Here's what appears to have been in the $4 trillion deal they offered the Republicans: A two-year increase in the Medicare eligibility age. Chained-CPI, which amounts to a $200 billion cut to Social Security benefits. A tax-reform component that would raise $800 billion and preempt the expiration of the Bush tax cuts -- which would mean, for those following along at home, that the deal would only include half as much revenue as the fiscal commission recommended, and when you add the effect of making the Bush tax cuts a permanent part of the code, would net out to a tax cut of more than $3 trillion when compared to current law.
That last bit apparently killed the deal. It But it was actually the biggest concession on the table. Currently, Democrats are bargaining for some revenues now, with the option of forcing much more in revenues later. All they need to do to get $4 trillion in revenues next year is fail to come to an agreement with the Republican Party. And is there anything Congress is better at than not agreeing?
The deal Obama offered Boehner would've traded away the option to force much more in revenues later in order to get slightly more in revenues now. And it would have thrown in a slew of entitlement cuts and spending cuts as a sweetener.
In part, this is because the Obama administration, much to the disappointment of liberals, doesn't value the option to fight over taxes in 2012. They'd prefer to finish the debt debates now and move onto other issues after the election. They have no intention of letting the Bush tax cuts lapse in full, and since they're privately unsure that congressional Democrats will stand with them to let the cuts expire for incomes beneath $1,000,000, they don't see much upside in beginning their hoped-for second term with a bruising battle over taxes.
But they also know that if they get to 2012 without a deal, they're going to have to engage that fight whether they want to or not. And Republicans made that a lot more likely this week. The reality is that liberals should be sending Eric Cantor a fruit basket. It's increasingly clear that he has not only saved them from a deal they'd hate, but also stopped Obama from giving up a fight they want to have later.
Five in the morning
1) Obama offered an increase in the Medicare retirement age as part of a debt deal, reports Sam Stein: "According to five separate sources with knowledge of negotiations -- including both Republicans and Democrats -- the president offered an increase in the eligibility age for Medicare, from 65 to 67, in exchange for Republican movement on increasing tax revenues. The proposal, as discussed, would not go into effect immediately, but rather would be implemented down the road (likely in 2013). The age at which people would be eligible for Medicare benefits would be raised incrementally, not in one fell swoop...The amount of money it would save is...relatively small...The Congressional Budget Office has estimated that if the Medicare eligibility age was increased from 65 to 67, the federal government would save $124.8 billion between 2014 and 2021."
2) Eric Cantor is gaining influence in the debt negotiations, report David Fahrenthold and Paul Kane: "The negotiating tactics of House Majority Leader Eric Cantor would probably make him lousy at selling cars. But...they have made Cantor a hero to ardent anti-spending conservatives. Cantor (R-Va.) thinks the way to win this haggling session -- one of Washington’s most important in years -- is by walking out of it. Last month, Cantor walked out of talks led by Vice President Biden. Cantor said the reason was Democrats’ insistence on raising taxes as part of a deal to increase the national debt ceiling. Then, last week, Cantor urged House Speaker John A. Boehner (R-Ohio) to reject a possible 'grand bargain' with President Obama, which could have included tax increases...His moves have revealed him as a third major player in a legislative drama that had been dominated by Obama and Boehner."
3) The White House rejected a GOP Medicare cuts proposal, reports Felicia Sonmez: "House Republicans brought up billions of dollars in potential cuts to Medicare on Monday, in the latest round of debt-limit talks, but the White House and congressional Democrats rejected the idea in part because it did not include any increases in tax revenue. According to a Democratic aide with knowledge of Monday’s meeting, President Obama asked Republicans after the group’s Sunday-night meeting to return on Monday with specific deficit-reduction ideas put on paper. House Majority Leader Eric Cantor (R-Va.) returned Monday afternoon and described a plan that included $250 billion in cuts to Medicare over the next decade, the aide said. Among the deficit savings were $53 billion in cuts to the Medigap supplemental insurance program and $38 billion in means-testing."
4) The two parties aren't equally at blame for the failure to increase the debt limit, writes Eugene Robinson: "The truth is that Democrats have made clear they are open to a compromise deal on budget cuts and revenue increases. Republicans have made clear they are not. Put another way, Democrats reacted to the 'grand bargain' proposed by President Obama and House Speaker John Boehner by squawking, complaining and highlighting elements they didn’t like. This is known throughout the world as the way to begin a process of negotiation. Republicans, by contrast, answered with a definitive “no” and then covered their ears. Given the looming Aug. 2 deadline for default if the debt ceiling is not raised, the proper term for this approach is blackmail. Yet the 'both sides are to blame' narrative somehow gained currency."
Real talk: After learning that a rise in the Medicare eligibility age was on the table, I don't think Eugene's point is eve arguably anymore.
5) The administration is planning a new round of aid to homeowners, reports Nick Timiraos: "The Obama administration is ramping up talks on how to revive the housing market...Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House...Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut. Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth."
Garage band interlude: Smith Westerns play "Smile" live.
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Still to come: Barney Frank issued a new defense of the financial reform law that bears his name; David Brooks says there's no "magic lever"; new rules allow states greater flexibility in implementing health exchanges; the administration is expanding up its regulatory review push; the US may soon allow offshore windfarming; and a baby adorably tries to resist the lure of sleep.
Barney Frank defended financial reform in a major speech, reports Brady Dennis: "Far-reaching legislation intended to remake the nation’s financial regulatory system is 'holding up very well' despite efforts to undermine new rules and underfund the agencies implementing them, one of the bill’s authors said Monday. In a speech at the National Press Club to mark the one-year anniversary of the financial overhaul, Rep. Barney Frank (D-Mass.), ranking member of the House Financial Services Committee, criticized Republicans for trying to weaken the legislation that he and former Sen. Christopher J. Dodd (D-Conn.) shepherded through Congress last year. But Frank said those efforts have largely fallen short. 'My Republican colleagues, unlike [with] climate change and health care, don’t want to take this one head-on, because it is still too popular,' Frank said."
There are a number of possible explanations for why the labor market is recovering faster for men, writes Annie Lowrey: "I have a few theories, but first, some important context: Men have had it much worse through the recession overall. According to Pew, men lost 5.4 million jobs and women 2.1 million during the recession. The unemployment rate for men climbed from 5.1 percent to a current 9.5 percent; for women, from 4.9 percent to 8.5 percent. Today, there are 4.6 million fewer men working than in December 2007, and 2.4 million fewer women. In short, measuring job gains or losses from when the recovery started, men are doing a bit better. Measuring job gains or losses from when the recession started, women are a whole lot better off."
We have a tax problem and a spending problem, writes Ezra Klein: "'We have a spending problem, not a taxing problem,' Republicans say. If the federal government defaults on Aug. 2, that sentence will be to blame. What a shame, then, that the sentence is entirely, obviously, wrong. 'I’m an 'and' guy, not an 'or' guy,' says Donald Marron, who served as an economist in George W. Bush’s White House and now leads the Brookings/Urban Tax Policy Center. If you look at the numbers, it’s easy to see why economists like Marron think we have both a spending problem and a taxing problem. In 2001, revenues were at 19.5 percent of gross domestic product and spending was at 18.6 percent of GDP. That was our surplus. In 2010, revenues were at 14.9 percent of GDP while spending was at 23.9 percent. That’s our deficit: Revenues are down and spending is up. It’s 'and,' not 'or.'"
A targeted corporate tax holiday could work, writes Alan Blinder: "Major corporations are clamoring for a tax holiday that would let them repatriate profits held abroad at a bargain-basement tax rate. They claim that all kinds of wonderful things would happen if this money came home. Trouble is, we've seen this play before, in 2004, and nothing wonderful happened--unless you were a shareholder or executive of one of the beneficiary corporations. However, the tax holiday idea can be married to the new jobs tax credit. Suppose we allow firms to repatriate profits at some super-low tax rate, but only to the extent that they increase their wage payments subject to Social Security...Companies would be able to claim the full tax credit only for earnings under (in 2011) $106,800. No subsidies for raising executive pay."
The "big deal" was a head-fake, writes Economics of Contempt: "I think the White House is trying to scare Democrats into accepting a deficit reduction deal with little or no revenue increases. I think Boehner can’t get the votes in the House for a deal that includes any revenue increases, and I think the White House knows it. They know that the final deal will end up being 100% spending cuts. The problem with this is that it might not get enough Dem votes to pass -- especially if Dems on the Hill are obsessing about the ratio of spending cuts to revenue increases throughout the negotiations. So in order to retain enough Dems, the White House needs to make sure that the $2 trillion, all-spending-cuts deal is the 'compromise' position...By putting Social Security and Medicare on the table, you allow the Dems to make the protection of those programs their 'line in the sand,' rather than the inclusion of revenue increases."
There's no "magic lever" to fix the economy, writes David Brooks: "These three groups — bankers, Democratic Keynesians and staunch Republicans — have one thing in common: They all believe they have identified the magic lever. They believe they can control their economic fate. Some of us do not believe there is a magic lever. Deficit spending stimulates growth, but not by that much. Tax increases are bad, but they are not disastrous. We believe that there are a thousand factors that go into economic growth, and no single one is dispositive. We look at the tax cuts of 2001 and do not see tremendous gains. We look at the tax increase of 1982 and do not see a ruinous disaster. We look at high deficit eras and low deficit eras and do not see an easy correlation between deficit spending and growth. On the contrary, if you look around the world there’s a slight negative correlation between government size and prosperity. We believe that if you rest everything on a single lever (Increase deficits! Cut taxes!), you give people a permission slip to be self-indulgent. They will spend or cut to their hearts’ content and soon you’ll be facing national bankruptcy. We believe that even if you are theoretically right, your policies will be distorted by human frailties and special interests."
The IMF has outlived its usefulness, write Amar Bhide; and Edmund Phelps: "Bold reforms that transformed emerging economies like the BRICs--Brazil, Russia, India, and China--then nearly put the IMF out of business. The Chinese in particular showed that an undervalued currency can supercharge a country’s export sector and turn trade deficits into huge surpluses. Privatization of state-owned enterprises became popular, and finance ministries shed their traditional reluctance to let domestic companies borrow abroad. With emerging economies riding high, their private borrowers received a warm welcome in international capital markets. Their gain became the IMF’s pain. Demand dried up for stopgap funding and austerity programs. By 2008 it was the IMF’s turn to struggle with its own budget deficit of about $400 million through spending cuts, staff reductions, and sales of gold reserves."
Rise of Skynet interlude Robots that can dry towels and do dishes (though not well).
The White House is pushing states to get moving on health exchanges, reports N.C. Aizenman: "Faced with the possibility that many states may not be ready to meet a crucial requirement of the federal health-care law passed last year, the Obama administration has proposed rules redefining what 'ready' means. To boot, officials did just that in a setting designed to win over that most politically sought-after of groups: small-business owners. The health-care law set a deadline of Jan. 1, 2013, by which federal officials must decide whether each state will be capable of getting its insurance marketplaces...up and running by 2014...But...meeting the 2013 deadline is looking increasingly challenging. The regulations proposed Monday address that issue by trading the club of federal intervention for the carrot of increased 'flexibility.'"
Senate Democrats aren't happy about the prospect of Medicare cuts, reports Greg Sargent: "Top Democrats in charge of keeping the Senate in Dem hands and maintaining the political health of the party -- DSCC chair Patty Murray and messaging chief Chuck Schumer -- have privately expressed frustration that deep Medicare cuts risk squandering the major political advantage Democrats have built up on the issue, people familiar with internal discussions say. Senators Murray and Schumer, along with other Dems like Debbie Stabenow and Mark Begich, have warned against deep cuts in recent leadership meetings, a source familiar with the meetings says...'We shouldn’t be giving away our advantage on Medicare,' said a source familiar with Murray’s thinking, in characterizing her objections in private meetings."
Adorable babies resisting sleep interlude: This baby goes to sleep, says hello, goes to sleep, says hello, and so forth.
Obama is amping up his regulation-cutting process, reports Jared Favole: "President Barack Obama is expanding his administration's campaign against what he has referred to as 'dumb' regulations by pressuring independent agencies to comb their books for outdated rules. Mr. Obama in January ordered federal agencies--such as the Environmental Protection Agency and the Food and Drug Administration--to search their books and strike any overly burdensome regulations. Independent agencies--including the Securities and Exchange Commission and National Labor Relations Board--were exempt from the rule, raising concerns in the business community that many of the regulations it deemed unneeded would be left untouched. In an executive order to be sent to independent federal agencies Monday, Mr. Obama is asking them to develop and release proposals to slash paperwork and scrap some outdated rules."
The administration is sending help to cities, reports Sharon Terlep: "The Obama administration is sending dozens of federal officials to work in the city halls of six struggling cities for a year to try to help them solve some of their most intractable problems. The goal is to help local officials tap federal funds and leverage local and regional resources. The officials will provide technical and planning expertise to assist cities in carrying out the initiatives. 'We need to provide assistance and support, not just mandates,' U.S. Housing and Urban Development Secretary Shaun Donovan said Monday in Detroit, one of the cities to get federal help. That support will come in the form of federal officials from HUD, the Small Business Administration and the U.S. departments of Labor, Transportation, and Commerce."
The US is set to allow offshore wind farms, reports Ryan Tracy: "The U.S. Interior Department expects little environmental impact from testing the feasibility of wind farms off the coast of four Atlantic coast states, according to a draft document released Monday. The findings, which could be changed after the department reviews public comments, are an indication that the agency may be prepared to lease the areas for wind development without a more lengthy environmental review. The document released Monday is a preliminary assessment of a proposal to lease areas off the coasts of New Jersey, Virginia, Delaware and Maryland and to allow companies to test whether the areas are viable for generating wind power. It is part of a wider push by the Obama administration to speed up the permitting process for what are known as wind farms."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.