Wonkbook: Whatever happened to uncertainty?
With the House passing a two-week funding extension and Harry Reid promising the Senate will do likewise, it looks like we have at least until March 18th before any federal agencies have to shut their doors. But then there's a shutdown risk. And there's another one coming as early as April 15th, when the Treasury bumps into the the debt ceiling and needs Congress to lift it in order to avoid default. Federal budget policy over the next few months is going to be like a weekend with Charlie Sheen: A constant effort to avoid blackouts (yes, Wonkbook went there).
Prior to winning the election in November, the GOP spoke often about the pressing need to reduce "uncertainty" in the economy. This was a core principle of their plan to restore economic confidence and create jobs. As Rep. Paul Ryan put it to me in July, "uncertainty is a new economic buzzword, but for good reason: If we can reduce it, we’ll unlock capital." If businesses and individuals could be confident about what government was doing, what taxes would look like, and what regulators would ask of them, they could start investing again.
So are they succeeding at their own promise of reducing uncertainty? It's hard to see how. Budget experts on both sides of the aisle have sharply upgraded their estimate of how likely a government shutdown is in the next few months, either over the continuing resolution for 2011 or the debt limit or both. There's an ongoing effort to starve health-care reform of implementation funds and a promise to "replace" it with some policy that hasn't yet been written -- no one in the health space would say that the shape of health-care policy over the coming years looks more certain now than it did six months ago. The GOP chose a tax deal that lowered all rates for two years rather than a tax deal that lowered most rates permanently, so there's uncertainty over future tax rates. The tax and health-care policies would both do much more to increase the deficit than anything else on the list would do to reduce it, ensuring that concern continues to loom. So for what definition of "uncertainty" has the GOP succeeded in reducing its prevalence in the economy?
In each case, of course, the GOP has a good argument for the choice it's made: Lower tax rates on large estates and income over $250,000 were judged more important than tax certainty or deficit reduction. The health-reform law is so unwise that repealing it should be a top priority. The prospect of a government shutdown and/or default provides leverage to extract spending cuts, which are more important right now than assuring the market that there won't be some sort of shutdown or default. It's all fair enough, at least on its own terms. But it's meant that the post-election GOP takes the risk of uncertainty a lot less seriously than the pre-election GOP did. It's a tension I'd like to hear more of them comment on.
The House has voted for a two-week budget extension, report Karen Tumulty and Ed O'Keefe: "House and Senate leaders on Tuesday bought themselves a little more time in their efforts to avoid a government shutdown, agreeing to a two-week funding extension that also includes $4 billion in spending cuts. The deal, which eliminates dozens of earmarks and a handful of little-known programs that President Obama has identified as unnecessary, sailed through the House on a 335 to 91 vote. Senate Majority Leader Harry M. Reid (D-Nev.), who initially resisted including any cuts in a short-term funding extension, predicted that it will pass that chamber as early as Wednesday...If the Senate approves the measure, the two parties will have until March 18 before the government runs out of money."
The US could reach its debt limit next month, reports Damian Paletta: "As the debate over a bill to continue funding the federal government draws most of the attention on Capitol Hill, the U.S. federal debt continues to near the ceiling allowed by current law. As of Monday, the U.S. had $14.14 trillion in debt subject to the $14.294 trillion debt ceiling, according to the government’s Bureau of Public Debt. This is up from $14.0 trillion Jan. 28. The Treasury Department has said the government could hit the ceiling as soon as early April, and it has urged Congress to raise the ceiling so the U.S. doesn’t default on its obligations...The Treasury Department announced at 4:30 that it now estimates that the United States will reach the debt limit between April 15, 2011 and May 31, 2011."
Democrats and Republicans are offering up rival economic projections, reports Perry Bacon: "The budget debate in Washington isn't just President Obama's vision against that of House Speaker John A. Boehner (R-Ohio), but Mark Zandi versus John B. Taylor. Bring on the economists. Even as Republicans and Democrats seem likely to reach a temporary budget deal to keep the government from shutting down this week, both sides are preparing for a long debate over how much to cut government spending in this and next year's budgets. And like the debates over the stimulus and the health-care law, the two parties are trying to win the public relations battle by invoking the research of their favorite economists... Zandi's view that the stimulus helped the overall economy is broadly supported by economists, many of whom also believe the GOP proposal would cut spending too drastically."
A guide to the debate between Zandi and Taylor: http://wapo.st/hwL6Pe
Tim Geithner warned Congress against sharply cutting support for housing, report Zachary Goldfarb and Dina ElBoghdady: "Treasury Secretary Timothy F. Geithner used his strongest language yet to warn on Tuesday about the dangers of a mortgage system that does not include a significant role for the government. Two weeks after releasing a white paper on how to overhaul the badly battered housing market, Geithner said scaling back the federal role too far could make housing more costly, keep taxpayers on the hook for losses and handcuff policymakers...The nation's housing finance system now relies almost exclusively on federal support for funding new home loans - through the taxpayer-backed housing finance giants Fannie Mae and Freddie Mac and the Federal Housing Administration."
Girl group cover interlude: Dum Dum Girls play "Be My Baby" by the Ronettes.
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Still to come: The Chamber of Commerce wants to prevent new consumer financial protection rules; states are cutting health support for low-income adults; Ohio is facing a Wisconsin-style union fight; the EPA is easing up on greenhouse gas rules; and a little girl fails adorably at ballet.
The US Chamber of Commerce wants to block Consumer Financial Protection Bureau rules until it has a director, reports Brady Dennis: "Republican lawmakers and financial industry lobbyists lost their fight last year to halt the creation of the Consumer Financial Protection Bureau. But as the new watchdog takes shape, those critics have continued to question the bureau's precise role in the regulatory universe. The latest effort to limit the reach of the consumer bureau came Tuesday. The U.S. Chamber of Commerce sent a letter urging Treasury Secretary Timothy F. Geithner not to allow the bureau to issue new regulations if it does not have a permanent director in place by July 21, the date the bureau will officially open its doors...As anyone familiar with the bureau's short history knows, getting a Senate-confirmed director in place might take an awfully long time."
Regulators want to encourage a 20 percent down payments on some homes report Victoria McGrana and Nick Timiraos: "The Dodd-Frank financial overhaul law enacted last year enabled regulators to define a so-called gold-standard residential mortgage that would be exempt from costly new rules. At least three agencies—the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—back a proposal to require home buyers to put down at least 20% of the sales price in order to obtain one of these 'qualified residential mortgages.' One proposal would also require borrowers to maintain a 75% loan-to-value ratio for refinances, and a 70% loan-to-value for cash-out refinances in which the borrower refinances into a larger loan, according to people familiar with the matter."
Ben Bernanke told Congress the Fed could respond to rising oil prices, reports Neil Irwin: "The Federal Reserve will "respond as necessary" if rising prices for oil and other commodities seem to be triggering more broad-based inflation, Chairman Ben S. Bernanke said Tuesday, for the first time raising the possibility that soaring fuel prices could provoke a response from the central bank. In his twice-a-year testimony on monetary policy before the Senate Banking Committee, Bernanke addressed the steep hike in the price of oil - including a surge last week amid turmoil in Libya - and the costs of other globally traded items in recent months. He said he does not expect a major impact on consumer prices in the United States but also made clear that if oil prices continue to rise and cause fears of permanent high inflation, the Fed could act."
Members of both parties are embracing the GAO's study on government waste: http://wapo.st/f9R8Jr
The GOP wants to cut the IRS despite its high returns, reports Stephen Ohlemacher: "Every dollar the Internal Revenue Service spends for audits, liens and seizing property from tax cheats brings in more than $10, a rate of return so good the Obama administration wants to boost the agency's budget. House Republicans, seeing the heavy hand of a too-big government, beg to differ. They've already voted to cut the IRS budget by $600 million this year and want bigger cuts in 2012. The IRS has dramatically increased its pursuit of tax cheats in the past decade: Audits are up, property liens are up and asset seizures are way up. President Barack Obama and Democrats in Congress see stepped up enforcement as a good way to narrow the nation's staggering budget deficit without raising tax rates or cutting popular spending programs."
The San Francisco Fed has a new president: http://on.wsj.com/hZ3nHz
Public workers don't get paid too much, but paid too late, writes David Leonhardt: "The solution today is not to cut both the pay and the benefits of public workers, as would happen if workers in Wisconsin, Ohio and elsewhere lost their right to bargain. Remember, public workers don’t get especially generous salaries. The solution is to get rid of the deferred benefits that make no sense -- the wasteful health plans, the pensions that start at age 55 and still let retirees draw a full salary elsewhere, the definitions of disability that treat herniated discs as incurable. These changes will help the states’ long-run budget problems, but of course they won’t address the immediate, recession-induced crisis. Dealing with the crisis will require dealing with the second failure of government: subpar performance."
Dean Baker's released a report that's an excellent primer on state pensions, writes Ezra Klein: In the final part of his paper, Baker warns that the dire talk of trillions in unfunded liabilities mainly confuses people. 'The relevant context is the size of the projected shortfalls relative to the size of the state economies,' he writes. Using data from the National Association of State Pension Fund Administrators -- which show a shortfall of about $650 billion over the next 30 years -- he calculates that the states are looking at funding gaps that range from 0.2 percent of their economies to 0.5 percent. Not nothing, but not an unmanageable crisis. The only way it becomes an unmanageable crisis is if the economy never recovers and thus the rates of return end up lower than we would expect and state economies end up smaller than we expect. But in that case, state pensions will be the least of our problems.
Supercut interlude: Movies featuring Sam Rockwell dancing.
States are ending low-income health plans, reports Kevin Sack: "Pennsylvania is one of several destitute states seeking to help balance budgets by removing adults from government health insurance programs. Gov. Christine Gregoire of Washington, a Democrat, recently removed 17,500 adults covered under Basic Health, a state-financed plan for the working poor. In Arizona, Gov. Jan Brewer, a Republican, proposes to remove up to 250,000 childless adults who have been insured by her state’s Medicaid program under a decade-long agreement with the federal government...Most states do not now offer coverage to childless adults, but starting in 2014, the new federal health care law will require them to expand Medicaid to insure adults earning up to 133 percent of the poverty level."
The White House Office of Health Reform is being folded into the Domestic Policy Council: http://bit.ly/hlVudL
Republican governors complained to Congress about health care reform's Medicaid requirements, reports N.C. Aizenman: "A day after President Obama said he would support amending the health-care law so states can opt out of key provisions sooner, Republicans sought to shift the rhetorical battle back to an issue that would be largely unaffected by the president's proposal: the impact of the law's Medicaid requirements on state budgets. Testifying at a hearing of the House Energy and Commerce Committee on Tuesday, two Republican governors returned to themes that had dominated the discussion at the National Governors Association's semiannual meeting over the weekend. Mississippi Gov. Haley Barbour and Utah Gov. Gary R. Herbert complained that by prohibiting states from limiting who is eligible for Medicaid, the law has locked them into unsustainable spending at a time of fiscal crisis."
GOP lawmakers know they can't achieve the same thing as health care reform with less money, writes Jonathan Cohn: http://bit.ly/hCdsvh
Ohio is seeing Wisconsin-like protests, report Amy Goldstein and Michael Fletcher: "Thousands of union supporters descended on the Ohio Statehouse on Tuesday to protest a proposal that would dramatically curtail bargaining powers of government workers, as the state becomes the latest flash point in the fight over union rights. Like their counterparts in Wisconsin, protesters here accused lawmakers and Gov. John Kasich (R) of trying to use a budget crisis to destroy public-sector unions. Government workers did not cause the crisis and should not bear the brunt of it, protesters said. But unlike in the standoff in Wisconsin, Democrats don't have the numbers to walk out and delay a vote. Supporters said that a measure, which would go further than the one in Wisconsin by also affecting police officers and firefighters, could emerge from the state Senate on Wednesday."
One of Obama's latest tax cuts could cut state revenues by billions: http://nyti.ms/f3k3Gw
Scott Walker has proposed a new budget cutting school and local funding by billions, report Monica Davey and Richard Oppel: "Gov. Scott Walker, whose push to limit collective bargaining rights and increase health and pension costs for public workers has set off a national debate, proposed a new budget for Wisconsin on Tuesday that called for deep cuts to state aid to schools and local governments, provoking a new wave of fury. Mr. Walker, a Republican, called for no tax or fee increases, but cuts of $1.5 billion to items like the schools and local governments...Mr. Walker presented his fiscal plan under extraordinarily tense circumstances: the sound of hundreds of protesters screaming 'Recall! Recall!' and pounding drums outside the Capitol could be heard clearly inside the Assembly chamber."
The Supreme Court ruled corporations lack a right to personal privacy: http://wapo.st/hYq0SZ
Adorable children failing at performance art interlude: A little girl tries and fails to master ballet's first position.
The EPA is easing up greenhouse gas rules, report Ryan Tracy and Stephen Power: "Businesses that generate greenhouse gases will have more time to report their emissions after the Environmental Protection Agency extended a key deadline Tuesday. The EPA said it would change the deadline, which was originally March 31, explaining that the agency would take more time to test the online system that will be used to collect data. The agency said it expected reporting to begin in late summer, but didn't immediately set a new deadline. The move was a nod to business groups that had said the deadline was too soon. It came as the EPA weathered attacks from House Republicans on its efforts to regulate greenhouse gases."
House Republicans rejected an attempt to kill tax subsidies to oil companies: http://bit.ly/exwQe9
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams. Photo credit: GOP Leader.
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