President Barack Obama makes a statement to reporters about debt ceiling negotiations July 5. (Charles Dharapak/AP)

What he said is that we're not doing a short-term deal. "I’ve heard reports that there may be some in Congress who want to do just enough to make sure that America avoids defaulting on our debt in the short term, but then wants to kick the can down the road when it comes to solving the larger problem of our deficit," the president. "I don’t share that view."

If you take the president at his word, that's something of a scary comment. Washington's working definition for "solving the larger problem of our deficit" is $4 trillion in deficit reduction over the next 10-12 years, including substantial taxes and changes to Medicare and Medicaid. There's no way Republicans and Democrats are going to agree on a package like that by late-July. Nor is one needed by late-July. What's needed by late-July is an increase in the debt ceiling. We need, in Austan Goolsbee's piquant terms, to avoid "the first default in history caused purely by insanity."

Which is why the White House's plan is, decidedly, to kick the deficit can down the proverbial road. Serious taxes aren't really on the table till 2012, when the Bush tax cuts expire, and the debt deal is likely to include a trigger proposal that begins forcing cuts, and perhaps tax increases, in 2014. The hoped-for deal here is some portion of the eventual spending cuts -- a "downpayment," as it's called in Washington -- some tiny fraction of the eventual tax increases, and a two-year increase in the debt ceiling. I'm glad to see the White House reject anything shorter than a two-year increase. But notice what they didn't reject.

Obama didn't say he'll demand any particular ratio of tax increases to spending cuts, nor any particular dollar figure of tax increases, nor even any tax increases at all. He just said "we need to take on spending in the tax code." With Republicans saying no tax increases, or even revenue increases, and Obama resisting the word "revenue" and the term "tax increase," you can be pretty sure that the final deal is going to tilt extremely heavily towards spending cuts.

And that seems to be the tradeoff the White House is going to make on this issue. Occupying the political center means accepting a deal that's substantively very far to the right. You don't get conservative columnists to turn on the Republican Party by occupying the center. You get them to turn on the Republican Party by offering the GOP a deal so good that the act of refusing it is shocking. But that means offering a deal so lopsided that it will also be slightly shocking when a Democratic president signs it.

Five in the morning

1) Obama doesn't want a short-term debt deal, is calling another White House summit, reports Lori Montgomery: "President Obama on Tuesday rejected calls for a short-term increase in the legal limit on government borrowing and summoned congressional leaders to the White House to restart negotiations over a long-term plan to restrain the deepening national debt...'There may be some in Congress who want to do just enough to make sure that America avoids defaulting on our debt in the short term but then want to kick the can down the road when it comes to solving the larger problem of our deficit. I don’t share that view,' Obama told reporters during a late-afternoon appearance at the White House. With the surprise announcement, Obama sought to take charge of a situation that was rapidly devolving into a dangerous game of chicken."

2) Kent Conrad is selling his debt plan to his colleagues today, reports Alexander Bolton: "Democrats’ Senate Budget chairman will present a spending plan to his party leaders Wednesday that seeks to cut the federal deficit through an equal split of tax hikes and spending cuts. Senate Budget Committee Chairman Kent Conrad (N.D.) will brief Democratic leaders on a budget that significantly raises government tax revenues in order to reduce the deficit, according to Senate sources. The plan will balance the burden of reducing the deficit roughly 50-50 between increasing tax revenues and cutting government spending, sources said. Conrad’s office declined to confirm any details of the plan until Senate Majority Leader Harry Reid (D-Nev.) and other leaders have heard the chairman’s presentation."

3) Redistricting will make the debt ceiling vote even tougher for some Republicans, reports Molly Hooper: "Redistricting is expected to make a House vote on raising the debt ceiling even more difficult for GOP leaders. Several incumbents find themselves drawn into 2012 battles with sitting colleagues, with the debt-ceiling vote seen as a defining issue, particularly for some House Republicans. The pressures add to the problems of GOP leaders, who already know they will face challenges in rallying their members around a deal, if one can be worked out with the White House. Republicans battling one another to continue their careers in Congress will see a chance to stand out on the debt-ceiling vote. 'It will affect it, because it’s more of a Republican-primary issue than a general-election issue,' Rep. Greg Walden (R-Ore.) said of the vote."

4) The business lobby isn't serious on the deficit, writes David Leonhardt: "If you want to understand why cutting the deficit is so hard, you can’t do much better than to look at the Business Roundtable. The roundtable is one of the more moderate big-business lobbying groups...But the roundtable is actually part of the problem. Rhetoric aside, it consistently lobbies for a higher deficit. The roundtable defends corporate tax loopholes and even argues for new ones. It pushes for a lower corporate tax rate. It favors the permanent extension of the Bush tax cuts. It opposes a reduction in the tax subsidy for health insurance, a reduction that was part of the 2009 health reform bill. Oh, and the roundtable also favors new spending on roads, bridges and other infrastructure."

5) The main teachers' union is easing its opposition to testing, reports Sharon Otterman: "Catching up to the reality already faced by many of its members, the nation’s largest teachers’ union on Monday affirmed for the first time that evidence of student learning must be considered in the evaluations of school teachers around the country. In passing the new policy at its assembly here, the 3.2 million-member union, the National Education Association, hopes to take a leadership role in the growing national movement to hold teachers accountable for what students learn -- an effort from which it has so far conspicuously stood apart. But blunting the policy’s potential impact, the union also made clear that it continued to oppose the use of existing standardized test scores to judge teachers."

'90s nostalgia interlude: They Might Be Giants plays "Tubthumping" by Chumbawamba.

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

Still to come: The US beat China on a case at the WTO; Medicare/Medicaid administrator Don Berwick is fighting the clock in implementing health care reform; shorter summer vacations may be good policy, but they're not happening; an ethanol deal may be coming this week; and friends don't friends buy puppies drunk.


The US beat China at the WTO, reports Erik Wasson: "The United States, European Union and Mexico scored a major victory over China at the World Trade Organization on Tuesday as the WTO found China had illegally constrained its exports of raw materials. The policies had the effect of reducing prices for Chinese downstream products and increasing costs for U.S. manufacturers. When China joined the WTO it had agreed to stop restricting the export of key materials, including those used in steel and chemical manufacturing. The WTO found China had broken its commitments and failed to provide justification using existing exemptions in the WTO texts. China had sought to justify the restraints as conserving natural resources, but the WTO found that China is only 'heading in the right direction' in adopting rules that would also constrain domestic consumption of the materials."

The housing industry is bracing for a new down payment rule, report Nick Timiraos and Alan Zibel: "The federal government is readying its first retreat from the mortgage market, with the size of loans eligible for government backing set to decline in October. As an emergency measure three years ago, Congress raised to as high as $729,750 the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies could guarantee. That made it easier--and cheaper--for borrowers in pricey housing markets to obtain mortgages, because the government guarantees that investors receive payments on those mortgages even if homeowners default. Now those limits are set to decline modestly in hundreds of counties across the U.S. as the government attempts to reduce its outsized footprint in the mortgage market and create room for private investors to compete."

Liquidity traps are more common than most economists thought before the crisis, writes Brad DeLong: "When rates become so low that there’s little difference between cash and short-term government bonds, open-market operations cease having an effect; they simply swap one zero- yielding government asset for another, with their hunger to hold more safe, liquid assets unsatisfied. This is the liquidity trap. In this situation we need deficit spending. The government spends and borrows, creating more of the safe, cashlike assets that private investors want...Sitting in my first graduate economics class in 1980, I listened to Marty Feldstein and Olivier Blanchard -- two of the smartest humans I am ever likely to see -- assure me that Hicks’s liquidity trap was a very special case, into which the economy was unlikely to wedge itself again. Yet it did."

"Norquistism" threatens the normal functioning of government, writes Harold Meyerson: "What we have here is an extreme world view -- let’s call it Norquistism -- that ensures impasse, paralysis or perverse outcomes whenever control of government is divided. It’s the doctrine preached by GOP activist and lobbyist Grover Norquist, who trots around the country collecting pledges from GOP candidates and elected officials that commit them to never, ever raise taxes, no matter what they may be offered in return. In Minnesota, a state with a Democratic governor and a Republican legislature, Gov. Mark Dayton sought to raise taxes on only the relative handful of Minnesotans with annual incomes in excess of $1 million. The legislature opposed that, insisting on cuts...Absent a budget, most state services in Minnesota closed down on July 1."

Can't believe this is a problem interlude: New York pet stores crack down on drunk puppy-buying.

Health Care

Don Berwick is racing against time to implement health reform, reports Amy Goldstein: "Don Berwick, the administrator in charge of Medicare and Medicaid, was having dinner in Dupont Circle not long ago with five of his predecessors when the conversation veered to how long he could keep his job. In the realms of health care, his is a pivotal role: overseeing two entitlement programs that insure nearly one in three Americans, sheperding the profound insurance changes spurred by the new health-care law and serving as chief cheerleader for better care at lower cost. A pioneer in improving medical quality, but a neophyte in Washington politics, Berwick ran into a buzz saw of Republican opposition over old academic writings when President Obama chose him for the task 16 months ago..The president slid him into the job without Senate confirmation...Unless the Senate acts, he cannot stay beyond December."

"Death panel" accusations are still plaguing the health care debate, reports Lester Feder: "It has been about two years since accusations of “death panels” began dogging Democratic lawmakers, and the charge persists as the health reform boogeyman. In January, the Department of Health and Human Services was forced to retreat from a regulation that would reimburse for “advance care” counseling, and Rep. Phil Gingrey (R-Ga.) tarred the Independent Payment Advisory Board with a related accusation...'Does [the rhetoric] have a chilling effect? I don’t know that for sure, but it certainly means you have to be very careful when you talk about any of these issues, given the recent way that [it’s] been handled both in the press and by various opponents and political groups,' said Richard Frank, who recently stepped down as deputy assistant secretary of HHS...overseeing disability, aging and long-term-care policy."

Domestic Policy

Reformers' calls to shorten summer vacation are going unheeded, reports Sam Dillon: "After several years of state and local budget cuts, thousands of school districts across the nation are gutting summer-school programs, cramming classes into four-day weeks or lopping days off the school year, even though virtually everyone involved in education agrees that American students need more instruction time. Los Angeles slashed its budget for summer classes to $3 million from $18 million last year, while Philadelphia, Milwaukee and half the school districts in North Carolina have deeply cut their programs or zeroed them out...For two decades, advocates have been working to modernize the nation’s traditional 180-day school calendar...Each fall, many students -- especially those who are poor -- return to school having forgotten much of what they learned the previous year."

The House is set to pass major transportation cuts, reports Ashley Halsey: "The next flash point in the debate over the nation’s will to live within its means may emerge this week as House Republicans present a long-term transportation bill expected to cut funding for highways and mass transit by almost one third. Should the bill emerge from the House unscathed, it may collide head-on with a very different Senate version that is marginally closer to a proposal from the White House...Money to pay for transportation comes from various sources, but the overwhelming majority is produced by the federal tax on gasoline. That tax has not increased since 1993, and voters have made clear in surveys that they don’t want it to. At the same time, there is a need for massive spending to restore the nation’s deteriorating infrastructure."

The Supreme Court should be pro-business, writes Ramesh Ponnuru: "The Constitution erects all kinds of barriers to interference with commerce. States can’t levy 'duties of tonnage.' They can’t impair contractual obligations. They have to get congressional approval before they can join with other states in any regulatory compact. For much of its history, the enforcement of this 'commercial constitution' was the main part of the Supreme Court’s business...That commercial constitution has fallen into disrepair in recent decades. Companies now have to deal with multiple conflicting regulators, liability in hellhole jurisdictions and pervasive legal uncertainty. None of the justices, the conservatives included, have done much to tackle these problems...The real answer to whether we have a pro-business court, then, is no -- and more’s the pity."

The era of defined benefit pensions should come to an end, writes Edward Glaeser: "The best way forward is for the public sector to follow private companies and switch from defined-benefit plans to defined-contribution plans. We are in the midst of a great debate over our national budget, but states and cities are also in financial trouble, despite their much tougher balanced-budget rules. Among the states’ biggest problems is an unfunded pension liability, which economists Robert Novy-Marx and Joshua Rauh calculate at more than $2.4 trillion...Because these costs are routinely undercounted, big pension deals don’t look expensive. When states estimate the size of their pension liabilities, they typically assume an 8 percent or higher rate of return on existing assets, or an interest rate of about 8 percent to evaluate future cash flows."

Adorable monkeys acting like humans interlude: A group of Emperor Tamarins are fascinated by an iPod Touch.


An ethanol deal could be reached this week, reports Ben Geman: "Senators trying to forge a compromise that would end a major ethanol industry tax break while boosting other support for renewable fuels expressed confidence Tuesday that a deal can be struck soon. 'It is going well,' said Sen. Amy Klobuchar (D-Minn.) in the Capitol Tuesday. 'I would like to see it get done this week...I think we all would.'Sen. Dianne Feinstein (D-Calif.), an ethanol critic, is leading the charge to immediately end the credit of 45 cents for each gallon of ethanol blended into gasoline and the ethanol import tariff. Klobuchar and Sen. John Thune (R-S.D.) - who are allies of ethanol producers - are together pushing for a package that, in return, would extend incentives for producing next-wave cellulosic fuels and boost support for renewable fuels infrastructure."

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