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Are both sides bluffing on the sequester?

Ezra Klein's Wonkbook

Feb. 8, 2013

Welcome to Wonkbook, Ezra Klein and Evan Soltas’s morning policy news primer. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook’s Number of the Day: 45 percent. That’s the amount by which the Regional Greenhouse Gas Initiative, or RGGI, wants to reduce its cap on carbon emissions. The move would follow reductions in actual emissions to bring the cap back in line. Still, it would be a major move for the Northeast on climate policy.

Wonkblog’s Graph of the Day: The “rings of unemployment” which touch 4 out of 5 of us.

Wonkbook’s Top 5 Stories: 1) Who wants what on the sequester; 2) the bad but improving economy; 3) meet the Republicans who are enabling Obamacare; 4) policy time for guns; and 5) EPA to release new plan on climate change.

1) Top story: Are both sides bluffing on the sequester?

Obama says he’s ready for sequester fight with GOP. “President Obama told House Democrats on Thursday that he is ‘prepared, eager and anxious’ to produce the broad fiscal package that has eluded Washington.” Bernie Becker and Amie Parnes in The Hill.

…And the White House also decried Republican demands for more cuts. “White House press secretary Jay Carney said on Thursday that a ‘list of demands’ put out by Speaker John Boehner on the so-called sequester is ‘terrible,’ and urged Republicans to reconsider their approach on the looming spending cuts. In comments to reporters at an off-camera briefing, Carney said President Obama is worried Republicans are willing to allow $85 billion in spending cuts to go forward on March 1.” Amie Parnes in The Hill.

@RyanLEllis: it astonishes me how smart MSM political reporters seem to think that the GOP will raise taxes to avoid a small sequester.

One of the Democratic demands, on the other hand, is to slash farm subsidies. “Farm subsidies are back in play as a possible offset in sequester bargaining, this time as a way for Senate Democrats to help forestall automatic spending cuts for the remainder of this fiscal year or into December. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) confirmed that the prime target for spending cuts is an outdated system of direct cash payments to producers that still costs taxpayers close to $5 billion a year and has long been a target for reformers.” David Rogers in Politico.

The sequester’s furloughs may have to go through collective bargaining. “The two largest federal labor unions are preparing to exercise their bargaining rights if agencies decide to furlough employees because of sequestration budget cuts. The National Treasury Employees Union and the American Federation of Government Employees say they will work aggressively to soften the blow of potential furloughs and other changes prompted by the cuts.” Eric Yoder in The Washington Post.

@MichaelSLinden: The way out of the sequester is for the GOP to remember that tax expenditures = spending.

KRUGMAN: Kick that can. “[W]ouldn't it be a good thing if our politicians could simultaneously agree on a long-term fiscal plan? Indeed, it would. It would also be a good thing if we had peace on earth and universal marital fidelity…Realistically, we're not going to resolve our long-run fiscal issues any time soon, which is O.K. -- not ideal, but nothing terrible will happen if we don't fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts. So we should avoid that damage by kicking the can down the road. It's the responsible thing to do.” Paul Krugman in The New York Times.

KRAUTHAMMER: The sequester isn’t a bluff. It’s a policy. “The Republicans have offered no concessions. Obama's bluff is being called and he's the desperate party. He abhors the domestic cuts. And as commander in chief he must worry about indiscriminate Pentagon cuts that his own defense secretary calls catastrophic…What should the Republicans do? Nothing. Republicans should explain -- message No. 1 -- that in the fiscal-cliff deal the president already got major tax hikes with no corresponding spending cuts. Now it is time for a nation $16 trillion in debt to cut spending. That's balance.” Charles Krauthammer in The Washington Post.

SOLTAS: Good and bad goals for the budget. “10-year stability for the debt-to-GDP ratio has become widely accepted as the right policy goal, especially since the ‘fiscal-cliff’ deal in January…The best course is to stabilize the debt over the business cycle rather than over an arbitrary period. Depending on the way one looks at the economy and the federal government's budget, that could mean that we're either tightening too slowly or too quickly…We need to actively reduce the debt over that time — or else when the next recession comes, we'll climb the next stair on the way to ever-higher government debt.” Evan Soltas in Bloomberg.

Music recommendations interlude: Carole King, “It’s Too Late,” 1971.

Top op-eds

EISENBREY: The case against more high-skilled immigration. “Bringing over more -- there are already 500,000 workers on H-1B visas -- would obviously darken job prospects for America's struggling young scientists and engineers. But it would also hurt our efforts to produce more.” Ross Eisenbrey in The New York Times.

WOLF: It is time for a fundamental reset of monetary policy. “Yet proponents of the current regime (of which I was one) justified it not only on the proposition that it would stabilise inflation, but that it would help stabilise the economy. It failed to do so…So what is to be done? First, there needs to be a government-led assessment of the inflation-targeting regime, particularly of how well it operates while interest rates are at their lower bound. Second, the BoE has to reconsider how it develops and communicates policy during this exceptional period.” Martin Wolf in The Financial Times.

CHANDRA, JENA, AND SEABURY: New, higher estimates on the costs of defensive medicine. “Several economic studies (including work by us) have found that states that have enacted malpractice reforms experienced a mere 2%-5% reduction in health-care spending compared to states that have not. This has led to a loose consensus among most economists and policy makers that defensive medicine is not an important contributor to U.S. health-care spending--and therefore that malpractice reform is not of much significance for containing costs…There are reasons to believe this consensus understates the amount of defensive medicine.” Amitabh Chandra, Anupam B. Jena, and Seth A. Seabury in The Wall Street Journal.

BARRO: Why health care challenges conservatives. “Conservatives love markets too much to admit that the health-care market can't be made to work very well…[W]hen conservatives talk about health-care cost control, their first and only instinct is to shout "markets markets markets." The result is that conservative approaches to cost control are never really going to be any good.” Josh Barro in Bloomberg.

CAMPBELL: Background checks work for guns. We just have to fund them. “Congress responded [to the Virginia Tech shooting] by passing the NICS Improvement Act, authorizing $1.3 billion in grants to fund state agencies and court systems to create the necessary information infrastructure. Yet even after additional mass shootings, the authorized sums were never requested by the president or appropriated by Congress; indeed, the plan has received only token funding — $50 million since 2009, or 4 percent of the authorized amount. As a result, information collection remains uneven, the databases full of gaps. Obama supports increasing spending on the NICS Improvement Act from $5 million in 2012 to $20 million in 2013 and $50 million in 2014. This is nowhere near enough.” Frank A.S. Campbell in Bloomberg.

‘Throwing like a girl’ interlude: Try using you’re other arm. It’s about muscle memory and mechanics.

2) It’s a bad economy, but it’s getting better

How unemployment has touched 80 percent of people. “In a January survey, the Heldrich Center asked Americans about their exposure to layoffs in the recession or its aftermath. A lot of respondents knew several people who had been laid off, but the researchers decided to segment responses by greatest proximity.” Catherine Rampell in The New York Times.

…But — good news — joblessness keeps falling. “The number of Americans filing new applications for unemployment benefits fell last week and the trend line for jobless claims reached nearly a five-year low, providing signs that the slow recovery in the labor market remains on track…Initial claims for state unemployment benefits dropped by 5,000 to a seasonally adjusted 366,000, the Labor Department said. That was enough to pull down a four-week moving average of new claims, a gauge of the trend in layoffs, by 2,250 to 350,500, its lowest since March 2008.” Reuters.

About your ‘makers vs. takers’ narrative: it’s wrong. “In January, unemployed workers were more likely than the employed to say that the government was mainly responsible for helping the laid off -- 38 percent versus 27 percent -- but that still leaves only a minority of the unemployed saying they are chiefly the government's responsibility.” Catherine Rampell in The New York Times.

2013 is looking to be a weak year for economic growth. “Economists are forecasting the same steady, if unspectacular, growth this year that they were expecting in 2012. Last year’s predictions proved too optimistic, but they say this year the economic fundamentals are sturdier.” Phil Izzo in The Wall Street Journal.

Consumers keep spending, despite payroll tax hike. “Economists had been bracing for the impact of a 2 percentage-point increase in the payroll tax that is expected to cost the typical worker about $1,000 over the course of the year. But sales at stores that have been open at least a year - a key measure of a retailer's health - rose a surprisingly strong 5 percent in January compared with a year ago, according to the International Council of Shopping Centers.” Ylan Q. Mui in The Washington Post.

…And the case that consumers are beginning to scrimp. “Some early signs suggest they are tapping the brakes. Surveys show the majority of Americans who are aware of the tax increase say they plan to cut spending, and consumer confidence has wavered.” Neil Shah in The Wall Street Journal.

…But some at the Fed are getting worried about the consequences of extended monetary easing. “Federal Reserve Board Governor Jeremy Stein said there isn’t an imminent threat to the wider financial system, but highlighted several markets--including junk bonds, mortgage real-estate investment trusts and commercial banks’ securities holdings--as areas where potentially troubling developments are emerging, possibly as a result of the Fed’s easy-money policies. Mr. Stein spoke Thursday at a symposium at the Federal Reserve Bank of St. Louis. Mr. Stein’s comments are significant because they are among the strongest from a Fed official about risks developing in bond markets in the presence of low interest rates and because he raises the prospect that the Fed might, down the road, need to use tighter credit policies to deal with it.” Victoria McGrane and Jon Hilsenrath in The Wall Street Journal.

GE says that economic uncertainty isn’t the end of everything. “I asked Immelt about how Washington fiscal brinksmanship is affecting GE's business decisions and the economy…Maybe not all that much. At least for big companies like GE.” Neil Irwin in The Washington Post.

Mathematics interlude: They just found another Mersenne prime. Sweet.

3) Republicans, the accidental Obamacare enablers

Republican governors are embracing the Medicaid expansion. “[S]ix Republican governors have since come to back the program, including Michigan Gov. Rick Snyder on Wednesday and Ohio's John Kasich on Monday. Arizona Gov. Jan Brewer announced her support in mid-January. It's an extraodinary turnaround that suggests the lure of federal dollars could halt Republican obstruction of the health-care overhaul. Twenty-two states and the District are now on board, and 17 others are deliberating. The remaining 11, all with Republican governors, have said no -- but observers believe the recent decisions could change some minds.” Sarah Kliff in The Washington Post.

Meet the men and women in Congress who want to repeal the medical-device tax. “A bipartisan group of 180 House members -- consisting of about 40 percent of the House -- has reintroduced a bill to end the 2.3 percent tax on medical devices that was imposed under President Obama’s healthcare law.” Pete Kasperowicz in The Hill.

HHS delays Basic Health Plan option until 2015. “The Obama administration has delayed by one year the rollout of a health program aimed at low to moderate-income people who won't qualify for the expanded Medicaid program under the federal health law.Under the so-called Basic Health Program, some states had planned to offer government insurance to people who don't qualify for Medicaid, but who would be hard pressed -- even with federal subsidies -- to afford the premiums and cost-sharing of plans offered in the new insurance marketplaces…The Department of Health and Human Services on Wednesday said it basically ran out of time to put out guidelines to get the program running by 2014.” Phil Galewitz in Kaiser Health News.

Movement accelerates towards final ‘doc fix.’ “The CBO downgraded the cost of repealing the flawed formula from $243.7 billion to $138.3 billion. That significantly lightened the load for lawmakers who agree that they've got to scrap the formula but have been gridlocked for years over how to pay for it. Without a permanent solution, they frantically search for a last-minute, short-term ‘doc fix’ year after year.” Paige Winfield Cunningham in Politico.

…But look at the savings from the Affordable Care Act. “The Obama administration said Tuesday that 6 million Medicare beneficiaries have saved more than $5.7 billion on prescription drugs since 2010 thanks to healthcare reform.” Elise Viebeck in The Hill.

Tavenner renominated to head Center for Medicare and Medicaid Services. “President Obama on Thursday renominated Marilyn Tavenner to one of the top healthcare posts in the administration. It’s the second time Obama has nominated Tavenner to lead the Centers for Medicare and Medicaid Services (CMS), the agency that oversees Medicare, Medicaid and most of the implementation of President Obama’s signature healthcare law. Tavenner herself isn’t controversial -- she even got the endorsement of House Majority Leader Eric Cantor (R-Va.), who worked with Tavenner when she led Virginia’s Medicaid program.” Sam Baker in The Hill.

Catherine Rampell is absolutely right, this is hilarious interlude: A Tumblr blog, “WTF, Evolution?”

4) It’s policy time for gun control

House Dems unveil gun-control proposals. “The congressional group, spearheaded by Rep. Mike Thompson (D-Calif.), endorsed the same core proposals as the administration: a universal background check system for gun purchases, a ban on high-capacity magazines and a renewal of the lapsed assault weapons ban.” Russell Berman in The Hill.

Biden to press his case in Philly. “The White House, seeking more police support for its push to toughen gun laws, announced Thursday that Vice President Biden would hold a roundtable session about gun safety with law enforcement officials next week. Biden will travel to Philadelphia to meet with law enforcement officials and congressional Democrats on Monday, on the eve of President Obama's ‘State of the Union’ address on Tuesday.” Philip Rucker in The Washington Post.

Mental health policy is another focus. “The bill would put in place standards for about 2,000 ‘federally qualified’ community behavioral health centers, requiring them to provide such services as substance abuse treatment and 24-hour crisis care…In return, facilities meeting criteria would be able to bill Medicaid for their services -- a change intended to open the door to treatment for many more people and one that is estimated to cost about $1 billion over the next decade.” Brady Dennis and Paul Kane in The Washington Post.

The link you’re going to send to everyone right now interlude: Out of the woodwork, literally.

5) Energy wonks, prepare for big news tomorrow

The EPA is set to issue a major climate plan today. “The draft EPA Climate Change Adaptation Plan, to be published for public consideration in Friday's edition of the Federal Register, is meant to guide the agency's response to global warming, which it says is occurring at a rapidly increasing rate…That response is likely to include new federal rules from EPA, cracking down on air pollution. The agency, for example, is weighing whether to propose new emission standards on existing power plants.” Ben Goad in The Hill.

Study: U.S. to fall short of 2020 climate goal. “The study gives a pessimistic view of the future even though carbon emissions have fallen in recent years because of the economic downturn and increased use of natural gas to produce electricity. While the Obama administration has taken several steps to curb greenhouse gas emissions, such as imposing the first carbon limits on vehicles and new power plants, the analysis suggests that non-carbon emissions from the U.S. natural gas boom and from chemicals used as refrigerants are on the rise.” Juliet Eilperin in The Washington Post.

Regional cap-and-trade program calls for major cuts to carbon emissions. “he Regional Greenhouse Gas Initiative, the country's first regional system for capping carbon emissions and creating a market in carbon allowances, proposed…a 45 percent reduction next year in the total carbon dioxide emissions allowed. “ Felicity Barringer in The New York Times.

A majority of Americans think regulation, not taxes, is the way to do climate policy. “The majority of people in the United States would prefer that climate change be addressed through regulations instead of taxes, according to a new survey. Sixty-four percent of respondents in a Duke University survey said the are ‘strongly or somewhat’ in favor of the government ‘regulating greenhouse gas emissions from power plants, factories and cars and requiring utilities to generate more power from 'clean' low-carbon sources.’ In contrast, only 29 percent backed fighting climate change with taxes on fossil fuels.” Megan R. Wilson in The Hill.

Twinsies interlude: The best piece you’ll ever read about political reporters who misidentify members of Congress.

Wonkblog Roundup

Is Mario Draghi trying to start a currency war? Neil Irwin.

It’s likely to take a decade for Europe to begin fracking. Brad Plumer.

Kent Conrad’s old office space is still filled with his jumbo charts. Sarah Kliff.

What to be the American ambassador to France? That’ll be $1.1 million. Brad Plumer.

‘Monopoly’ and the American economy. Howard Schneider.

Bishops unimpressed with new birth-control rules. Sarah Kliff.

Is marijuana the labor unions’ last hope? Brad Plumer.

Quantum mechanics, an ‘embarrassment’ to science? Brad Plumer.

Et Cetera

Lawmakers feel whiplash from Postal Service actions. Josh Hicks in The Washington Post.