Nov. 16, 2011

Six days left for the supercommittee, and it's not looking good. On CNBC last night, Rep. Jeb Hensarling, the Republican co-chair of the committee, said he and his colleagues had “gone as far as we feel we can go" on taxes, and that "any penny of increased static revenue is a step in the wrong direction." In other words, Republicans aren't looking to compromise further. But Hensarling went yet further than that. If the supercommittee fails, he said, Republicans are looking to undo the compromises they have already made.

The issue is "the trigger," the policy that automatically cuts the deficit by $1.2 trillion in the event that the supercommittee fails. Half of those cuts are scheduled to come from domestic spending (excluding Social Security, Medicaid, and a few other programs that help te poor). That's the stick for Democrats. Half of them are scheduled to come from the Pentagon. That's the stick for Republicans. But last night, Hensarling said the defense cuts are too onerous, and so "we've got 13 months to find a smarter way to do it." By "a smarter way to do it," he means a way that eases the cuts to defense and, since Republicans aren't going to replace those defense cuts with new taxes, increases the cuts to domestic programs.

In comments to reporters yesterday, Senate Majority Leader Harry Reid was firm on this point: the defense cuts in the trigger were the GOP's concessions after they refused to include taxes in the trigger, and they're not going anywhere. "If committee fails to act, sequestration is going to go forward," he told reporters. "Democrats aren’t going to take an unfair, unrealistic load directed toward domestic discretionary spending and take it away from the military."

Behind the scenes, the White House has taken a similar line: the trigger can't be changed to exempt defense and fall more heavily on domestic spending. That isn't the same as saying the trigger can't be changed. But Democrats aren't going to be enthusiastic about keeping the part meant to penalize them for the supercommittee's failure while helping Republicans move the bit that was meant to be their punishment.

But we'll see. Democrats haven't always been known to hold the line on defense cuts. The bigger issue here, however, is that Republicans are setting a bad precedent for future deals. Republicans are talking about unwinding the trigger before the supercommittee has even finished its work. They are, in other words, reneging on the terms of the debt-ceiling deal. So why should Democrats who are hearing this expect they'll abide by the terms of a deal that calls for revenue-increasing tax reform in six months?

The reality is, the supercommittee might not just end without reaching a deal. It might end by undoing a previous deal, and by making the two sides trust each other less i future deals. That's not just failure. That's sabotage.

Perhaps you could do better, however. This morning, the Pew Fiscal Analysis Initiative unveiled their "Budget Challenge": an online deficit-reduction calculator that lets you choose from almost every policy the supercommittee is known to be considering, and quite a few they're not. You may have used deficit calculators before, but probably not one this detailed. Pretty much the only thing you can't do is go back on the defense cuts in the trigger. That's such advanced budgetary work, even the wonks leave it to Congress.

Top Stories

 

1) The supercommittee is falling apart, reports Brian Beutler: Hensarling claimed that if the committee recommended even a dollar of new net tax revenue — the kind of revenue Dems are demanding — it would constitute a step in the wrong direction. He said a GOP plan put forward by Sen. Pat Toomey (R-PA) — one which Republicans claim would raise revenues by nearly $300 billion over 10 years, but would also make the Bush tax cuts permanent — is as far as Republicans are willing to go on revenues. But that’s an offer Democrats flatly rejected as unserious. And unless one of the parties breaks cleanly with its publicly stated position, the committee will either fall well short of reducing the deficit by $1.2 trillion over 10 years as required by law, or will fail altogether. 'We have gone as far as we feel we can go,' Hensarling said. 'We put $250 billion of what is known as static revenue on the table, but only if we can bring down rates [but] any penny of increased static revenue is a step in the wrong direction. We can only balance that with pro-growth reform and frankly the Democrats have never agreed to that.'"

2) Supercommittee members could resort to gimmicks, reports Janet Hook: "With Congress's deficit-reduction supercommittee barreling toward a deadline for striking a big budget deal, both parties are reaching for accounting gimmicks to help reach their target of $1.2 trillion in savings over 10 years. Some tools are familiar to old Washington hands, such as massaging budget assumptions and painting rosy economic scenarios. Others include taking credit for 'saving' money on wars that are ending and putting off until next year what lawmakers don't want to deal with now...Any perception of gimmickry could undermine the bill's credibility especially among tea-party conservatives and on Wall Street, possibly risking another hit to the U.S.'s credit rating...Both Democrats and Republicans have indicated willingness to change the baseline to assume the Bush tax rates are extended, with no impact on the deficit."

Real talk: It seems silly to get into this, as the chances of any deal seem so remote, but if the supercommittee retreats to gimmicks that House Republicans have already rejected, it's entirely possible their bill could fail when it hits Congress.

3) The White House is preparing for the supercommittee to fail, reports Anne Kornblut: "White House officials are quietly bracing for 'supercommittee' failure, with advisers privately saying they are pessimistic that the 12-member Congressional panel will find a way to cut $1.2 trillion from the deficit as required. In public, however, the official administration stance is that failure is not an option. 'I don’t think it makes sense to anticipate their failure,' White House Office of Management and Budget Director Jack Lew said Tuesday. 'I think it’s important that they succeed. The president made that clear in the calls he made on Friday.' President Obama called the Democratic and Republican leaders of the supercommittee from Air Force One on his way out of town last week for an extended trip to Hawaii and Asia, and he has continued to urge action in his remarks on the road."

4) Democrats will not permit the defense trigger to be undone if the domestic spending trigger is left untouched, reports Alex Bolton: "Senate Majority Leader Harry Reid (D-Nev.) said Tuesday that Democrats would not allow Republicans to save the Pentagon from cuts if the supercommittee fails to reach a deal. The Defense Department is slated for $500 billion in cuts if the Joint Select Committee on Deficit Reduction fails to produce an agreement with at least $1.2 trillion in cuts by Nov. 23. Some Republicans have said they will try to reverse the automatic cuts that would hit Defense but Reid vowed that non-defense discretionary programs would not carry the burden alone."

5) It's getting costlier for governments across Europe to borrow, report Howard Schneider and Anthony Faiola: "Borrowing costs for European governments jumped across the board Tuesday, and new data confirmed that the region’s economy is slowing, evidence on two key fronts that leaders of the euro area have yet to contain its stubborn financial crisis. The rise in interest rates hit Spain, Italy and -- perhaps most worrisome -- France. French borrowing costs outstripped German costs, which serve as a regional benchmark, by the most since the adoption of the euro more than a decade ago. France, the euro zone’s second-largest economy, retains a top-notch AAA bond rating and is able to borrow at rates substantially below those for Spain, Italy and other economically weaker countries."

Top Op-eds

 

1) If Medicare is constitutional, then so is health care reform, writes Einer Elhague: "For decades, Americans have been subject to a mandate to buy a health insurance plan -- Medicare. Check your paystub, and you will see where your contributions have been deducted, whether or not you wanted Medicare health insurance. Many opponents dismiss this argument because Medicare (unlike the new mandate) requires the purchase of health insurance as a condition of entering into a voluntary commercial relationship, namely employment, which Congress can regulate under the commerce clause. Thus, they say, the Medicare requirement regulates a commercial activity, whereas the new mandate regulates inactivity. But is that a distinction of substance? After all, we don’t have much choice but to get a job if we want to eat."

2) Cutting the CBO makes no sense, writes Stan Collender: "Former Speaker and current GOP presidential candidate Newt Gingrich might well have said that he wants to kill his personal physician because he didn’t like being told his blood pressure was too high. But that’s the equivalent of what Gingrich did say during a recent debate, when he made it clear that the Congressional Budget Office has to be eliminated if health care reform is going to be repealed. According to Gingrich, the CBO should be done away with because its analysis shows that, as enacted, health care reform reduces the federal budget deficit. This means that repealing it -- as many in the GOP base to which Gingrich is appealing wants to do -- will increase the deficit and, therefore, require spending cuts or revenue increases to offset the impact."

3) The White House is amending health reform by fiat, write Jonathan Adler and Michael Cannon: "The Patient Protection and Affordable Care Act offers "premium assistance"--tax credits and subsidies--to households purchasing coverage through new health-insurance exchanges...The law encourages states to create health-insurance exchanges, but it permits Washington to create them if states decline. So far, only 17 states have passed legislation to create an exchange. This is where the glitch comes in: ObamaCare authorizes premium assistance in state-run exchanges (Section 1311) but not federal ones (Section 1321)...The Obama administration wants to avoid that legislative debacle, so this summer it proposed an IRS rule to offer premium assistance in all exchanges 'whether established under section 1311 or 1321.'"

'90s alt-rock interlude: Weezer plays "Why Bother" live.

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

Still to come: Eurozone growth is slow; the supercommittee is leaving health reform alone; the White House is bracing for the supercommittee to fail; the Energy Department pushed Solyndra to delay a layoff announcement until after the midterm elections; and a corgi on a swing.

Economy

 

Eurozone growth is worrisomely slow, reports Brian Blackstone: "The euro-zone economy barely grew in the third quarter despite a temporary bounce in Germany and France, raising fears that the euro bloc may already be sliding into recession as businesses and consumers cut back on spending in response to Europe's escalating debt crisis. The euro zone remains marked by a deep divide between the vulnerable southern periphery, including Italy, Spain and Greece, and the more prosperous north. But as the debt crisis threatens larger countries such as Italy a new problem has emerged: Ever fewer countries have expanding economies, adding to pressure on the currency bloc. Gross domestic product in the 17-nation euro zone grew 0.6% at an annualized rate during the third quarter, according to figures released by European Union statistics agency Eurostat."

Fannie and Freddie are reducing certain fees for homeowners, report Tom Braithwaite and Shahien Nasiripour: "Fannie Mae and Freddie Mac, the government-backed mortgage guarantors, said on Tuesday that they would reduce fees and relieve lenders from some liability on home loans as part of a scheme to lower the cost of borrowing to distressed homeowners. The Obama administration has revamped the home affordable mortgage programme (Harp) in a bid to make it easier for borrowers to refinance at lower rates. As part of the new guidelines, Fannie and Freddie have agreed not to demand banks compensate them for loans that later prove to have breached underwriting guidelines. Lender liability for underwriting mistakes made by the originators of the original loan has been one of the biggest obstacles to increased refinancings under the Harp initiative."

Businesses are starting to worry about the supercommittee's outcome, report Neil Irwin and Ylan Mui: "Businesses are getting nervous about Washington again. A congressional 'supercommittee' tasked with finding at least $1.2 trillion in deficit reductions by Thanksgiving has made little apparent progress thus far, and could add a layer of uncertainty during the crucial holiday shopping period. Combined with continuing trouble in Europe and volatile financial markets, it is a confluence of risks at a time of already fragile confidence among busi­ness­peo­ple and consumers...Matt Shay, head of the National Retail Federation trade group, said many retailers are assuming that federal spending will fall over time and that taxes could rise, pinching consumer spending."

Stop motion short interlude: Marcel the Shell, part two.

Health Care

 

The supercommittee is largely leaving health care alone, reports Matt Dobias: "Anyone tracking the supercommittee has heard the mantra: Everything is on the table. But there’s one big item that doesn’t appear to be on that gigantic deficit-cutting table: President Barack Obama’s health reform law, his signature domestic achievement. From the provisions that aim to reconfigure how care is delivered at the bedside, to new templates for financing care, to the blueprint for helping 32 million Americans get coverage, the wide-reaching Affordable Care Act is on pace to stay largely intact as the six Democrats and six Republicans on the supercomittee grapple with how to slash the deficit by at least $1.2 trillion. The exception -- the one item that may be on a platter smack in the middle of that table -- could be the law’s $14 billion public health and prevention fund."

Domestic Policy

 

11 states want No Child Left Behind waivers, reports MJ Lee: "Eleven states have submitted waiver requests to get out from under provisions of the No Child Left Behind, less than two months after President Barack Obama announced he would excuse states from some requirements of the Bush-era education reform law. Colorado, Florida, Georgia, Indiana, Kentucky, Massachusetts, Minnesota, New Jersey, New Mexico, Oklahoma and Tennessee put in applications for the waiver by Monday, meeting the first of three deadlines, the Education Department announced. Each of those states submitted plans to improve their education system, and will be notified by mid-January if their proposals have been approved...According to the Education Department, 39 states, the District of Columbia and Puerto Rico have signaled that they will take advantage of the waiver option."

Lawmakers want to implement the next farm bill through the supercommittee, reports Erik Wasson: "Lawmakers on the House and Senate Agriculture committees are trying to write a new five-year farm bill through the supercommittee process. The legislators are using the supercommittee to avoid what would be a more public, election-year debate in 2012, when the current farm bill expires and new legislation would be scheduled for writing, according to critics of the effort...Environmental groups and poverty advocates say the supercommittee should dismiss the recommendations from the farm-state lawmakers, which are expected to be delivered later this week. The recommendations are expected to propose the replacement of some existing farm payments with a new crop insurance program and new payments that would be linked to commodity prices."

The federal pension guarantor is facing a big deficit, reports Michael Fletcher: "The federal agency that guarantees private-sector pensions saw its deficit swell to $26 billion in the past year -- the largest in its 37-year history. The agency guarantees the pensions of 44 million workers. The Pension Benefit Guaranty Corp. reported the growing deficit in its latest annual report, released Tuesday. The disclosure adds new urgency to the agency’s efforts to persuade Congress to change its premium structure in ways that could triple pension guarantee costs for businesses whose retirement funds have the greatest risk of running out of money. Without a new round of fee increases, the PBGC -- which is funded by a combination of company premiums and investment returns on its $81 billion in assets -- could eventually require a taxpayer bailout, according to its director, Joshua Gotbaum."

Middle class neighborhoods are dying off, reports Sabrina Tavernise: "The portion of American families living in middle-income neighborhoods has declined significantly since 1970, according to a new study, as rising income inequality left a growing share of families in neighborhoods that are mostly low-income or mostly affluent. The study, conducted by Stanford University and scheduled for release on Wednesday by the Russell Sage Foundation and Brown University, uses census data to examine family income at the neighborhood level in the country’s 117 biggest metropolitan areas. The findings show a changed map of prosperity in the United States over the past four decades, with larger patches of affluence and poverty and a shrinking middle. In 2007, the last year captured by the data, 44 percent of families lived in neighborhoods the study defined as middle-income, down from 65 percent of families in 1970."

Corgis are excellent interlude: A corgi on a swingset.

Energy

 

The Energy Department apparently delayed a Solyndra layoff announcement until after midterms, report Carol Leonnig and Joe Stephens: "The Obama administration, which gave the solar company Solyndra a half-billion-dollar loan to help create jobs, asked the company to delay announcing it would lay off workers until after the hotly contested November 2010 midterm elections that imperiled Democratic control of Congress, newly released e-mails show. The announcement could have been politically damaging because President Obama and others in the administration had held up Solyndra as a poster child of its clean-energy initiative, saying the company’s new factory, built with the help of stimulus money, could create 1,000 jobs. Six months before the midterm elections, Obama visited Solyndra’s California plant to praise its success."

The Northeast carbon trading program is working, reports Matthew Wald: "The Regional Greenhouse Gas Initiative, a 10-state program that has been testing a carbon dioxide cap-and-trade system, may be in trouble, with New Jersey planning to drop out and other states considering doing the same. But a new study says the program has saved money for consumers, stimulated job growth and kept money in local economies in the states that signed up. Power plant owners paid in $912 million over the period studied, from mid-2008 through September. Some of it was spent on projects like improving energy efficiency, some went to unrelated environmental purposes like restoring wetlands and some simply went into general use by the states. The 10 states within the program, known as RGGI (pronounced Reggie) are the six New England states, New York, New Jersey, Maryland and Delaware."

A report calls for reforms to the Department of Energy, reports Matthew Wald: "Already under fire for granting a $535 million federal loan guarantee to Solyndra, the Department of Energy now faces a critique from within. On Tuesday, the department’s inspector general, Gregory H. Friedman, issued a report calling for a wholesale restructuring of the department’s far-flung laboratories and other operations. He warned that 'painful' staff reductions were certain to come as Congress sought deep federal budget cuts in the months ahead. In one of his more striking criticisms, Mr. Friedman wrote that the department spent nearly $13 billion a year to run 16 separate laboratories but that only about half of that money went toward actual research, with 49 percent paying for overhead and capital spending."

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

newsletters@email.washingtonpost.com