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Wonkbook: The all-important baseline

By Ezra Klein,

The most important decision the "supercommittee" will make may also be one that no one will notice: which baseline will it use?

J. Scott Applewhite


Congressional Budget Office Director Douglas Elmendorf arrives on Capitol Hill to testify on the national debt.

As Jennifer Haberkorn reports in today's Politico, there are a few obvious options on the table. They could use the standard baseline developed by the Congressional Budget Office. But that baseline simply extends current law -- which means it assumes the expiration of all the Bush tax cuts and huge cuts in payments to doctors participating in the Medicare program. That baseline shows that we don't have much of a deficit problem if Congress unless Congress affirmatively creates one for us. If they do nothing, taxes rise by $4 trillion and Medicare's payments to doctors drop by 30 percent, and there is little left for supercommittee to do. But supercommittee members Max Baucus and Rob Portman have both called this "unrealistic."

Another option is to use the CBO's alternative baseline, which assumes doctor's payments are protected and most of the Bush tax cuts are extended. That's a likelier scenario. A third option is to create some sort of ad hoc baseline that the supercommittee prefers, much as the Fiscal Commission did.

The option they choose will decide which policies the CBO scores as saving money. If the baseline says all the Bush tax cuts expire, and the supercommittee decides to attempt tax reform that raises $1.2 trillion, then the CBO will score that policy as increasing the deficit, as simply following the baseline would have raised vastly more revenue.

Originally, this was actually part of the GOP's plan. Recall that in the presentation John Boehner made to his members to sell the deal, he said the bargain “requires baseline to be current law, effectively making it impossible for Joint Committee to increase taxes.” For reasons that I and others pointed out at the time, even a current-law baseline wouldn't make it impossible to raise taxes, as the CBO would still score closing loopholes, cutting expenditures, or adding things like a carbon or consumption tax.

But the bigger problem with Boehner's comments was that the deal never said anything specific about which baseline the law was required to use. Boehner was assuming the supercommittee would use current law, but there was nothing forcing them to do so. The baseline is really up to them. And the one they choose will tell us a lot about the sort of deal they intend to strike.

All that said, it's always worth pointing out that the baseline does not in fact impose objective constraints on Congress. It just decides how the CBO will score the plan. But the CBO can be, and routinely is, ignored. The power here lies with Congress. Congress can reject anything the joint committee comes up with no matter what the CBO says about it. It can set entirely different rules for the spending trigger. It can vote to raise marginal tax rates, score that against some baseline the Budget Committee made up, and say it's reducing the deficit. It’s Congress. But both sides would like to set the rules governing the CBO's score in such a way that their ideas look good and the other party's ideas look bad. Thus these baseline arguments.

Top Stories

1) The White House is betting that Boehner will back the jobs bill, report Carrie Budoff Brown, Jake Sherman, and Glenn Thrush: "President Barack Obama needs House Speaker John Boehner’s help to muscle a jobs bill through Congress, but he’s betting that Boehner needs the win just as badly. The White House strategy rests on the risky assumption that Obama can sell Boehner on a new political reality: With voters desperate for jobs, neither leader can afford to do nothing...The political calculation is dicey -- and the GOP calls it flawed, for several reasons. The Republican Conference has shown itself to be ideologically opposed to much of what Obama thinks would create jobs, and some are reluctant to do anything to help him in 2012. It also overlooks a simple Hill dynamic: By sending over a bill financed by what Republicans call tax hikes and urging them to pass it, the president is damaging his own cause."

Mitch McConnell is not a fan of the bill:

2) The supercommittee's first task is to pick the baseline it's using, reports Jennifer Haberkorn: "One of the most technical decisions the deficit supercommittee has to make is also one with huge consequences: Whose deficit calculations should it use?...It can use the standard baseline set up by the Congressional Budget Office, which says the nation faces $3.5 trillion in deficits over the next decade. But this baseline assumes that Congress will allow doctors’ Medicare payments to get sliced by 30 percent next year and that former President George W. Bush’s tax cuts will expire in 2012 -- neither of which is likely to happen. The committee can choose to use a more realistic scenario -- one that assumes the doctors won’t get cuts and that most of the tax cuts will get renewed. But while CBO’s alternative fiscal scenario is more realistic, it comes with a more daunting deficit figure: $8.5 trillion over 10 years."

3) The CBO warned the supercommittee against premature austerity, and in fact came quite close to calling for more stimulus, reports Brian Beutler: "The Congressional Budget Office would be stepping out of bounds if it endorsed specific legislation or even hazy policy objectives. But it's hard to read CBO chief Doug Elmendorf's testimony to the joint deficit Super Committee Tuesday as anything other than a de facto endorsement of President Obama's broad strategy to boost the economy: legislation that spends money to hire people and reduces payroll taxes in the near-term, and that reduces deficits by even greater amounts in the middle and end of the decade. 'If policymakers want to achieve both a short-term economic boost and long-term fiscal sustainability the combination of policies that would be most effective according to our analysis would be changes in taxes and spending that would widen the deficit today, but narrow it in the coming decade,' Elmendorf told the panel's 12 Democrats and Republicans."

4) Elizabeth Warren is running for Senate, report Rosalind Helderman and Rachel Weiner: "Elizabeth Warren, a Harvard professor and former Obama administration official who became a hero to liberals with her sharp critique of the nation’s financial institutions, will announce Wednesday that she is challenging Sen. Scott Brown of Massachusetts for his seat in 2012. Warren, 62, had been widely expected to run and had been conducting a campaign-style listening tour. She will formally announce her intentions with an online video statement as she travels the state...Her candidacy will set up one of the nation’s most high-profile Senate races. Democrats, who are trying to hold control of the Senate, hunger for a win in one of the nation’s most liberal states, particularly if it would mean snatching back the seat once held by the late Edward M. Kennedy...But, with an eye toward winning a full six-year term in 2012, [Brown] has pursued a shrewd, moderate course in the Senate and has remained popular in the state."

5) Democrats lost the New York special election for Anthony Weiner's seat, reports Paul Kane: "With his outcome of his own reelection effort 14 difficult months away, President Obama suffered a sharp rebuke at the polls Tuesday, when voters in New York elected a conservative Republican to represent a Democratic congressional district that has not been in Republican hands since the 1920s. Bob Turner, the winner, cast the election as a referendum on Obama’s stewardship of the economy and, in the state’s 9th Congressional District, which has a large population of Orthodox Jewish voters, the president’s position on Israel. Turner, 70, a retired cable television executive who has never served in elective office, defeated Democratic State Assemblyman David Weprin, 55, who has two decades of public service experience, to fill the seat left vacant when Anthony Weiner (D) resigned in disgrace in June after more than 12 years in the House."

6) The House voted to extend highway and FAA funding, reports Ashley Halsey: "Less than two months after a funding extension dispute caused a partial shutdown of the Federal Aviation Administration, the House approved a bill Tuesday that would extend the agency’s funding for the 22nd time. The bill was unburdened by the provisions that caused the earlier stalemate. In passing a 'clean' extension bill, the House ensured that Senate Democrats whose ire was raised last month would act to approve a four-month extension that will keep FAA funding at the level where it has been since 2007, when the last long-term funding bill expired. The House bill also includes a six-month extension of funding for highway and transit programs...But the committee’s chairman, John L. Mica (R-Fla.), stressed the importance of agreeing to long-term funding plans."

Live interlude: EMA plays "Marked."

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Still to come: The supercommittee has to decide on a budget baseline; the health insurance numbers are looking good; the poverty numbers aren't; the administration's efforts to promote solar power are under scrutiny; and a baby gorilla and chimpanzee take a bath together.


Senate Republicans are filibustering disaster aid, reports Scott Wong: "Senate Republicans on Monday night rejected Democrats’ effort to move forward on a $7 billion disaster aid package to help areas of the country that have been hard hit by recent tornadoes, hurricanes and flooding. On a 53-33 vote, the Senate failed to advance legislation proposed by Majority Leader Harry Reid (D-Nev.) that would replenish the Federal Emergency Management Agency’s disaster relief fund, which is nearly dry. Sixty votes were needed. Democrats were joined by six Republicans - Sens. Roy Blunt of Missouri; Scott Brown of Massachusetts; Dan Coats of Indiana; Dean Heller of Nevada; and Susan Collins and Olympia Snowe, both of Maine - in backing the bill. Separately, the Republican-controlled House next week plans to attach disaster aid to legislation needed to avert a partial government shutdown by Oct. 1."

European leaders are working to calm fears of Greek default, report Howard Schneider and Anthony Faiola: "European leaders closed ranks on Tuesday to insist that Greece will not default on its bonds, trying to quell speculation that divisions within the euro area are becoming irreparable. Speaking in Washington, Christine Lagarde, the International Monetary Fund’s managing director, said she was 'very, very hopeful' that Greece can stick to the plan laid out under a bailout agreement with the IMF and other European countries. The IMF this month broke off talks with Greece over budget cuts and other measures required for the IMF to release the next installment of loans to the country. Lagarde said an IMF team had returned to the country to resume work with Greek officials. Without loans from the IMF and other European countries, Greece would not be able to make payments on its bonds."

The anti-bank flank in mortgage talks is growing, reports Brady Dennis: "Minnesota Attorney General Lori Swanson has joined a vocal group of peers urging state and federal officials to resist giving banks broad legal liability as they negotiate a multi-billion dollar settlement over shoddy foreclosure practices 'The banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement,' Swanson wrote in a letter sent to counterparts in numerous states, including Iowa Attorney General Tom Miller, who is leading the talks along with Thomas Perrelli, a top Justice Department official. Specifically, Swanson echoed calls from other attorneys general, particularly those in New York and Delaware, who have insisted that any settlement over flawed foreclosure paperwork not release banks from separate claims over how they bundled and sold mortgages to investors."

Banks have to put together living wills by next year, reports Victoria McGrane: "The largest U.S. banks have until next summer to provide financial regulators with a road map for liquidating the companies if they fail, the Federal Deposit Insurance Corp. said Tuesday. These so-called 'living wills' were mandated by the Dodd-Frank financial law to help regulators better understand, before a crisis occurs, the structure of complex financial firms whose failures could wreak havoc on the financial system, and to make it easier to wind them down in a crisis. During the 2008 crisis, regulators struggled to understand the sprawling operations of teetering financial giants such as American International Group Inc. and Lehman Brothers Holdings Inc. It has taken Lehman years to develop a liquidation plan following its 2008 bankruptcy, and it will take still more years for its dismantling to be complete."

We can boost revenues without raising taxes, writes Bruce Bartlett: "The first thing one needs to know is that not all federal revenues count as revenues. Some are classified as 'offsetting receipts' or 'offsetting collections.' Such revenues are classified as negative spending rather than as revenues. The classification has no effect on the deficit but does make both federal spending and revenues about $600 billion lower than they actually are. Details on offsetting receipts can be found in Chapter 16 of the analytical perspectives volume of the federal budget. As it explains, such receipts consist of user fees and other voluntary payments made to the government in exchange for services of various kinds. There are a wide variety of such receipts, but I want to focus on the one that is probably most familiar to people - premiums paid by beneficiaries for Medicare Part B, which amount to $65 billion this year."

Vintage adorable animal interlude: A baby gorilla and a chimpanzee take a bath in 1967.

Health Care

The ranks of the uninsured have stopped growing, reports Jordan Rau: "Nearly 50 million Americans lacking health insurance was the best economic news to come out of the bleak U.S. Census figures released today. While poverty increased, household earnings dropped and more families doubled up in living quarters, the nation’s rate of people without health insurance in 2010 stayed flat at 16.3 percent of the population, statistically the same as the year before. The government said 49.9 million people lacked coverage in 2010, up from 49.0 million in 2009. The number of people with health insurance grew to 256.2 million in 2010 from 255.3 in 2009. Census officials noted that 2010 was the first year after the recession officially ended. Yet the nation's job status remained difficult, leading to the flatlined health insurance rate."

A district court judge ruled against the individual mandate, reports Emily Schultheis: "A federal judge in Pennsylvania ruled today that the individual mandate in President Barack Obama's health care reform law is unconstitutional. 'The power to regulate interstate commerce does not subsume the power to dictate a lifetime financial commitment to health insurance coverage,' he wrote in the ruling. The suit, filed by a couple in York, Pa., is one of more than 30 lawsuits that have been filed since the law was passed in 2010. Just last week, a judge in Virginia ruled that the state's attorney general did not have the authority to challenge the law. This continues the nearly perfect streak of judges ruling on partisan lines -- Christopher Conner, the judge in the Pennsylvania case, was appointed to the bench by President George W. Bush."

We need better drug safety laws, writes Sen. Michael Bennet: "It’s been more than 70 years since the laws governing the nation’s pharmaceutical industry were updated. The year was 1938. Franklin D. Roosevelt was president; gas cost 10 cents a gallon, and the average price for a new home was $3,900. A lot has changed. Unfortunately, the country’s drug safety laws haven’t. Many regulations are woefully, and dangerously, outmoded, in the face of an increasingly globalized and opaque supply chain that is vulnerable to theft and criminal activity. So buyer beware. The blood thinner heparin, for example, used in your local hospital, may originate from pig intestines stored on the floor of a grimy factory in a remote region of China. Diabetes patients may be oblivious to the fact that their insulin -- which requires refrigeration -- may have been stolen by a street gang, left out in the heat, then sold back into the market."

Domestic Policy

The poverty rate is surging, reports Michael Fletcher: "Nearly one in six Americans was living in poverty last year, the Census Bureau reported Tuesday, a development that is ensnaring growing numbers of children and offering vivid proof of the recession’s devastating impact. The report portrays a nation where many people are slipping backward in the wake of a downturn that left 14 million people out of work and pushed unemployment rates to levels not seen in decades. As poverty surged last year to its highest level since 1993, median household income declined, leaving the typical American household earning less in inflation-adjusted dollars than it did in 1997. Ominously, several analysts said, unemployment is projected to remain unusually high for the foreseeable future, meaning that the nation is probably in for an extended period of rising poverty and declining income."

The House backed a bill boosting charter schools, reports Sam Dillon: "In a rare display of bipartisanship, the House approved a bill on Tuesday supporting the expansion of charter schools, the first part of a legislative package planned by Republicans to carry out a piecemeal rewrite of the main federal law on public education, No Child Left Behind. The bill, passed Tuesday by a vote of 365 to 54, tweaks an existing federal grant program that provides start-up money for new charter schools -- currently about $250 million-- and adds some quality control provisions. It had the support of charter operators as well as civil rights and school improvement groups. If passed by the Senate, it would replace the charter school provisions of No Child Left Behind, the sprawling school accountability law that President George W. Bush signed in 2002."

A Senate panel voted to freeze defense spending, reports Walter Pincus: "The Senate Appropriations defense subcommittee voted Tuesday to freeze basic Pentagon spending next year to the 2011 level of $513 billion, cutting about $26 billion from President Obama’s original request for fiscal 2012. With an additional $117.8 billion to fund the wars in Afghanistan and Iraq, the panel voted on a total of $630.8 billion -- $18 billion below the amount the House passed in July. The panel’s action must be approved by the full Appropriations Committee, which will take up the measure Thursday, and then by the Senate. But the move is in line with $350 billion in decreased military spending over the next 10 years that was called for by the federal debt-limit agreement in August."

Galveston, Tx.'s pension system provides an alternative to Social Security, reports Sandhya Somashekhar: "In the late 1970s, county employees in Galveston, Tex., made an unusual and risky decision that they thought would help secure their financial future. They took advantage of a federal provision available at the time and opted out of Social Security. Their decision was born out of a fear that the federal entitlement program...might not be around in the future. After careful study, the county employees chose an alternative that allowed them to open personal savings accounts. Today, Galveston has become a poster child for critics of the Social Security system who say the decision is proof that there is a better way. Among those critics are at least two Republicans in the 2012 presidential race, which in recent days has centered on whether it is better to fix or to replace Social Security."

Juggling interlude: Selyna Bogino juggles five balls at once.


The administration pushed through a loan for a solar company now being investigated, report Joe Stephens and Carol Leonnig: "The Obama White House tried to rush federal reviewers for a decision on a nearly half-billion-dollar loan to the solar-panel manufacturer Solyndra so Vice President Biden could announce the approval at a September 2009 groundbreaking for the company’s factory, newly obtained e-mails show. The Silicon Valley company, a centerpiece in President Obama’s initiative to develop clean energy technologies, had been tentatively approved for the loan by the Energy Department but was awaiting a final financial review by the Office of Management and Budget. The August 2009 e-mails, released to The Washington Post, show White House officials repeatedly asking OMB reviewers when they would be able to decide on the federal loan and noting a looming press event at which they planned to announce the deal."

The Interior Department is proposing new offshore drilling rules, reports Darren Goode: "The Department of the Interior on Tuesday proposed a new set of workplace safety guidelines for the offshore oil and gas industry on the eve of expected major Obama administration findings regarding its investigation into last year’s Gulf of Mexico oil spill. The new proposed guidelines go about tackling some of the biggest issues raised in multiple probes into the April 10 explosion of the Deepwater Horizon rig that killed 11 workers and led to the biggest offshore oil spill in U.S. history. It includes a requirement for third parties to independently conduct safety audits and procedures to authorize any and all employees on an offshore facility authority to stop work when witnessing any activity that poses a threat."

The House is moving against EPA rules, reports Ryan Tracy: "A House panel Tuesday voted to delay two sets of Environmental Protection Agency air-pollution rules by 15 months. The House Energy and Power Subcommittee advanced a pair of bills that the Republican-controlled House is expected to take up later this fall. It's not certain that they could pass the Senate, but the bills approved Tuesday demonstrated support in both parties to stop EPA rules affecting cement plants and industrial and commercial boilers. The vote came less than two weeks after President Barack Obama delayed a separate rule on smog, displaying at least some willingness to reconsider environmental regulations during the economic downturn. Republicans have promised to continue their efforts to stop other parts of the EPA's agenda, and the initiatives approved Tuesday could resurface during coming negotiations to cut the federal deficit and set federal spending levels for 2012."

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

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