The Gang of Six's plan -- here's the whole proposal (pdf), here's my summary of its provisions -- though fairly detailed for this sort of thing, hasn't been drafted into legislation yet. It hasn't been sent to the Congressional Budget Office. The rest of the Senate -- much less the House -- hasn't been briefed on it in detail, with staffs answering questions back-and-forth and legislators reaching out to the people they trust for analysis. There's a lot of work left to be done here. Too much for it to wrap up by August 2nd. Even Sen. Dick Durbin, a founding member of the Gang and a generally optimistic guy, admits that the proposal can't be finished and sold to his colleagues within the next two weeks.
And after that? It's harder to say. The Obama administration offered Republicans a $4 trillion grand bargain that, if anything, included less in new taxes, but otherwise would have looked quite similar to the Gang of Six's proposal. They rejected it. It's possible that Republicans are looking at the latest polls and reconsidering their intransigence, or perhaps they're simply more favorably inclined towards a proposal written by Sen. Tom Coburn than one outlined by President Barack Obama. I've also heard that there are a number of Senate Republicans frustrated with the House GOP's negotiating stance and anxious to do something bigger than Majority Leader Eric Cantor would prefer. But none of these arguments strike me as gamechangers, particularly considering that the Gang of Six's proposal will have to pass the House as well as the Senate.
Further complicating matters is the fact that if the Gang of Six proposal can't pass by the time the debt ceiling needs to be lifted, then the deal to lift the debt ceiling, which seems likely to include at least $1.5 trillion in spending cuts, will have used up many of the cuts in the Gang of Six's plan. And with those cuts gone, it's not clear why the GOP would sign onto a plan that now includes a higher proportion of taxes to spending cuts, and nor is it clear that Democrats would accept the sort of deep gashes you would have to make in the state to find another $1.5 trillion in cuts that could replace them.
I don't want to be too pessimistic here. The political system's reaction to the plan has been surprisingly positive. But over the last year, pessimism has tended to be the right stance towards the real-world prospects of these sorts of plans.
Five in the morning
1) The Gang of Six's debt plan is out and gaining steam, report Lori Montomery and Rosalind Helderman: "President Obama and lawmakers in both parties latched on to a new strategy for reducing the federal debt Tuesday, saying an emerging plan to save $3.7 trillion over the next decade could help break a political impasse over the debt limit and avert a U.S. default. The proposal, crafted by a bipartisan group of senators known as the 'Gang of Six,' calls for $500 billion in immediate savings and requires lawmakers in the coming months to cut agency spending, overhaul Social Security and Medicare, and rewrite the tax code to generate more than $1 trillion in fresh revenue. In the works since January, the plan became public Tuesday, just as it was becoming apparent that the leading option for raising the federal debt limit faces bleak prospects in the House."
2) My summary of the proposal's features is here. The conclusion: "We're effectively seeing something of a do-over. Simpson-Bowles didn't really get the support of any of the senators on the committee. They all said they wanted to make changes. Now, they have. Many politicians — a number of them on the right — blasted President Obama for dismissing the Simpson-Bowles plan rather than making it his own. In remarks this afternoon, he said the Gang of Six's product is "consistent" with his principles and made it pretty clear that if the House and Senate agree on a variant of this plan, he'll sign it. So what we have here is a bipartisan deficit-reduction plan that hits the $4 trillion target — or at least gets very close — and carries presidential support. Now we find out if such a thing can actually pass."
3) The plan won't be ready in time to prevent default, report Alexander Bolton and Erik Wasson: "Key Senate Democrats on Tuesday said the Gang of Six’s $3.7 trillion deficit-reduction proposal could not be included in a package to raise the $14.3 trillion debt ceiling by Aug. 2. Senate Democratic whip Dick Durbin (Ill.), a member of the Gang of Six, said Tuesday the group’s plan is not ready to be attached to legislation to increase the debt limit. 'The Gang of Six plan has not been drafted nor has it been scored by the CBO -- it’s not ready for prime time,' Durbin said, making reference to the Congressional Budget Office. 'But as a concept, I think we have the starting concepts together, and that’s what we presented today.' 'What we’re trying to do is to build these concepts into a long-term debt-reduction' plan, Durbin said."
4) House Democrats will oppose any entitlement cuts as part of the debt deal, reports Mike Lillis: "The second-ranking House Democrat on Tuesday threw his weight behind the party's blanket opposition to entitlement benefit cuts in a debt-ceiling deal. Minority Whip Steny Hoyer (D-Md.) said it was the consensus of Democrats to oppose any benefit cuts under Social Security, Medicare and Medicaid...As recently as last week, the Democratic whip was being careful not to rule out any policy options during the contentious debt talks -- a position shared by President Obama...By going on the record opposing entitlement benefit cuts, Hoyer has aligned himself with more liberal House Democrats like Minority Leader Nancy Pelosi (D-Calif.), who has been clear from the start of the debate that she's open to entitlement reforms, but not benefit cuts. "
5) Voters think both sides aren't compromising, report Dan Balz and Jon Cohen: "Majorities of Americans see both President Obama and congressional Republicans as not willing enough to compromise in their budget negotiations, but the public views the GOP leaders as particularly intransigent, according to a new Washington Post-ABC News poll. There is also growing dissatisfaction among Republicans with the hard-line stance of their congressional representatives: Fifty-eight percent say their leaders are not doing enough to strike a deal, up from 42 percent in March. While Republicans in Congress have remained united in their opposition to any tax increases, the poll finds GOP majorities favoring some of the specific changes advocated by the president, including higher income tax rates for the wealthiest Americans."
'90s cover interlude: The Get Up Kids play "Girls & Boys" by Blur.
Got tips, additions, or comments? E-mail me.
Still to come: Obama's next head economist could be more moderate; health plans will now have to cover birth control; Moody's is worried about five states' debt loads; summer heat waves are going to get more common; and why leaving your car over a sewer geyser during heavy rain could end badly.
Obama's likely to take a right turn with his new CEA chief, reports Matt Negrin: "When Austan Goolsbee leaves this fall as head of the Council of Economic Advisers, President Barack Obama will have a chance to replace him with the type of person who hasn’t yet held the post: a moderate. Obama’s earliest economic advisers -- liberals Goolsbee and Christina Romer -- pushed for major initiatives like the health care overhaul, financial reform and the stimulus. His new CEA chief is likely to assume a more defensive role, countering Republican attacks on those policies...Two possible candidates were described by their allies as ideal fits for the position because of their willingness to give credence to both sides of economic issues...Rebecca Blank, a Commerce Department economist whom Obama has reportedly interviewed for the post, and Alan Auerbach, a professor at the University of California at Berkeley."
The housing recovery could be picking up, reports Cezary Podkul: "New-home construction popped to a five-month high in June, surprising economists and fueling hope that the long-struggling U.S. housing market could at last begin to add strength to the economic recovery. Work started on 629,000 houses in June, an increase of 15 percent from May and nearly 17 percent from the corresponding period last year, according to data released Tuesday by the Commerce Department. Economists had predicted 575,000 housing starts for the month. All regions of the country -- Northeast, Midwest, South and West -- saw increases in home-building activity, according to the data, and both single-family and multi-family homes posted monthly increases in each region."
The IMF is doubtful the Euro can last, reports Howard Schneider: "The International Monetary Fund said Tuesday that the euro, a currency born a decade ago out of the post-World War II urge to knit Western European nations more closely together, was under 'a shadow' and hinted it might not survive the current battle over government debt...The IMF said there was 'no consistent road map ahead, leaving both orderly and disorderly outcomes on the table...The reaction by national authorities and economic agents has been one of retrenchment, threatening to turn back the clock on economic and financial integration, the very foundation' of the Economic and Monetary Union (EMU)...The comments in a report released Tuesday mark the agency’s most explicit statement that the 17-nation currency union may be in jeopardy."
Obama needs to get serious about jobs, writes David Leonhardt: "One option would be an immediate extension of the payroll tax cut, which is set to expire on Jan. 1, to give consumers and businesses more confidence. By waiting until the end of the year to announce an extension, Washington would end up paying all of the budgetary cost without getting the full economic benefit. Perhaps the most intriguing idea is a 2010 proposal from Mr. Obama to give a $5,000 tax credit for each net new worker that a business hires. The credit aims at the economy’s main problem -- a lack of jobs -- and its annual cost is a mere $35 billion, easily offset by longer-term cuts to domestic programs or the military. Yes, it died in Congress last year. But given the ongoing slump, does abandoning the idea make sense?"
We need more millionaires, writes Reihan Salam: "as Bentley University economist Scott Sumner observed last week, an extraordinary 15.5 percent of Singapore households have $1 million or more in assets under management, a number everyone expects to climb rapidly in the years to come...So how might we encourage mass affluence at home? We could, like Singapore, require all workers to save for retirement, thus helping even workers on modest incomes build assets. And instead of taxing income, we could tax consumption, a policy that has the potential to supercharge economic growth and wealth creation. We might even consider taking a page from oil-rich states like Norway and the United Arab Emirates and create our own sovereign wealth fund, a big government-funded investment pool that would pay dividends to U.S. citizens."
Corporate profits are dependent on wage cuts, writes Harold Meyerson: "If you’re wondering why American consumers are still flat on their backs, rendering the economy similarly supine, the answer is both fundamental and simple: It’s not just that so many of them are unemployed. The ones who are employed are also underpaid. Don’t take my word for it -- take that of Michael Cembalest, the chief investment officer of J.P. Morgan Chase...Profit margins...of the Standard & Poor’s 500 companies are at their highest levels since the mid-1960s...Why the increase? 'There are a lot of moving parts in the margin equation,' Cembalest writes, but 'reductions in wages and benefits explain the majority of the net improvement in margins.' This decline in wages and benefits, Cembalest calculates, is responsible for about 75 percent of the increase in our major corporations’ profit margins."
We can raise $400 billion in new revenue without hiking tax rates, writes Robert Pozen: "Congress could raise $150 billion in revenue over the next decade by ending mortgage interest deductions on second homes and home equity loans, as well as restricting such deductions to mortgages of as much as $500,000 per couple -- instead of the current limit of $1 million per couple. By offering interest deductions on $1 million mortgages, we are not promoting home ownership...Rather, we are providing government subsidies for the purchase of large homes by wealthy taxpayers. To raise the final $100 billion of revenue, Congress could modify the approach to insurance premiums in the recently passed health-care legislation....Instead of the 'Cadillac' tax, Congress could cap the currently unlimited exclusion for employer-based health-care premiums."
Behind the scenes interlude: A visit to the house in The Royal Tenenbaums.
Birth control coverage will be mandated for all new health plans, reports N.C. Aizenman: "Virtually all health insurance plans could soon be required to offer female patients free coverage of prescription birth control, breast-pump rentals, counseling for domestic violence, and annual wellness exams and HIV tests as a result of recommendations released Tuesday by an independent advisory panel of health experts. The health-care law adopted last year directed the Obama administration to draw up a list of preventive services for women that all new health plans must cover without deductibles or co-payments. While the guidelines suggested Tuesday by a committee of the National Academy of Sciences’ Institute of Medicine are not binding, the panel conducted its year-long review at the request of Health and Human Services Secretary Kathleen Sebelius."
The Gang of Six plan bears some resemblance to IPAB, reports Julian Pequet: "A bipartisan deficit-cutting plan unveiled Tuesday would require lawmakers to keep Medicare costs from growing faster than a target rate, not unlike a provision of the healthcare law that Republicans have denounced as a 'rationing board.' The proposal by the Senate's so-called Gang of Six is part of a plan to cut the deficit by $3.7 trillion. Similarly to the healthcare law's Independent Payment Advisory Board (IPAB), the proposal would require Congress and the president to take action if federal healthcare spending grows faster than GDP plus 1 percent per beneficiary. The health law's 15-member IPAB would recommend Medicare provider cuts if the program grows faster than a target rate; Congress would have to propose savings of the same magnitude or the IPAB proposal would become law by default."
The Gang of Six plan would kill a long-term care program, writes Howard Gleckman: "A bipartisan deficit reduction plan proposed by the so-called “gang of six” Democratic and Republican senators would repeal the Community Living Assistance Services and Supports (CLASS) Act...Today, more than 40 percent of all long-term care is funded by Medicaid which is itself under tremendous financial stress. While CLASS is deeply flawed, it is an opportunity to transform long-term care from the means-tested Medicaid program to an insurance-based system. If CLASS is repealed, that opportunity will be lost, and millions of Americans will find themselves with only a shrinking Medicaid benefit to support them in frail old age or if they become disabled at a younger age."
Moody's is warning five states on their debt loads, reports John Kell: "Moody's Investors Service placed its ratings on five Aaa-rated states on watch for downgrade, saying if the U.S. government's ratings were to be lowered, those states would face probable cuts as well. The ratings agency's action on Maryland, New Mexico, South Carolina, Tennessee and Virginia affect a combined $24 billion of general obligation and related debt. It follows Moody's announcement last week that it would consider a downgrade on the U.S. government's bond rating, citing the 'rising possibility that the statutory debt limit will not be raised on a timely basis,' which would lead to a default on U.S. Treasury debt obligations. Moody's on Tuesday said it would review each of the five states on a case-by-case basis and plans to act on the ratings within seven to 10 days following a sovereign action."
Summer heat waves are going to get more common, writes Heidi Cullen: "Heat-trapping pollution at least doubled the likelihood of the infamous European heat wave that killed more than 30,000 people during the summer of 2003, according to a study in the journal Nature in 2004. And if we don’t ease our grip on the climate, summers like that one will likely happen every other year by 2040, the study warned...Using climate models, we can project what future Julys might look like. For example, by 2050, assuming we continue to pump heat-trapping pollution into our atmosphere at a rate similar to today’s, New Yorkers can expect the number of July days exceeding 90 degrees to double, and those exceeding 95 degrees to roughly triple. Sweltering days in excess of 100 degrees, rare now, will become regular."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.