Cantor, who has been participating in bipartisan budget talks headed by Vice President Joe Biden, pulled out June 23 citing an impasse over taxes that required intervention by President Barack Obama and House Speaker John Boehner. (J. Scott Applewhite/AP)

Specifically, the Obama administration was looking at a rule that lets businesses value their inventory at less than they bought it for in order to lower their tax burden, a loophole that lets hedge-fund managers count their income as capital gains and pay a 15 percent marginal tax rate, the tax treatment of private jets, oil and gas subsidies, and a limit on itemized deductions for the wealthy.

It's almost not worth going into the details on those particular tax changes because the Republican position has held that the details don't matter: well-designed tax increases won't be looked at any more favorably than poorly designed tax increases. The point, Republicans say, is that there can't be any tax increases, full stop.

For now, Democrats are holding their ground. "Do we perpetuate a system that allows for subsidies in revenues for oil and gas, for example, or owners of corporate private jets, and then call for cuts in things like food safety or weather services?" Press Secretary Jay Carney asked. But at some point, this will cease to be a clean choice between two budget plans and begin to be a question over whether we can raise the debt ceiling. And that, Republicans are betting, is when the Democrats will stop holding their ground.

Five in the morning

1) Obama has stepped into the debt talks, report Paul Kane and Rosalind Helderman:: "President Obama formally entered debt talks Monday with a pair of Oval Office meetings with Senate leaders, hoping that face-to-face talks could set the stage for detailed negotiations seeking more than $2 trillion in federal savings in exchange for continued Treasury borrowing to finance government operations. With just five weeks to go before the federal government would begin defaulting on some of its debts, Obama hosted Senate Majority Leader Harry M. Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) in separate hour-long meetings. The leaders remain divided over hundreds of billions of dollars in proposed spending reductions and also the key issue of whether to include increased tax revenue to fill up some of the savings."

2) Obama is focusing his tax-hike hopes on a smal; slice of the super-rich, reports Sam Youngman: "President Obama, seeking a Republican agreement to raise the nation's $14.3 trillion debt ceiling by Aug 2, will not insist that any deal include an end of President Bush's controversial tax rates on the wealthy. Obama's tactics are coming into clearer focus: they involve seeking higher taxes not on a broad swath of high income earners but on a narrower band of the super rich, such as owners of private jets. This means that those who earn $250,000 have got a reprieve. The White House said Monday that the president is pushing the GOP to agree to eliminate some tax breaks and for businesses and loopholes for wealthier taxpayers, but is not trying to eliminate the across-the-board rates introduced by President Bush."

3) The Obama administration wants about $400 billion in revenues, report Nafatali Bendavid and Carol E. Lee: A bipartisan group of lawmakers led by Vice President Joseph Biden had agreed on cuts that total about $1 trillion over 10 years, participants say. They were shooting for about $2.4 trillion in deficit reduction, but when Democrats insisted about $400 billion in tax increases be considered, the Republicans walked out.

4) Europe turns to 'Super Mario,' reports Neil Irwin: " future of Europe will soon be in the hands of a dapper, 63-year-old Italian economist with a name reminiscent of a James Bond villain and with long experience in the delicate art of economic diplomacy. Mario Draghi is set to take office as president of the European Central Bank in November, making him, along with the Federal Reserve’s Ben S. Bernanke, one of the world’s two most powerful central bankers...The European media refers to Draghi as 'Super Mario' for his energetic style. The question is whether he can live up to the nickname. The core of his challenge is this basic impasse: Greece, one of the 17 countries that use the euro currency, is essentially insolvent, paying its debts only with the help of bailouts, and Portugal and Ireland are in dire straits as well."

5) The Supreme Court has struck down Arizona's public financing system, reports Robert Barnes: "The Supreme Court on Monday struck down part of Arizona’s public campaign finance law, the latest in a series of its rulings holding that the right of political speech trumps government efforts to restrain the power of money in elections. The court rejected Arizona’s system of providing additional funding to publicly funded candidates when they face big-spending opponents or opposition groups. The system has been used in every statewide and legislative election since voters approved it in 1998, after a rash of political scandals in the Arizona capitol. But the court, in a 5 to 4 ruling, said the law impermissibly forces privately funded candidates and independent political organizations to either restrain their spending or risk triggering matching funds to their publicly financed opponents."

Folk interlude: Bon Iver plays "Calgary" on The Colbert Report as part of StePhest Colbchella '011 - Rock You Like a Thirst-icane.

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

Still to come: The U.S. is still undecided on the IMF managing director race; health exchanges are proving a boon for states and their contractors; the Supreme Court struck down Arizona's public campaign financing law; the natural gas industry could be set for a bust; and a penguin sees the wild, decides she'd rather hang with humans.


China is backing Christine Lagarde to head the IMF, report Owen Fletcher and Sudeep Reddy: "China has given 'quite full support' to French Finance Minister Christine Lagarde in her bid to become the next managing director of the International Monetary Fund, China's central banker said Monday, giving her a key boost as the IMF board moves toward selecting her this week...She has secured explicit endorsements from countries casting about 40% of IMF votes, with many of the undeclared IMF board members likely to support her behind closed doors. Her only competitor in the race, Mexican central banker Agustín Carstens, appears to be trailing far behind despite gaining the joint endorsement of Australia and Canada on Friday. Even with those nations and his home country, Mr. Carstens has lined up just about 12% of the fund's voting shares."

Ben Smith profiles Jack Lew: "The morning after negotiations with congressional Republicans were suspended last week, White House Budget Director Jack Lew was loping down his old street in Forest Hills, Queens, pointing out the old second-floor office of the Adlai Stevenson Democratic Club where he used to stuff envelopes for George McGovern...But over the years, he has also come to be recognized as one of the last of the pragmatic liberals in the spirit of his old boss, Tip O’Neill, the late House speaker. Lew’s gift, as he sees it, is for 'translating' between politics and policy and being seen as an honest interpreter whose personal views have not cost him relationships with his Republican counterparts...'No one was more prepared and more in tune with the numbers than Jack Lew,' House Majority Leader Eric Cantor, whose walkout brought the talks near collapse Thursday, told POLITICO."

A trade deal between the administration and Congress is imminent, reports Richard Cohen: "President Obama and key lawmakers plan to announce this week an agreement to revive trade-adjustment assistance for unemployed workers who have lost their jobs because of overseas trade, according to several sources. That deal could lead to a breakthrough on long-stalled U.S. trade agreements with South Korea, Colombia and Panama. Those agreements were initially negotiated under President George W. Bush and have been strongly opposed by organized labor and many House Democrats. But this time around they are expected to receive broad backing from House Republicans and a bipartisan Senate coalition. Rep. Sander Levin, the top Democrat on the House Ways and Means Committee said Monday in a Capitol speech that the trade package 'might be available in the next day.'"

The debt deal should total $4 trillion, write Erskine Bowles and Alan Simpson: "What this country needs -- and what the American people deserve -- is a $4 trillion-plus, gimmick-free fiscal consolidation package that stabilizes and then reduces our debt as a share of the economy. Such a plan need not look exactly like the Fiscal Commission plan we produced, but it must cut wasteful or low-priority spending everywhere -- in both the domestic and defense budgets, as well as the tax code where actual spending is dressed up as deductions, credits and other preferences. More importantly, this package must tackle the biggest source of our burgeoning debt -- growing entitlement spending. That means it must slow the growth of healthcare and make Social Security sustainably solvent."

Our deficit jam is worse than it appears, writes Lawrence Lindsey: "A normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020. The 10-year rise in interest expense would be $4.9 trillion higher under 'normalized' rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market."

Mitch McConnell should be taken seriously, writes Ezra Klein: "McConnell is the rarest of all things: an honest cynic. He’s the only powerful politician in America willing to tell you how Washington actually works, and that’s why he needs to be heard. McConnell’s first brush with radical truth-telling came in October 2010, when he told National Journal that 'the single most important thing we want to achieve is for President Obama to be a one-term president.' McConnell quickly qualified his remarks, although he never quite apologized for them. Nor should he have. McConnell wasn’t articulating a radical new theory of politics. He was telling us how he and his party were already voting...I don’t want to leave you with the impression that McConnell understands only partisanship. He’s a shrewder analyst of bipartisanship than anyone else in Washington."

Adorable animals overcoming adversity interlude: A paralyzed cat learns how to swim.

Health Care

States and contractors have found a goldmine in health exchange implementation funds, reports Sarah Kliff: "More than $300 million in exchange grants has already flowed into the states since the Affordable Care Act passed. That number will grow exponentially in the coming months, as states move from the initial steps of passing exchange legislation to the more lucrative task of setting them up. For health consultants and information technology vendors, it’s already shaping up to be a gold mine. State health exchange planning documents obtained by POLITICO read like a who’s who of top health consulting firms, with contracts awarded to health vendors large and small. Between Indiana and Washington state -- two of the three states that have received grants to establish exchanges so far -- Deloitte Consulting, Mathematica Policy Research, Wakely Consulting Group and Milliman all have exchange-related federal dollars."

Domestic Policy

The Court is hearing a challenge to FCC decency rules, reports Cecilia Kang: "The Federal Communications Commission has been fighting for years to be television’s Miss Manners. Now, the Supreme Court may finally lay any question about its role to rest. The Supreme Court said Monday it would take up a case to determine whether the FCC’s enforcement of broadcast decency rules is constitutional. The court will begin to hear arguments this fall in what is expected to be a fierce battle between the agency and broadcasters over First Amendment interpretations...'We are hopeful that the Court will affirm the Commission’s exercise of its statutory responsibility to protect children and families from indecent broadcast programming,' a spokesman from the FCC chairman’s office said in a statement."

The Court also ruled that violent video games deserve First Amendment protection, reports Robert Barnes: "Video games deserve the same constitutional protections as books and movies, the Supreme Court ruled Monday in striking down as unconstitutional California’s attempt to ban the sale of violent games to minors. In a 7 to 2 vote, the court upheld a lower court’s decision that California’s law imposing a $1,000 fine on those who sell or rent violent video games to minors violated free-speech rights. But there was more disagreement on the court than that tally would indicate. The same is true in the rest of the United States, as social scientists and parents debate whether video games represent a new and frightening phenomenon with dangerous psychological effects, or simply trigger unproven fears that accompany any new technology."

There's some good news hidden in the Supreme Court's public financing ruling, writes Rick Hasen: "The Roberts Court seems to have retreated from the suggestion that all campaign finance laws, aside from disclosure, are in constitutional trouble. Citizens United was a case dealing with independent campaign spending, and in its decision the Court was careful to say it was not messing with the other major type of campaign finance law: contribution limits...Yet there was language in Citizens United suggesting that even contribution limit laws could be subject to strict scrutiny, meaning they might likely be struck down as violating the First Amendment speech rights of candidates or contributors. In today’s Arizona opinion, however, the Court confirmed that Citizens United did not overturn the law related to contribution limits...The Court did not level a death blow to public financing laws."

Adorable animals rejecting freedom interlude: A penguin considers, rejects returning to the wild.


The natural gas sector could be set for a bust, reports Ian Urbina: "Energy companies have worked hard to promote the idea that natural gas is the fossil fuel of tomorrow, and they have found reliable allies among policy makers in Washington...But not everyone in the Energy Information Administration agrees. In scores of internal e-mails and documents, officials within the Energy Information Administration, or E.I.A., voice skepticism about the shale gas industry. One official says the shale industry may be 'set up for failure.' 'It is quite likely that many of these companies will go bankrupt,' a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust."

The US needs an industrial policy and an energy policy, writes Roger Cohen: "It’s absurd that 'climate change' has become an unpronounceable phrase under Obama and that green technology initiatives have been stymied by sterile ideological dispute. Intelligent use of resources makes strategic sense for America whatever your hang-up on global warming. It’s equally absurd that private U.S. corporations, having made $1.68 trillion in profits in the last quarter of 2010 and sitting on piles of cash, are doing fine while job numbers languish and more Americans struggle. None of this makes moral or any other sense. America needs an energy policy and an industrial policy. It has to lead in green technology and -- purist capitalist reflexes notwithstanding -- it must find ways to get corporate America involved in a national revival."

Big cars are killing us, writes Annie Lowrey: "We pay a hidden cost for our fat cars. They may be sucking up less gas, slowing the degradation of the environment and the warming of the planet. But they have other "negative externalities" that do not figure into their price tags or day-to-day costs as well--notably, more fatal traffic accidents. The heavier the car, the safer it is for the driver and the more dangerous it is for other vehicles and people on the road....So how much are our fat cars costing us? And does it mean our roads are less safe? A working paper released this month by two economists from the University of California, Berkeley, Maximilian Auffhammer and Michael Anderson, tackles the first question, attempting to put a price tag on the fatalities associated with big cars..The researchers confirm that the heavy cars kill."

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