Wonkbook: Should Washington look to California for guidance on how to do the budget?
Here's the question: Do tax cuts cause deficits? If not, then there's no reason to worry about the Congressional Budget Office's revised estimate that the deficit will reach $1.5 trillion this year, not $1 trillion, as they'd predicted in 2010. The bulk of the difference, as you can see in this table, is due to the tax deal, which shaved expected revenue by about $400 billion.
Republicans, however, are caught between a rock and a hard place: They don't like deficits, but they do like tax cuts. So they've emerged with a fairly creative answer: A balanced budget amendment that caps spending at 20 percent of GDP and requires a two-thirds vote for tax increases. It's hard to imagine looking at this revised CBO estimate -- or the last decade of fiscal policymaking more generally -- and concluding that one of our major problems is that it's been too easy to raise taxes. Quite the opposite, actually. But if the 21 Senate Republican behind this proposal have their way, the Congress will adopt the two-thirds budgeting rules that have worked so well in, yes, California. Now, don't get me wrong: I'm a native Golden Stater, and I love -- and miss -- the sun and the people and the tacos. But I don't miss the dysfunctional, supermajoritarian budget process, which has sent the state to the edge of total bankruptcy, and I don't know that Washington would be wise to adopt it. Can't we just steal the warm weather, instead?
The Congressional Budget Office predicts the budget deficit will reach $1.5 trillion this year, reports Lori Montgomery: "The still-fragile economy and fresh tax cuts approved by Congress last month will drive the federal deficit to nearly $1.5 trillion this year, the biggest budget gap in U.S. history, congressional budget analysts said Wednesday. The grim forecast from the nonpartisan Congressional Budget Office came hours after President Obama called in his State of the Union address for Republicans and Democrats to work together to rein in record deficits that are pushing the national debt into uncharted territory. At $1.5 trillion, the deficit would equal 9.8 percent of the economy, the CBO said, making it one of the largest by that measure since the end of World War II."
Read the full CBO report (pdf): http://bit.ly/hoDYwZ
House Republicans are splitting on raising the debt limit, report Peter Schroeder and Erik Wasson: "The Republican Study Committee (RSC) introduced legislation on Wednesday that it says would allow the Treasury Department to avoid a default on U.S. debt without expanding the borrowing limit...The RSC’s legislation could signal that Boehner and his leadership team have a revolt on their hands over the debt-ceiling vote...The RSC’s Full Faith and Credit Act would require the Treasury to pay principal and interest due on public debt before making any other payments. Sen. Pat Toomey (R-Pa.) has introduced companion legislation in the Senate. Democrats blasted the Republican proposal, saying it prioritizes paying foreign lenders before the American people."
The Federal Reserve is staying the course on quantitative easing, report Neil Irwin and Jia Lynn Yang: "The Federal Reserve stuck with a subdued assessment of the nation's economic outlook Wednesday as it continued its strategy of buying vast sums of bonds to try to boost the economy. The latest data 'confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions,' the Federal Open Market Committee said in a statement at the end of its two-day policy meeting. The message suggests that the Fed still views high unemployment as the economy's most pressing problem and that members have not bought into the more bullish assessment that some private forecasters have adopted recently."
Read the Fed's full statement continuing quantitative easing: http://nyti.ms/fAQDfh
Obama is slated to address gun control soon, report James Grimaldi and Perry Bacon: "White House officials on Wednesday attempted to quell criticism that President Obama dodged a national debate over guns in his State of the Union address and announced that the president would address the issue soon. But aides sidestepped questions about when Obama will talk about federal firearms policy or what he would say...As president, Obama has never delivered substantive remarks on gun policy, one of the most volatile and divisive domestic issues, out of fear of roiling swing voters in rural areas, the Midwest and the South."
Chill-pop interlude: Beach House play "Walk in the Park".
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Still to come: Issa kicks off TARP hearings; Chamber of Commerce and AFL-CIO join forces on infrastructure; Republicans on the Financial Crisis Inquiry COmmission dissent; "public health" becomes the new buzzword for environmentalists; and if Up! were a '60s-era live action adventure movie from Disney.
House oversight chair Darrel Issa has kicked off his hearings by attacking "too big to fail" banks, reports Edward Wyatt: "If Representative Darrell E. Issa, Republican of California, gets his wish, he will have only two years to serve as a chief tormenter of the Obama administration. So he was understandably eager to get started on Wednesday with his first hearing as chairman of the House Committee on Oversight and Government Reform. Mr. Issa began the hearing on 'bailouts and the foreclosure crisis' by suggesting that the financial institutions that grew even larger during the crisis might be encouraged to break themselves up so that they would not find themselves, during a future crisis, in need of a bailout."
Democrats allege House Republicans' budget would cost one million jobs: http://politi.co/haigPd
The Chamber of Commerce and AFL-CIO teamed up to praise Obama's infrastructure move, reports Michael Shear: "Two men who hardly agree on anything - the president of the U.S. Chamber of Commerce, Tom Donohue, and the president of the A.FL-C.I.O., Richard Trumka - have issued a joint statement praising President Obama’s call for new infrastructure. In what has to be a first, Mr. Donohue and Mr. Trumka came together Wednesday to say that Mr. Obama was on the right track. 'America’s working families and business community stand united in applauding President Obama’s call to create jobs and grow our economy through investment in our nation’s infrastructure,' the two leaders said...During the 2010 midterm elections, they waged a furious battle, each side armed with tens of millions of dollars."
The Financial Crisis Inquiry Commission's report gives a simplistic narrative, write commission members Bill Thomas, Keith Hennessey and Douglas Holtz-Eakin: "The credit bubble, housing bubble, and the explosion of nontraditional mortgage products are not by themselves responsible for the crisis. Our country has experienced larger bubbles--the dot-com bubble of the 1990s, for example--that were not nearly as devastating as the housing bubble. Losses from the housing downturn were concentrated in highly leveraged financial institutions...We agree with our colleagues that individuals across the financial sector pursued their self-interest first, sometimes to the detriment of borrowers, investors, taxpayers and even their own firms...But it is dangerous to conclude that the crisis would have been avoided if only we had regulated everything a lot more, had fewer housing subsidies, and had more responsible bankers."
Read Thomas, Hennessey, and Holtz-Eakin's full dissent: http://bit.ly/h0zIRQ
The state fiscal crisis has a number of causes, writes David Wessel: "The deep and long recession devastated tax revenue. At the worst point, in early 2009, state and local tax revenue combined were down 11% from year-earlier levels... In the good times, governments enjoyed and spent a tax windfall; state and local tax revenue rose 36% in the five years before the bust...In the ensuing years, spending rose rapidly too...When the economy heals, state and local revenue will grow again. But that won't relieve unsustainable pressures that predate the recession, especially health costs...By any metric, and there's a debate over which is the right one, state and local governments haven't set aside enough money to cover pension or retiree health-benefit promises they've made to their workers."
Retro trailer interlude: Up! as a '60s-era Disney adventure movie.
Medicare/Medicaid chief Donald Berwick has been renominated by the White House, reports Jennifer Haberkorn: "On Wednesday night, the White House renominated Dr. Don Berwick to head the Center for Medicare and Medicaid Services. The nomination is likely to be yet another flashpoint in the contentious health-care repeal debate on Capitol Hill. Republicans strongly objected to Berwick’s appointment last year, pointing to his previous comments in support of the British health system and rationing with 'eyes open' or closed...He will face a hearing in the Finance Committee and confirmation by the full Senate. Berwick is likely to face a difficult nomination. Many Republicans are still angry about his recess appointment and have significant questions about the agency he oversees."
Republican governors are largely going along with health care reform: http://bit.ly/gR3jZo
House Republicans are starting to use hearings to attack health care reform, reports N.C. Aizenman: "During a hearing before the House Ways and Means Committee, two business owners and a prominent economist testified that the law imposes crushing costs that hamper job creation. Republican members also grilled Austan Goolsbee, chairman of the White House Council of Economic Advisers, for nearly two hours, charging that his rosy assessment of the law's economic impact was based on accounting gimmicks. At a separate, nearly simultaneous hearing before the House Budget Committee, Chairman Paul Ryan (R-Wisc.) heaped praise on his star witness, Rick Foster, chief actuary for Medicaid and Medicare, who has questioned some of the Obama administration's predictions of savings through the health-care law."
A federal appeals court has moved up consideration of two health care lawsuits: http://bit.ly/eOnJPw
The House voted to repeal public financing for presidential elections, reports Dan Eggen: "On a mostly party-line vote of 239 to 160, the House approved a measure that would eliminate the checkoff Americans can mark on their federal income tax forms to make a $3 donation toward presidential contests. That system allows candidates to receive public matching money if they agree to limit expenditures during a primary or general election contest. House Majority Leader Eric Cantor (Va.) and other Republicans portray the bill primarily as a cost-cutting measure that would save about $520 million over 10 years. But it faces strong opposition from the White House and Senate Democrats, who say it would further strengthen the influence of corporations and other monied interest groups."
Obama's pledge to expand mobile broadband faces roadblocks in implementation: http://politi.co/eYSPUb
Senate Democrats are expected to take lead on Obama's new proposals, reports Shailagh Murray: "It is the narrowly divided Democratic-led Senate - not the Republican House - that is most likely to tackle the bipartisan initiatives Obama laid out Tuesday, including free-trade deals, border security and immigration reform, and an overhaul of the corporate tax code. Although many Senate Democrats say that liberal priorities such as climate-change legislation have fallen off Obama's agenda, they also see an opportunity to begin a political recovery by pursuing more moderate legislative goals with Republicans' help. 'We're going to try to ease out onto the frozen lake,' a senior Democratic leadership aide said of the GOP outreach effort. 'If it starts to crack, we'll run back.'"
Filibuster reformers have formally conceded defeat: http://slate.me/iiRXYn
Arne Duncan is the Obama administration's best feature, writes George Will: "Too many American parents, Duncan says, have 'cognitive dissonance' concerning primary and secondary schools: They think their children's schools are fine, and that schools that are not fine are irredeemable. This, Duncan says, is a recipe for 'stasis' and 'insidious paralysis.' He attempts to impart motion by puncturing complacency and picturing the payoff from excellence...Familiar recipes for improvement are dubious. 'Many high-performing education systems, especially in Asia,' Duncan says, 'have substantially larger classes than the United States.' In South Korea, secondary-school classes average about 36 students; in Japan, 33; in America, 25."
Cultural mashup interlude: The Parks and Recreation credits, adapted for Jabba the Hutt.
Taking up "public health" is environmentalists' latest strategy, report Darren Samuelsohn and Robin Bravender: "In their failed push to pass global warming legislation in recent years, environmental advocates have warned the public about melting sea ice, species extinction and rampant floods and droughts. The Obama administration and congressional Democrats also have promised that addressing these threats would create 'green jobs.' But 'public health' is now the phrase du jour -- both in the climate change debate and in an approaching battle over the Environmental Protection Agency’s rules for smog, soot and harmful air toxins. That means lawmakers who aim to upend environmental regulations will face green groups trying to shame them as opponents of ailing kids and seniors."
Energy Secretary Steven Chu has outlined a new spending plan to promote clean energy, reports Darius Dixon: "A day after President Obama pitched a clean energy agenda in his State of the Union speech, Energy Secretary Steven Chu outlined the administration’s strategy for producing 80 percent of the nation’s electricity from clean sources by 2035 -- and how much it might cost. The strategy includes doubling the number of the department’s energy innovation hubs to six and adding more than $8 billion for new clean-energy funding in the upcoming budget, roughly a third more than in the president’s 2010 budget request. Obama’s plan to 'win the future' suggests that the money would be paid for by cutting tax subsidies for fossil fuel producers.."
Sen. Jeff Bingaman is meeting with the White House about a clean energy standard: http://bit.ly/dP5WvO
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams.
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