The debt-ceiling deal passed the House last night, and it did so with ease. With 269 "yea" votes, the bill was never even close to failing. And a good thing, too: there were mounting signs as the weeks wore on that the market had had just about enough of Washington's games. A TARP-like failure could have provoked TARP-like chaos in the markets, where even a quick congressional recovery doesn't fully undo the damage the initial fumble causes to investor confidence.
But with the details understood and the legislation on its way to a quick approval in the Senate, it's worth stepping back and saying what we all already know: This is a terrible, no-good, very bad deal.
It's not just that Congress waited until the last minute, taking an unnecessary risk in a fragile economy. And it's not just that the tough decisions got punted once again. This is a bad bill at a time when the economy -- and the American people -- needed a good one. It's a bill that does too little now, and too little later, and it comes in lieu of an obvious, achievable solution that would have done better.
The two reigning theories of our current economic moment are not opposed to one another. The economy is weak now, with too little demand and too little growth, and threatened by mounting deficits later. The answer, as any economist can tell you and as many told Congress, is simple: do more to support the recovery now and more to cut deficits later. In the short-term, we should expand the payroll tax cut, make a massive investment in infrastructure, continue funding unemployment insurance, and do more to aid the states. In the long-run, we should cut spending in entitlement programs as well as discretionary programs, and raise significant revenues and modernize the tax code by flattening the base and closing loopholes.
These two priorities don't conflict. In fact, they support each other. Faster growth now will mean smaller deficits later. And politically, more stimulus now would have helped Democrats agree to more deficit reduction later. But our political system isn't very good at both/and. It's more suited to either/or. And so Republicans fought stimulus now and couldn't agree to the revenues necessary for significant deficit reduction later. So we got neither. We're pulling support out from under a teetering economy now and we're punting the hard decisions on the deficit to yet another committee, and yet another manufactured deadline.
Today, the markets are breathing a sigh of relief because Washington managed to agree before it sparked an unnecessary financial crisis. But we could be celebrating an agreement that actually did what was necessary to speed the recovery now and reduce the deficits that matter. Congress may be patting itself on the back because it didn't needlessly wreck the global financial system, but that's not evidence of success. It's evidence of how terribly they have failed us. And the fact that so many are celebrating this deal only goes to show how used to their failures we have become.
Five in the morning
1) The House passed the debt deal yesterday, report Paul Kane and Lori Montgomery: "A plan to lift the nation’s debt limit and reduce government spending cleared a crucial hurdle in the House on Monday night, as recalcitrant Republicans and disappointed Democrats rallied around a measure to avert a government default. With Senate approval all but certain, the 269-to-161 vote in the House ended a months-long partisan stalemate that threatened to destabilize global markets and undermine the sputtering economic recovery. The Senate vote is set for noon Tuesday. Approval would send the measure to President Obama and immediately grant the Treasury $400 billion in additional borrowing authority, just hours before a midnight deadline. House Speaker John A. Boehner (R-Ohio) won over more than two-thirds of his caucus.
2) The bill won't help the economy at all, writes Annie Lowrey: "The debt deal pays no attention to the unfolding catastrophe in the real economy. The deal's major accomplishment, as touted by the White House, is hardly an accomplishment at all—merely an admission that Congress has probably avoided doing too much damage during this idiotic debate. 'Independent analysts, economists, and ratings agencies have all made clear that a short-term debt limit increase would create unacceptable economic uncertainty by risking default again within only a matter of months and as [Standard & Poor's] stated, increase the chance of a downgrade,' the White House noted. 'By ensuring a debt limit increase of at least $2.1 trillion, this deal removes the specter of default, providing important certainty to our economy at a fragile moment.' In other words, a round of applause: Congress has probably managed to shoo away the shadows that Congress itself cast."
3) Democrats might end up preferring the trigger to a deal: "Start from the premise that Republicans will refuse any deal that includes significant new revenue and Democrats will realize that that’s just fine from their perspective, as Republicans can either cut a deal with them in December 2012 or all of the Bush tax cuts can expire. Now take a good, hard look at the trigger. The Joint Committee is charged with finding $1.5 trillion in savings over 10 years. The trigger would only cut $1.2 trillion over 10 years. The Joint Committee is likely to cut Social Security, Medicaid and a host of programs Democrats aren’t going to want to touch if taxes aren’t part of the deal. The trigger exempts Social Security and Medicaid, and $1 out of every $2 in cuts comes from the Pentagon. The Joint Committee is likely to cut a deal without revenue, and Democrats will have to explain to their base why they permitted, say, Medicare cuts while letting the GOP reject tax increases. The trigger lets Democrats blame Republicans for protecting the wealthy in the 2012 election."
4) Deficit hawks are disappointed, reports Michael Fletcher: "The deficit-reduction deal that the House approved Monday might allow Washington to narrowly avert a self-inflicted fiscal disaster, but it does not get to the root of the nation’s long-term debt problem, according to economists and independent budget experts...'They achieved a temporary political solution, but not a fiscal solution,' said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates fiscal responsibility. 'The real problem here is the mismatch between growing entitlement spending and revenues. And what don’t they address here? Growing entitlements and revenues.' A cross section of fiscal analysts called the prolonged debt negotiations a missed opportunity for political leaders to take bolder action."
5) The budget trigger would hit defense heavily, reports Greg Jaffe: "The prospect of $600 billion in additional defense cuts over the next decade is enough to make Pentagon generals wince and to compel the U.S. military to make big changes to its global strategy. But the cuts can be made without gutting the current force, defense budget analysts said. The White House already has ordered the Pentagon to come up with about $400 billion in savings over the next 12 years...The larger and more painful cuts of an additional $600 billion would be triggered only if Republicans and Democrats cannot come to an agreement on a second round of spending cuts in the next four months. 'You could reasonably make those cuts as long as you were willing to rethink our military strategy, not allow for any sacred cows and cut ruthlessly,' said Todd Harrison, a senior fellow at the Center for Strategic and Budgetary Assessments, an influential defense think tank with close ties to the Pentagon."
Or maybe not? http://bit.ly/qD3Qyw
Sleeper hit interlude: Foster the People plays "Pumped Up Kicks" live.
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Still to come: The Fed is mulling its next move; contraception is now free due to a new rule; federal workers could get hit by the debt trigger or the debt committee; environmental and energy problems may come under the knife; and how to make Darth Vader out of a carrot.
The Fed is expected to consider another round of quantitative easing, reports Binyamin Appelbaum and Catherine Rampell: "Ben S. Bernanke, the chairman of the Federal Reserve, said in the spring that it was time to see whether the economy could stand on its own. Last month he said the Fed would consider new steps if conditions deteriorated significantly. As the Fed’s policy-making committee prepares to meet Aug. 9, the drums are beating louder. 'I don’t think they can do anything until we see how much was lost and how much we can recoup,' said Diane Swonk, chief economist at Mesirow Financial. 'But if we have persistent weakness, and stagnant employment growth through the third quarter, I just don’t see how they can’t step back into the game.' The Fed already is engaged in a vast and unprecedented effort to bolster economic growth."
Joint committees often don't work, writes Sarah Binder: "The general track record of commissions is not very good. Examples of failed commissions abound (Kerry-Danforth Entitlement Reform Commission 1993; Breaux-Thomas Medicare Commission 1997). Examples of unalloyed successes are rare (Base Closing and Realignment Commissions of the 1980s and 1990s). Based on this limited history, it’s worth speculating some more about the factors that will shape the success of the Joint Committee."
State and local governments are bracing for less federal money, report Adam Nagourney and Michael Cooper: "The deficit reduction deal reached in Washington produced some relief across the country on Monday, as the nation appeared to have avoided default. But it also produced a sharp wave of anxiety among governors and mayors worried about how the cuts might hurt already beleaguered states and cities....Mayors, governors and state lawmakers spent Monday trying to measure how much the deficit deal might cost them in aid, a frustrating task given the fact that many of the details of the reductions in federal spending will not be known until later in the year. But there was no doubt that local governments, many of which have endured several years of brutal budget cuts, were facing even more tough times ahead."
The GOP will be able to get serious entitlement cuts out of the debt committee, writes Keith Hennessey: "Speaker Boehner and Leader McConnell appoint to the Joint Committee six Members who will not raise taxes. These six Republicans call the President’s bluff, and tell their Democratic counterparts they are willing to reject a deal that includes tax increases, even if that deal means the trigger will cut defense deeply. They deny the six Democratic Members of the Committee negotiating leverage from the difference between a triggered 10% cut in defense and an 8% cut in nondefense discretionary spending. 'This is going to hurt you almost as much as it’s going to hurt me, so I’m not giving you anything to avoid it.' These six Republicans encourage everyone to cooperate to get most (all?) of the $1.5 T in deficit reduction from the Big 3 entitlement programs: Social Security, Medicare, and Medicaid."
The debt deal just sets the stage for more hostage crises, writes Joe Nocera: "The debilitating deficit battles are by no means over. Thanks to this deal, a newly formed supercommittee of Congress is supposed to target another $1.2 trillion to $1.5 trillion in cuts by late November. If those cuts don’t become law by Dec. 23, automatic across-the-board cuts will be imposed, including deep reductions in defense spending. As has been explained ad nauseum, the threat of defense cuts is supposed to give the Republicans an incentive to play fair with the Democrats in the negotiations. But with our soldiers still fighting in Afghanistan, which side is going to blink if the proposed cuts threaten to damage national security? Just as they did with the much-loathed bank bailout, which most Republicans spurned even though financial calamity loomed, the Democrats will do the responsible thing. Apparently, that’s their problem."
The US political system is too dysfunctional to lead, writes Michael Gerson: "Over lunch with columnists a month ago, Senate Majority Leader Harry Reid precisely predicted the course of the debt-limit debate. Democrats, he said, would not accept serious entitlement changes without accompanying tax increases. Republicans would not accept revenue increases. So an eventual agreement would be focused on domestic discretionary and defense cuts. Reid proceeded to tick off the categories of spending where the reductions would come — a list closely resembling the compromise. It was a demonstration of Reid’s underestimated skill as a legislative technician. It was also the description of a debt debate in Washington that remains unserious."
Snakes on a moving vehicle interlude: A snake climbs along the windshield of a car on the highway.
New health reform rules mean contraception will be free, reports N.C. Aizenman: "Marking a new milestone in long-running efforts to make health insurance more equitable for women, the Obama administration announced Monday that tens of millions of women will soon be able to get birth control, breast pumps, HIV tests and five other categories of preventive services without co-pays or other out-of-pocket insurance charges. The rules issued by Health and Human Services Secretary Kathleen Sebelius amount to one of the most wide-reaching and potentially popular provisions of the health-care law adopted last year. While most employer-sponsored health plans cover a broad array of preventive services for women -- the result of years of activism and new laws -- many require members to share the cost by applying co-pays, deductibles or co-insurance."
The debt deal probably means Medicare provider cuts, reports Matt Dobias: "Physicians, home health practitioners and other providers could see an additional 2 percent pay cut on top of double-digit Medicare reductions already slated for 2012 under the debt ceiling deal reached by the White House and congressional leaders late Sunday....Under terms of the hurried deal, the 12-member joint committee would be charged with crafting proposals that trim at least $1.2 trillion in federal spending over the next decade. Those savings could be found in a number of programs, including Medicare and especially Medicaid, which the White House has signaled it would be open to. If the panel can’t come up with enough savings, automatic cuts would go into effect. Medicaid, Social Security and veterans’ benefits would be protected. But providers could see a 2 percent cut in Medicare reimbursement."
The composition of health exchange boards is already prompting causing conflict, reports Jason Millman: "For some of the states that managed to pass exchange bills this year, the fight over implementing health reform is far from over. Showing that no battle is too small when it comes to health care reform, patient advocates are worried about the insurance industry influencing governance boards overseeing the health exchanges. That’s because the governance boards could be tapped to handle a lot of the heavy lifting on key policy questions, such as which health plans can sell on the exchanges and how to finance the online insurance marketplace and prevent conflicts of interest...Patient advocates are worried insurance industry stakeholders, including the health plans, brokers and agents, will have a seat at the governance table. To advocates, it’s the equivalent of the fox guarding the hen house."
The debt deal could hurt federal workers, reports Eric Yoder: "The debt-ceiling agreement struck over the weekend does not directly require cutbacks in the federal workforce or employee benefits -- news that added to the relief of government workers Monday. But more angst and anxiety might be up ahead. Should the agreement be signed into law, its plan for a two-stage cut in the federal budget could have implications for employees at each step...The first step in the agreement would be to set a series of caps on agency spending over 10 years, beginning with the fiscal year that starts Oct. 1...Depending on the severity of the budget restrictions, agencies might have to resort to steps such as furloughs, hiring freezes and layoffs. But that is uncertain at this point."
Congress likely won't fund the FAA before it recesses, reports Ashley Halsey: "Congress appears ready to head off on summer vacation without resolving a funding stalemate that has resulted in the furlough of 4,000 Federal Aviation Administration employees and layoffs for about 70,000 airport construction workers. The workers -- including about 1,000 FAA employees in the Washington region -- faced the prospect of going without a paycheck until after Labor Day. The agency also would lose an estimated $1.2 billion in ticket-tax revenue...The deadlock is over a ruling by the National Mediation Board that favored union efforts to organize airlines. Republicans want to reverse an NMB rule that union-organizing elections should be decided by a simple majority of those who vote."
Veterans' benefits are safe from the debt trigger, reports Steve Vogel: "Representatives of veterans groups were assured by White House officials Monday that veterans benefits and compensation are safe from across-the-board spending cuts that could be triggered by the debt agreement under consideration. The compromise includes a trigger mechanism to force automatic across-the-board cuts of $1.2 trillion to agency budgets over the next decade if a special congressional committee is unable to agree on a plan. Jon Carson, director of public engagement for the White House, told veterans representatives at a White House briefing that veterans benefits would be exempt, according to a veterans’ representative at the meeting."
Culinary project interlude: How to make a Darth Vader doll out of a carrot.
Environmental and energy programs could face cuts under the debt deal, report Darren Goode and Darren Samuelsohn: "Popular energy and environmental programs should prepare for a decade of spending cuts under the debt deal reached late Sunday between the White House and congressional leaders. Less clear, however, is the effect that the landmark agreement will have on popular tax incentives for the oil, gas, renewable and other energy industries. Constituencies fighting in the trenches for every dollar insist that their programs are small relative to other big-ticket items in the annual appropriations process. But there's still plenty of concern that everything from wastewater grants to air pollution monitoring and biofuels research and development will face the scalpel as lawmakers start cutting about $2.7 trillion in spending over the next decade."
Democrats want to use the debt committee to start a fight over oil subsidies, report Andrew Restuccia and Ben Geman: "Democrats signaled Monday that they hope to use a joint congressional committee set up under the compromise debt deal to revive their stalled push to repeal billions in oil-industry tax breaks, a move that signals an upcoming clash with House Republicans. Attacking oil industry tax breaks has been a pillar of Democratic and White House political messaging in fiscal policy battles with Republicans. Comments by several Democrats Monday signal that it's not likely to abate despite their failure to win any revenue-raisers in the initial phase of the two-part deficit agreement, or by heavy GOP and industry resistance to going after the influential energy sector."
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.