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The damage the sequester could do

Ezra Klein's Wonkbook

Feb. 21, 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: 800,000. That’s the number of Defense Department civilian employees who will be forced to take unpaid leave if the sequester goes through. More below on the economics of the sequester.

Wonkblog’s Graph of the Day: The incredible shrinking Medicare budget.

Wonkbook’s Top 5 Stories: 1) Everything you need to know about the economics of the sequester; 2) Florida to expand Medicaid; 3) the Right’s immigration politics; 4) is it time for fiscal stimulus?; and 5) what the Fed said.

1) Top story: The damage the sequester could do

Economists warn on economic damage from the sequester. “[It] most likely would reduce growth by about one-half of a percentage point in 2013, according to a range of government and private forecasters. That could be enough to again slow the arrival of a recovery, producing instead another year of sluggish growth and high unemployment.” Binyamin Appelbaum and Annie Lowrey in The New York Times.

Mega-explainer: Everything you could possibly need to know about the sequester. Dylan Matthews in The Washington Post.

Where the sequester would cut deepest. “Much of the talk about the looming sequester has focused on the big cuts to the defense budget…[F]ederal grants to the states will also feel the brunt of the spending cuts. Education grants are the biggest item on the chopping block, with 100 percent of the $38 billion in annual grants subject to the sequester. Income security and social services -- which include things like disabled and handicap services, family and child welfare and assistance to the elderly -- would face losing 38 percent of their $85.5 billion.” Aaron Blake in The Washington Post.

@pourmecoffee: Sequester hits everyone. SCOTUS has to downgrade to itchy polyester robes that just make you want to declare everything unconstitutional.

The Pentagon readies. “The Pentagon warned 800,000 civilian employees worldwide Wednesday that they will be forced to take unpaid leave if deep budget cuts take effect next week, fueling growing anxiety about the impact of the automatic spending reductions on the nation's economy and security. In the most detailed account of the ramifications of across-the-board cuts, called the sequester, Defense Department officials said civilian personnel could be put on leave one day a week for 22 weeks -- effectively cutting their pay by 20 percent for nearly six months.” Zachary A. Goldfarb and Ernesto Londono in The Washington Post.

@mattyglesias: The sequester is a big deal because after it hits the Taliban will be able to outspend the Pentagon, right?

Meet Robert Hale, the Pentagon’s comptroller. “Pentagon comptroller Robert F. Hale is overseeing the Defense Department's plans to furlough most of its 800,000 civilian workers, but he insists that he still meets with friendly faces as he strides down the building's corridors…As the Defense Department's chief financial officer and principal adviser on all fiscal matters, including the Pentagon's annual budget of more than $600 billion, the 66-year-old Hale and his office are at the focal point of a budget crisis.” Steve Vogel in The Washington Post.

Democrats want Congress to come back, stop the sequester. “With nine days to go before $85 billion in automatic federal spending cuts begin, some Democrats are calling on Republican leaders to reconvene the House immediately and find a way to avert the spending reductions known as ‘sequester.’…Lacking control of the House, Democrats often call on Boehner and House Majority Leader Eric Cantor (R-Va.) (who sets the House calendar) to cancel a recess and stay in Washington to work on legislation designed to bolster the economy.” Ed O’Keefe in The Washington Post.

@davidfrum: If everybody agrees sequester is a mistake, instead of arguing whose idea it was, why not repeal and revert to regular budget process?

…But the GOP won’t have more tax increases. “House Republicans, shrugging off rising pressure from President Obama, are resolutely opposing new tax increases to head off $85 billion in across-the-board spending reductions, all but ensuring the cuts will go into force March 1 and probably remain in place for months, if not longer.” Jonathan Weisman in The New York Times.

And the political rhetoric is heating up. “Mr. Obama tried to infuse a greater sense of urgency into the debate at a time when many people outside Washington are just beginning to focus on the impending budget cuts…GOP leaders, meanwhile, gave lawmakers a list of federally funded projects they portray as wasteful, such as a study of the cognitive impact of videogames on the elderly, and a program to provide cellphone service to low-income people.” Janet Hook and Colleen McCain Nelson in The Wall Street Journal.

@damianpaletta: Federal Reserve, US Postal Service immune from sequester. White House, Congress isn’t.

FELDSTEIN: A simple route to major deficit reduction. “Putting a cap on tax expenditures--those features of the tax code that are a substitute for direct government spending--can break the current fiscal impasse and prevent the dangerous explosion of the national debt. If a cap is combined with entitlement reforms, the government will also be able to reduce tax rates and increase some spending to accelerate the economic recovery…Limiting the tax savings from all deductions and the two major tax exclusions to 2% of an individual’s adjusted gross income would reduce the deficit in 2013 by $220 billion.” Martin Feldstein in The Wall Street Journal.

DIONNE: The sequester clock is ticking. “The deficit that should concern us most right now has to do with time, not money. Money can be recouped. Time just disappears.The more time we spend on pointless disputes about budget cuts no one is expected to make soon, the less we spend trying to solve the problems that confront us today -- and, God forbid, thinking about the future.” E.J. Dionne in The Washington Post.

MILLER: The sequester is an idea right out of ‘Dumb and Dumber.’ “Everyone knows that across-the-board budget cuts are the worst way to save money. They don't let you discriminate between programs that deserve to be expanded and those that have outlived their day. They let programs protected by small but powerful lobbies survive even as smarter investments serving millions of powerless Americans face an identical ax.” Matt Miller in The Washington Post.

BLOW: The sequester, a game of chicken. “[O]nce again the American people are caught in the middle of a game of chicken between Democrats, who rightly warn that the sky could fall, and Republicans, who want to burn the coop. Thus far, the president and the Democrats are outmaneuvering the Republicans in the messaging war, but that will be of cold comfort if the Republican hotheads prevail.” Charles M. Blow in The New York Times.

BAUM: A better sequester would make much less of a mess. “The problem isn't the size of the cuts: $85 billion in a $3.6 trillion budget isn't going to sink the $16 trillion U.S. economy…Nor is there much disagreement over the federal government's duplicative, overlapping programs in need of a sharp budget knife…Rather, the problem is the blunt-instrument design of the 2013 sequester, intended to be so awful Congress would never, ever let it happen.” Caroline Baum in Bloomberg.

Music recommendations interlude: St. Vincent, “Cruel,” 2011.

Top op-eds

HOLTZ-EAKIN AND ROY: The future of free-market health care. “The great irony of Obama's triumph, however, is that it can pave the way for Republicans to adopt a comprehensive, market-oriented healthcare agenda. The market-oriented prescription drug program in Medicare has controlled the growth of government health spending. Similarly, conservatives can use Obamacare's important concession to the private sector -- its establishment of subsidized insurance marketplaces -- as a vehicle for broader entitlement reforms.” Douglas Holtz-Eakin and Avik Roy in Reuters.

KLEIN: The problem with Alan Simpson. “This elite consensus is the context for Simpson's schtick. Much of the Washington establishment -- insofar as such a thing exists -- really does want a big deficit deal and really is furious at the Republicans and the Democrats and everyone else they perceive as standing in the way. And so they cheer Simpson calling out the frauds and the fools obstructing his self-evidently noble mission. And Simpson is all too happy to indulge them. What he's not as good at is actually dealing with legitimate concerns raised about his plan. ” Ezra Klein in The Washington Post.

MURRAY: The shaky science behind Obama’s pre-K ideas. “Obama wants to help our nation's children flourish. So do I. So does everyone who is aware of the large number of children who are not flourishing. There are just two problems with his solution: The evidence used to support the positive long-term effects of early childhood education is tenuous, even for the most intensive interventions. And for the kind of intervention that can be implemented on a national scale, the evidence is zero.” Charles Murray in Bloomberg.

SOLOMON: How the Democrats blew it on taxes. “As the ongoing budget battle further muddies the waters in Washington, one thing is becoming clear: Democrats may have botched their best shot at raising taxes…In hindsight, the White House may have won the tax battle but lost the war…What is apparent is that Democrats had their best chance to eke out more revenue last year, when the fiscal cliff was looming large.” Deborah Solomon in Bloomberg.

BARRO: Why we need Republicans. “In the states, the Republican focus on cost containment and efficiency works best when it is combined with a commitment to providing high-quality government services and an understanding that government can and should be useful. Republican governors’ talk about improving their states’ governments contrasts with national Republican rhetoric, which tends to cast government as an impediment to freedom and growth.” Josh Barro in Bloomberg.

KINSLEY: A wage-earner’s case for the minimum wage. “You can't know for sure in advance which effect the minimum-wage increase will have on any particular person: A raise? Or unemployment? But it's far from irrational for minimum-wage workers to conclude at some point that the risk of losing their jobs is worth taking in exchange for the certainty of a raise. It depends on the size of the risk and the size of the raise.” Michael Kinsley in Bloomberg.

Adorable animals interlude: Otters can play basketball better than Wonkblog’s Sarah Kliff.

2) Florida to expand Medicaid

FL Gov. Rick Scott goes in on Medicaid expansion. “President Obama's Affordable Care Act cleared another hurdle toward implementation Wednesday when one of its fiercest opponents, Florida Gov. Rick Scott, embraced a key pillar of the law by voicing support for its critical Medicaid expansion component…Florida, a key state because of its size, decided Friday that it would not operate its own health insurance exchange, a new marketplace mandated under the law, leaving the task to the federal government.” Sarah Kliff in The Washington Post.

New federal rule sets mental-healthcare mandate. “The Obama administration issued a final rule on Wednesday defining "essential health benefits" that must be offered by most health insurance plans next year, and it said that 32 million people would gain access to coverage of mental health care as a result…White House officials described the rule as a major expansion of coverage. In the past, they said, nearly 20 percent of people buying insurance on their own did not have coverage for mental health services, and nearly one-third had no coverage for treatment of substance abuse.” Robert Pear in The New York Times.

One way Obamacare changed today. “Policy analysts at the American Cancer Society Cancer Action Network did, however, notice a small--but important--update on how colonoscopies will be covered under Obamacare…[The administration] decided that insurance companies cannot charge patients for the removal of a polyp during a recommended colonoscopy.” Sarah Kliff in The Washington Post.

Without health care, we’d have fewer jobs today then we did in 2000. “In 2000, the economy had about 121 million non-health-care payroll jobs. Today, on a seasonally adjusted basis, there are 120 million non-health-care jobs. Meanwhile, the health care industry has added about 3.6 million jobs in that time frame, growing about 33 percent (14.5 million health care jobs today versus 10.9 million in 2000).” Catherine Rampell in The New York Times.

Meanwhile, a retirement community is making its own health plan. “UnitedHealth announced Wednesday a partnership with the Villages, the country's largest retirement community, located in central Florida, to create a private Medicare plan that will exclusively serve its 93,000 residents. The new partnership reflects some larger trends in the health-care industry: It will attempt to tamp down on health-care costs by making a large investment in primary care.” Sarah Kliff in The Washington Post.

Study: Medicare overpaying on meds, costing hundreds of millions. “The federal government is overpaying for certain drugs covered by Medicare Part B, according to a newly released investigation…Unlike most of the drugs covered by Medicare, "infusion drugs" that administer medication through a device such as a catheter or needle are set at average wholesale prices, which are set by drug manufacturers and reported in the industry's Red Book. The result is a cost 54 to 122 percent above the market price…According to the report, Medicare would be paying 44 percent less for the drugs if it used the average price figures, or a savings of $334 million between 2005-2011.” Megan R. Wilson in The Hill.

Despite restrictions, HSAs growing in popularity. “Health savings accounts (HSAs) are continuing to grow, despite new restrictions in President Obama’s healthcare law. Roughly 70 percent of workers who have a special healthcare savings account said their employers contributed to the fund last year, and 42 percent of workers made significant contributions of their own, according to data released Wednesday by the Employee Benefit Research Institute.” Sam Baker in The Hill.

Interesting interlude: “I haven’t eaten a bite of food in 30 days, and it’s changed my life.”

3) Does the right-wing have the advantage in the immigration debate?

Do we need federal IDs for work? “Key senators are exploring an immigration bill that would force every U.S. worker--citizen or not--to carry a high-tech identity card that could use fingerprints or other personal markers to prove a person’s legal eligibility to work…The Senate group, in a statement guiding their work on a new law, called for workers to prove their legal status and identities through ‘non-forgeable electronic means.’ Senate aides said the language was intentionally broad because of the sensitivity of the issue. It leaves open several possibilities for how new hires would be required to prove they can legally work.” Danny Yadron in The Wall Street Journal.

Obama on immigration is stricter than Reagan. “What may be surprising however, is that Obama’s bill sets out a very long road to citizenship for undocumented immigrants…Compare that with the Immigration Control and Reform Act of 1986 that was signed by President Ronald Reagan, which allowed undocumented immigrants to apply for green cards after a temporary legal status of just 18 months. Add in the standard five years green-card holders have to wait before seeking citizenship, and under the bill Reagan signed the path to citizenship was half as long as Obama’s would be.” Adam Serwer in Mother Jones.

Obama wants to give leeway to judges for immigrants convicted of minor crimes. “Buried in the White House's draft immigration bill is a new proposal that would give judges greater discretion to decide whether immigrants convicted of minor criminal offenses should be allowed to remain in the United States…Obama's draft immigration bill would narrow the definition of an aggravated felony by giving immigration judges greater discretion to grant leniency to individual immigrants convicted of minor offenses.” Suzy Khimm in The Washington Post.

Bending towards justice interlude: everydaysexism.com, a record.

4) Is it time for fiscal stimulus?

Here’s what Obama’s thinking about on infrastructure spending. “The White House on Wednesday fleshed out the plans President Obama announced in the State of the Union address to repair the nation's ailing infrastructure. A summary of the plan, which Mr. Obama discussed in interviews, was obtained by The New York Times…The first element of the plan is a ‘fix it first’ policy that calls for investing $50 billion in transportation infrastructure, subject to Congressional approval. Fully $40 billion of that amount would be directed to work on the highways, bridges, transit systems and airports ‘most in need of repair,’ according to the document.” John Schwartz in The New York Times.

Housing starts plummeted in January. “After a blistering run over the last few months, the level of housing starts took a big step back in January, falling 8.5 percent. It is the first major read on the state of the housing market in 2013, and, at first glance at least, it isn't a very happy one.” Neil Irwin in The Washington Post.

Single family homes are buoying the market. “Construction of single-family homes rose to the highest level since the financial crisis last month as the housing market improved, though the overall results for all types of housing starts were pulled down by a drop in apartment and condominium construction. Construction of single-family homes, which made up about two-thirds of housing starts last month, rose 0.8% in January to a rate of 613,000 units and was up 20% from a year earlier. That figure is the highest since July 2008…[T]he number of new building permits, an indication of future construction, rose 1.8% to an annualized level of 925,000 in January, the highest level since June 2008.” Sarah Portlock and Alan Zibel in The Wall Street Journal.

Urban interlude: White flight in London.

5) The Fed speaks

No exit from stimulus soon, Fed says. “[T]he prevailing sentiment at the Fed, as conveyed by the minutes as well as recent remarks, is that the central bank's efforts to pump tens of billions of dollars into the economy every month should not end anytime soon…Officials generally agree that the program has worked, spurring a turnaround in the housing market and bolstering auto sales, the minutes show. The benefits are also spilling over into other sectors, such as home furnishings and construction materials. Lenders also began to loosen credit standards, giving more Americans the chance to take advantage of rock-bottom rates.” Ylan C. Mui in The Washington Post.

Read: The Fed’s January minutes.

In Fed minutes, lots of bond-buying talk, but little definition for the future of monetary policy. “There seemed to be a variety of views around the table about how to proceed with the bond-buying program. One emerging idea was to have the Fed regularly adjust the size of its bond purchases depending on how well the economy is improving.” Neil Irwin in The Washington Post.

Adorable animals, Russian edition interlude: Crows playing on the roof of a snowy car.

Wonkblog Roundup

Biofuels are eating up American grassland. Brad Plumer.

The best sentences we read today. Ezra Klein.

The problem with Alan Simpson. Ezra Klein.

Florida is expanding Medicaid. Sarah Kliff.

An FAQ to beat any other on the sequester. Dylan Matthews.

One way Obamacare changed today. Sarah Kliff.

What’s inside the Fed minutes. Neil Irwin.

A retirement community gets its own health insurance plan. Sarah Kliff.

Not-so-hot news on housing starts to start 2013. Neil Irwin.

Et Cetera