek economy. Back in 1974, I was studying economics. I watched as politicians essentially flung my country into the EU in 1981 and the common currency waters in 2001 and told the Greek people they must learn to swim. We still haven’t learned. That’s why things will likely get worse under today’s effort to avoid default. Unless Greece leaves the euro-zone, refuses the loan and stops its debt payments, it will be impossible for the country to recover."

4) Restrictions on proprietary trading are nothing to worry about, writes Paul Volcker: "I confess total surprise about the complaints by some European and other foreign officials about the restrictions on proprietary trading by American banks embedded in the Dodd-Frank Act - now dubbed the 'Volcker' Rule...For reasons analogous to those behind the Volcker Rule, the UK is planning to 'ring fence' trading and investment banking from retail banking, creating airtight subsidiaries of larger organisations. The commercial banks responsible for what are deemed essential services to the economy will be insulated from all trading and only then will they be protected by the official safety net of access to the central bank, deposit insurance and possible assistance in emergencies. That approach, as a matter of regulatory philosophy and policy, resembles the seemingly less draconian US restrictions on proprietary trading."

5) Spending won't solve our infrastructure problems, writes Edward Glaeser: "Politicians understand the magical promise of bold new projects, like superfast trains across California or missions to space, but that promise can be false. Spain’s current fiscal woes owe much to its overly ambitious high-speed rail investments. Similar rail projects in China have produced more allegations of corruption and safety problems than economic transformation. Infrastructure investment only makes sense when there is a clear problem that needs solving and when benefits exceed costs. U.S. transportation does have problems -- traffic delays in airports and on city streets, decaying older structures, excessive dependence on imported oil -- but none of these challenges requires the heroics of a 21st century Erie Canal. Instead, they need smart, incremental changes that will demonstrate more wisdom than brute strength."

Acoustic interlude: The Moldy Peaches play "Anyone Else But You" live on Spinner.

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Still to come: The 'Volcker Rule' is getting a final round of pushback; high-risk pools are short on enrollees; an airfare rule is drawing controversy; a multi-billion loan for nuclear reactors is close to the finish line; and economists express love in many ways.


@EdwardGLuce: "The last thing we need is for Congress to get in the way of America's comeback". No, they wouldn't would they?

The price tag for the Wall Street bailout is going up, report Jia Lynn Yang and Zachary Goldfarb: "The Obama administration has repeatedly boasted how the historic rescue of Wall Street will cost taxpayers far less than originally expected. But the budget proposal released Monday came with some unwelcome news: The price tag of the bailout is suddenly going up. As a result, the administration said it will seek twice as much money from its proposed bank tax compared with last year, $61 billion vs. $30 billion. A main reason for the increased bailout cost is that the government’s stock holdings of companies rescued by taxpayers have fallen in value. Insurance giant American International Group’s stock has fallen 36 percent in the past year while General Motors’s has tumbled 30 percent. In 2011, the administration put the cost of the government’s financial rescue at $28 billion. Now, it’s expected to reach $54 billion."

Opponents of the 'Volcker Rule' are making one last push, report Scott Patterson, Serena Ng and Victoria McGrane: "Foreign governments and financial-industry giants lined up Monday to throw one last roundhouse punch at a proposed rule that aims to limit risk-taking by U.S. banks. Dozens of international banks, foreign officials, insurance companies, law firms and money managers petitioned U.S. regulators ahead of a midnight-Monday deadline to delay or water down the pending restrictions on banks' trading activities. The rule, which is to go into effect in July, is called the Volcker rule after a leading proponent, former Federal Reserve Chairman Paul Volcker...But the campaign to delay implementation is likely ultimately to fail at the hands of determined regulators and powerful political backers, experts said. In a two-part letter filed with regulators, Mr. Volcker dismissed many of the financial industry's complaints as 'futile stonewalling.' One of the country's biggest pension funds also applauded the rule."

The CFPB outlined its plans to regulate mortgage servicers, reports Ylan Mui: "The government’s new consumer watchdog on Monday outlined the first steps of its plans to regulate mortgage servicers, which have come under fire for fraudulent foreclosure practices. The Consumer Financial Protection Bureau will revamp the billing statements sent to homeowners and the disclosures required for some complicated mortgages. It also is drafting new rules to prevent servicers from improperly charging consumers for homeowner’s insurance. The massive financial reform legislation passed in 2010 that established the CFPB also required it to take steps to retool the mortgage servicing industry. The plans outlined Monday will apply not only to servicers operated by banks but also to those run by other financial institutions that were previously not subject to federal supervision."

The FHA may need a bailout, reports Shahien Nasiripour: "The White House has forecast a $688m bail-out of a federal housing agency dedicated to helping first-time homeowners and borrowers with poor credit. A taxpayer-funded bail-out of the Federal Housing Administration would be a first and comes as increasing defaults on its nearly $1.1tn book of home loans exhaust its dwindling reserves.But Shaun Donovan, US housing secretary, said that the White House’s forecast was outdated. He pointed to a settlement reached last week with five leading US banks to resolve fraud allegations that secured at least $900m for the housing agency, obviating the need for any sort of bail-out. The agency also will announce in the coming week that it is increasing fees, Mr Donovan said, further reducing the need for a taxpayer infusion of cash."

Webcomic interlude: xkcd on Valentine's Day.

Health Care

Health reform's high-risk insurance pools are short on enrollees, reports Jason Millman: "When the health care law passed nearly two years ago, the conventional wisdom was that the temporary insurance pools meant to carry the high-risk uninsured until the coverage expansion kicked in would tear through their $5 billion budget in no time. That didn’t happen. The next conventional wisdom was that the pools were ridiculously undersubscribed -- although the theories as to why that was the case varied based on whom you asked. Now the conventional wisdom is -- there is no conventional wisdom. Some states are tearing through their money, having attracted a small but very, very sick pool of people. And others are not. And the varying experiences of the states have taught officials some lessons about care-seeking patterns of the chronically uninsured that may help smooth things out when state exchanges open in 2014. At that point, the high-risk pools will close down because people will have other ways of getting health coverage."

WHAT THEY'RE READING IN THE EAST WING -- The Let's Move initiative is working, writes Ezekiel Emanuel: "Although most Americans already saw obesity as a major problem, a majority opposed increasing federal spending to combat it. This attitude has begun to change. By 2011, a Pew survey found that most Americans believe the government should play a significant role in reducing obesity among children. Today, 80 percent of Americans acknowledge that childhood obesity is a serious problem. Mrs. Obama’s campaign has also led to improvements in the access to and content of school meals — which are where many children get the bulk of their calories and nutrition. In late 2010, the lame-duck Congress passed the Healthy, Hunger-Free Kids Act which, for the first time in 30 years, increased funding for school breakfasts and lunches above the inflation rate. The act also gives the Agriculture Department authority to set health standards for all foods sold on school property — including those in vending machines. Best of all, it reduced government paperwork to establish eligibility for free or reduced-price school meals, ensuring that tens of thousands more children will get healthy food they need."

Domestic Policy

Obama rolled out a plan to boost job training, reports Tamar Lewin: "As part of his budget, President Obama on Monday proposed an $8 billion Community College to Career Fund, with the goal of training two million workers for well-paying jobs in high-demand industries. The fund, which would need Congressional approval, would be administered jointly by the Departments of Labor and of Education. The money would be used to bolster partnerships between community colleges and businesses to train workers in areas like health care, transportation and advanced manufacturing...The new fund, announced at an event at Northern Virginia Community College in Annandale, Va., would support community college-based training programs that would expand training to meet the needs of employers in high-growth sectors, provide workers with the latest certified training and skills, and invest in registered apprenticeships and other on-the-job training opportunities."

Washington State legalized gay marriage, reports Nicole Neroulias: "Washington state became the seventh in the nation to put a law on its books recognizing same-sex marriage on Monday, as opponents of the measure signed by Governor Christine Gregoire vowed to try to prevent it from ever taking effect. The measure, which won final approval from state lawmakers last Wednesday, remains essentially on hold until at least early June, following a standard enactment period that runs until 90 days after Washington's legislative session ends...The bill-signing marked another key victory for gay rights advocates after a federal appeals court declared a voter-approved gay marriage ban in California unconstitutional last week, and the New Jersey state Senate approved a same-sex marriage bill earlier on Monday."

A new airfare transparency rule is drawing controversy, report Burgess Everett and Adam Snider: "Which airfare is more transparent: one that combines the base fare and taxes or one that discloses the taxes separately? That question is central to a battle that has divided the airline industry, lawmakers and the Department of Transportation. A rule requiring airlines to include all taxes and fees in price quotes went into effect last month, and things have gotten bumpy in flight...The airline industry often argues it is taxed at inordinately high rates, and other facets of the travel industry are not yet subject to including taxes and fees in quotes provided to consumers. According to industry group Airlines for America, the tax burden on a $300 round-trip ticket has risen from $22 to $61 since 1972. That includes a 7.5 percent federal excise tax, a flight segment tax, a Sept. 11 security fee and passenger facility charges."

Nerd love interlude: 14 ways an economist says I love you.


The Energy Department is close to approving a multi-billion loan for new nuclear reactors, reports Andrew Restuccia: "Energy Secretary Steven Chu said Monday he expects to finalize an $8.3 billion taxpayer-backed loan for two new nuclear reactors in Georgia, setting up another battle on Capitol Hill over the government’s investments in energy projects. The Energy Department offered the loan guarantee to Southern Co. in February 2010, but finalization of the deal was conditioned on a number of key regulatory approvals. Chu signaled Monday that the loan guarantee is nearing final approval, less than a week after the Nuclear Regulatory Commission (NRC) greenlighted the license for the project...NRC’s decision last week to approve the license for the project -- allowing construction and conditional operation of two reactors at the existing Vogtle power plant near Waynesboro, Ga. -- marked a major milestone for the nuclear industry. It’s the first time the commission has approved construction of new reactors since 1978."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.