Budget Released Today, 9:30 AM ET
Even with all the savings, the cost of the $787 billion economic stimulus bill will push the deficit for this year to $1.75 trillion, a level — as a percentage of the economy — not seen since World War II. The deficit is expected to remain around $1 trillion for the next two years before starting to decline to $533 billion in 2013, according to budget projections.
Obama’s plan proposes achieving $634 billion in savings on projected health care spending and diverting those resources to expanding coverage for uninsured Americans. The $634 billion represents a little more than half the money that would be needed to extend health insurance to all of the 48 million Americans now uninsured.
Americans now spend a total of $2.4 trillion a year on health care.
Obama also will ask for an additional $75 billion to cover the costs of wars in Iraq and Afghanistan through September, the end of the current budget year. That would be on top of the $40 billion already appropriated by Congress, the administration official said. The administration will also ask for $130 billion for Iraq and Afghanistan in 2010 and will budget the costs of operations in Iraq and Afghanistan at $50 billion annually over the next several years.
Obama’s budget proposal would effectively raise income taxes and curb tax deductions on couples making more than $250,000 a year, beginning in 2011. By not extending former President George W. Bush’s tax cuts for such wealthier filers, Obama would allow the marginal rate on household incomes above $250,000 to rise from 35% to 39.6%.
The plan also contains a contentious proposal to raise hundreds of billions of dollars by auctioning off permits to exceed carbon emissions caps, which Obama wants to impose on users of fossil fuels to address global warming. Some of the revenues from the pollution permits would be used to extend the “Making Work Pay” tax credit of $400 for individuals and $800 for couples beyond 2010, as provided in the just-passed economic stimulus bill.
HuffPost’s Tom Edsall looks at prospects for scrapping the hedge fund tax break: “If there is one tax loophole that looks dead in the water, it’s the law that lets hedge fund and private equity managers pay a 15-percent capital-gains rate on the multimillion-dollar fees they collect — substantially less than the top income tax rates paid by their secretaries, chauffeurs, and the pilots of their private jets … But reformers seeking to raise the taxes of the super-rich should not assume this is a slam dunk … Many Senate Democrats saw the legislation as biting the hand that fed them and breathed a sigh of relief when, on December 6, 2007, Republicans mustered enough votes to filibuster the proposal to death.”
Health Care Reform Funded With Taxes on Wealthy, Budget Savings
CNN on the $634B health care reserve fund in the budget: “Two White House officials told CNN Wednesday that the proposed budget to be released Thursday will include a $634 billion health care ‘reserve fund,’ which is intended to help pay to overhaul the nation’s health care system. One of the officials said the administration sees health care as key to the nation’s fiscal health and called the fund a down payment on President Barack Obama’s effort to reform health care.”
Obama …wants to start finding sources for the extraordinary amount of money that will be needed. That could reach $1 trillion over 10 years by some estimates. To do it, he’ll propose raising taxes by about $300 billion over 10 years on those in the 33 percent and 35 percent tax brackets, roughly defined as those making more than $250,000 a year. He’d do it by further limiting their deductions, aides said, apparently beginning at the start of the next fiscal year on Oct. 1. The proposal is apart from the administration’s plan to let the Bush tax cuts for those earners expire as scheduled at the end of 2010.
The spending cuts would total more than $300 billion over 10 years. The biggest single cut would total $170 billion over that period _ money to be saved by using competitive bidding in Medicare Advantage programs, private plans that administer Medicare. They now are paid $1.14 for services that cost the government-run Medicare program $1. Another block of money would come from removing roadblocks to generic drugs in government-financed health care programs, the aides said.
About half of what officials characterized as a $634 billion “down payment” toward health care coverage for every American would come from cuts in Medicare. That is sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers.
Some of the Medicare savings would come from scaling back payments to private insurance plans that serve older Americans, which many analysts believe to be inflated. Other proposals include charging upper-income beneficiaries a higher premium for Medicare’s prescription drug coverage.
To raise the other half, Obama wants to reduce the rate by which wealthier people can cut their taxes through deductions for mortgage interest, charitable contributions, local taxes and other expenses to 28 cents on the dollar, rather than the 35 cents they can claim now. Even more money would be raised if the top rate reverts to 39.6%, as Obama wants.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, called Obama’s proposal to tax the wealthy to finance health care reform a starting point. But he wants to also examine taxing some of health insurance benefits provided by employers — an idea rejected by Obama in last year’s presidential campaign.
More Medicare cost-savings can found by emulating best practices in efficient states. Business Week: “A new study examining 14 years of Medicare spending finds that state-by-state increases vary wildly depending on how much medical care is available. … They found no evidence of greater survival gains in the highest-spending regions. Instead, they said, doctors in those high-spending areas were much more likely to recommend expensive and discretionary services, such as noncritical hospital admissions, referrals to subspecialists, and more diagnostic tests.”
The Treatment’s Jonathan Cohn gets reaction from senior congressional staffer: “We of course would have been happy if there was more, since we probably need at least twice as much, but It is a very significant commitment. They are very up-front that it is a down payment and they will work with us to find more financing.”
Ambinder muses: “With so many proposals floating around — Ted Kennedy’s principles, whatever Rep. Henry Waxman has in his head, the Wyden-Bennett plan, which replaces Medicaid and the employer-based system with state-based private purchasing polls and premium subsidies, the sometimes maddening brilliance of Sen. Max Baucus — some allies will worry that reform will bog down, or that interest groups will take hold, a la Clintoncare. On the other hand, as several senators confirmed at an Atlantic briefing this morning, the willingness to get something done and even to make significant incremental progress is there. NB: the role that labor will play in the health care debate cannot be underestimated. My guess is that every major change to the system will have to be approved by unions. And/but — don’t underestimate labor’s willingness to compromise if real reform is a prospect.”
Speaker Pelosi, on The Rachel Maddow Show, echoes White House argument to deficit hawks: “Health care reform is entitlement reform.”
The Plum Line interviews President Bill Clinton: “Why Obama Will Succeed At Health Care Reform”
Bank Rescue Plans Surface
…the Obama administration on Wednesday announced that it will provide a virtually unlimited solvency guarantee to the nation’s 19 largest banks….Through the end of April, federal regulators will pore over the books … They’ll be looking at conventional measures such as the composition of a bank’s cash on hand, and at unconventional ones, such as how financial firms are valuing complex and opaque investments that are often shorthanded as toxic assets.
The idea behind the so-called stress tests is to gauge if the banks have enough capital to cope with a more severe downturn than even today’s — one in which the economy contracts by 3.3 percent and the unemployment rate tops 10 percent. That’s far from the worst-case scenarios that some of the gloomier forecasters predict.
“Supervisors will work with institutions to estimate the range of possible future losses and the resources to absorb such losses over a two-year period,” said a joint statement from four federal bank regulators — the Federal Reserve, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Office of Thrift Supervision.
At the end of the exercise, if it’s determined that banks lack enough capital to weather such a storm, they’ll be given six months to raise more capital from private investors or to ask for a capital buffer from the government.
“The more specificity, the less uncertainty, the more it does provide banks an opportunity to raise private capital . . . is frankly the right way to go. It clearly is a time frame that I think is reasonable,” said Stuart Hoffman, chief economist for PNC Financial Services, one of the 19 firms that will be put through the stress test.
If a bank is unable to raise private capital and needs to get capital from the federal government, it would do it in exchange for “convertible mandatory preferred shares.” They could be converted into common stock on an as-needed basis, which would inject new capital into the bank. The government would become a shareholder in the company through its ownership of common stock.
Regulators have calculated [for the stress tests] that there is roughly a 10 percent chance that economic conditions would reach this extreme of deterioration. The parameters were based on a consensus of economic forecasts, though some prominent economists said the government should test an even more catastrophic scenario…
…The government is hoping that investors will treat the right to convert the shares as though the institutions had actually been given more capital. If institutions are forced to convert their shares to appease investors, the government could quickly become the majority owner of those banks.
The goal of the plan is to restore investor confidence in banks, attracting new private investments that would allow companies to repay the government.
But the details were panned yesterday by some investors, who warned that the plan leaves the banks shrouded in uncertainty because it won’t be clear for six months which ones need government money, and it might not be clear for seven years how much of an ownership stake the government eventually will take.
HuffPost’s Art Levine asks: “Will Geithner’s Bungled Bank Plan Fuel Populist Revolt Against Dems?”
Krugman rips stress test details — “we now know the ‘adverse case’ that will be used for the bank stress tests. Testing to destruction it isn’t … What a letdown” — and on averting nationalization — “As long as capital injections are seen as a way to bail out the people who got us into this mess (which they are as long as the banks haven’t been put into receivership), the political system won’t, repeat, won’t be willing to come up with enough money to make the system healthy again. At most we’ll get a slow intravenous drip that’s enough to keep the banks shambling along. More and more, it looks as if we’re headed for the decade of the living dead.”
Broader Reg Reform
Marc Ambinder analyzes Presidential remarks on modernizing financial regulation: “Aside from rewriting regulations to account for the proliferation of complex financial instruments, Obama seems to be hinting at a consolidation of sorts. He’ll call for ‘strong and uniform’ regulations across different markets. ‘We must make sure our system of regulations covers appropriate institutions and markets, is comprehensive and free of gaps, and prevents those being regulated from cherry-picking among competing regulators,’ he plans to say. His priorities include ‘modernizing and streamlining our regulatory structure and monitoring both the scale and scope of risks institutions can take.’ Obama will also call for transparency from regulators and accountability for wayward executives. He also challenges foreign governments to meet American standards.”
Ezra Klein posts full speech.
Empowering Courts to Rewrite Mortgages to Pass House, Senate Uncertain
LA Times reports that Congress may soon pass the unfortunately nicknamed “cram-down” mortgage reform: “Congress is poised to give bankruptcy judges more power to modify primary home mortgages in an attempt to halt the foreclosure crisis, a move Democrats and housing advocates have been pushing for two years in the face of stiff opposition from Republicans and the mortgage industry. The House is expected to pass the legislation today, and supporters are optimistic that the Senate will follow next month.”
ACORN’s Austin King, in audio interview with OurFuture.org’s Isaiah Poole, cautions that the Senate is no sure thing, though industry opposition is waning.
OpenLeft calls for grassroots action today: “…The whip count is unclear right now, but some Blue Dogs and New Democrats, including Melissa Bean (D-IL), Dennis Moore (D-KS), and New Democratic chair Ellen Tauscher (D-CA), are working on behalf of the financial services industry to water down the legislation. Tauscher in particular is problematic, both because of her leadership role in one of the ideological caucuses, and also because rumors are that she has organized up to two dozen members thus far. It is about time that Tauscher, and the Representatives she is organizing, stop listening to industry lobbyists who do not have the public interest in mind. So, let’s make Representative Tauscher listen to someone else right now. Contact Ellen Tauscher, and urge her to stop organizing other Democrats to water down HR 200.”
Budget Kickstarts Energy/Climate Action
Today, the White House will unveil a budget that assumes there will be revenue from an [cap on carbon and] emissions trading system by 2012.
Sources familiar with the document said it would direct $15 billion of that revenue to clean-energy projects, $60 billion to tax credits for lower- and middle-income working families, and additional money to offsetting higher energy costs for families, small businesses and communities…
…The political battle on the Hill is largely divided along regional, rather than party, lines: Although lawmakers from coastal states see a carbon cap as a critical goal whose public and long-term economic benefits would outweigh its costs, most Republicans and some Democrats from the middle of the country fear that it would hurt their states’ economies, dependent as they are on fossil fuels and manufacturing.
At a Senate Environment and Public Works Committee hearing on climate science yesterday, Sen. Christopher S. Bond (R-Mo.) called any cap-and-trade system “a huge unfair tax” that “would devastate the Midwest.” Sen. John Barrasso (R-Wyo.) referred to it as “a trillion-dollar climate bailout.” But the panel’s chairman, Sen. Barbara Boxer (D-Calif.), countered that a cap-and-trade system “isn’t a bailout. It’s revenues coming into the government.” “We think it will be a boon for our economy,” she added. “To say the people in this room don’t care about jobs — that’s ludicrous.”…
…Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) favors a ceiling on the price of carbon allowances, but his ceiling is well below what most energy experts think will be needed to generate the investment and innovation that would achieve big reductions in emissions. Sen. Arlen Specter (R-Pa.), who co-sponsored Bingaman’s bill and remains a key swing vote in the Senate, said at yesterday’s climate hearing that he sees global warming as “a central issue” but could not support a bill that was based on “speculative” technological advances.
Grist’s Gar Lipow argues that while most believe capping carbon will have a negative, albeit minor, impact on GDP , “I think the overwhelming evidence is that a climate-stable future will have a higher GDP ”
The Intersection analyzes: “…this is going to be a hell of a battle. A lot of senators are going to be very worried about the economy, and hard to convince to get on board with a bill that will raise energy costs. But at the same time, Obama or the bill’s proponents can structure it so that the cap actually gives back to citizens in the form of ‘dividends,’ and that could be quite popular.”
OurFuture.org’s Bill Scher: “Obama’s declaration … does not ensure any climate legislation won’t be rendered ineffective with loopholes. And there is massive corporate lobbying effort to accomplish just that … the Center for Public Integrity released a comprehensive investigation into the multi-faceted corporate effort of more than 2,000 lobbyists looking to limit costs on specific industries, if not kill legislation altogether.”
Speaking of, British Petroleum’s Tony Hayward takes to WSJ oped page: “Alternative fuels and carbon caps, yes – but we need more drilling too.”
Grist’s Kate Sheppard updates the legislative calendar:
On Wednesday, Senate Majority Leader Harry Reid told reporters that he plans to achieve three legislative priorities to meet Obama’s goals: an energy bill, an electricity transmission bill, and later, a climate bill.
Reid discussed his transmission bill, which is likely to be released tomorrow, earlier this week. It will probably come after a forthcoming bill from Sen. Jeff Bingaman (D-N.M.), which is likely to include a renewable electricity standard (RES) and efficiency measures.
As for the climate bill, Reid said he intends to get one passed this year, but didn’t offer a more specific timeline: “As far as getting you a definite time, I can’t do that … Our goal is to get that done this year.”
Over in the House, Energy and Commerce Committee Chair Henry Waxman says he’ll have a climate bill ready by Memorial Day. Various pieces of energy legislation are also floating around the House, like an RES bill Reps. Edward Markey (D-Mass.) and Todd Platts (R-Pa.) introduced several weeks ago.
And at a hearing on Wednesday morning, Rep. Jay Inslee (D-Wash.) said he’s planning to introduce a transmission bill in the next few weeks that will be similar to the Rural Clean Energy Superhighways Act from last Congress. An Inslee aide told Grist that like Reid’s bill, Inslee’s will include cost allocation, siting, and smart grid measures.
The official White House blog touts action on green jobs: “On Friday, Vice President Biden and a half dozen members of the Cabinet head to Philadelphia for the first meeting of the Middle Class Task Force. The topic? Green jobs, and looking at some of the innovative programs in Philly and PA that are bringing together universities, labor, the community, and sustainable businesses. The task force will produce a report that we’ll share broadly and hope will contribute to this momentum. And finally, don’t forget to check out the Powershift conference this weekend in DC. 10,000 youth organizers talking about climate and green jobs.”
SEIU President Andy Stern tells USA Today we will pass EFCA this year: “The head of the country’s largest labor union says he expects victory by August on one of labor’s top priorities in Congress: legislation designed to make union organizing easier.”
EPI: “Thirty-nine prominent economists, including two Nobel laureates, have signed onto an EPI-sponsored statement in favor of the Employee Free Choice Act. Citing growing income inequality and workers’ need for more bargaining power to counter national and global trends, they said the labor law reform is essential for rebuilding a solid middle class.” Also from EPI, EFCA Q&A.
The American Prospect interviews labor expert Kate Bronfenbrenner on EFCA’s positive impact on women: “It is important to know that the majority of new workers being organized over the last 20 years have been women and workers of color, [and] EFCA will push that forward at an escalating rate. The job growth in the economy is in sectors where women predominate. Women have a great deal to gain from unionization. Industries like health care, hospitality, and retail [are] all sectors where the union density is not high, and yet when women workers do organize, there are dramatic changes — and not just in economic issues but in the whole way the workplace is structured. Schedules become regular, workers get health and welfare benefits, the ability to know what time you are going home at the end of the day, to be able to make a schedule in terms of your childcare, to have access to promotions.”
Auto Industry Crisis Reverberating
NYT on GM’s ongoing troubles: “…its cash reserves were down to razor-thin $14 billion at the end of 2008, a year when the industry’s worst sales slump in decades nearly forced the company into bankruptcy before the federal government gave it a lifeline.”
W. Post on the dire state of the auto part supply industry: “…the auto industry says it could face a bottom-up collapse if the suppliers supporting these automakers don’t receive federal aid starting next week. ‘We’re on the cusp of what could be cataclysmic,’ said Aaron Bragman, an auto analyst with IHS Global Insight. … Automakers pay their suppliers 45 to 60 days after the car parts are delivered. And these suppliers delay payments to their subcontractors for up to a year. This system worked until credit markets froze and consumer confidence took a nosedive last fall.”
Working Life slams auto part supplier Delphi for winning court approval to revoke promised health benefits to 15,000 retirees.
A little more stimulus. House passes $410B spending bil to fund government operations and projectsthis fiscal year, $31B more than the previous year, including “huge increases in some programs, such as $668 million in new funding for low-income housing for the elderly and $165 million for Amtrak,” per W. Post.
Gallup: Big Majority Thinks Obama Moving At Right Speed, notes The Plum Line.
Some Republicans unhappy the President did not pledge to destroy Social Security in his address, says W. Monthly’s Steven, “Frankly, if these guys are ‘not happy,’ the rest of us should be rather pleased.”
New CEPR report finds baby boomer wealth vanishing. CNN/Money.com quotes Dean Baker: “The collapse of the housing bubble, which led to the current recession, has already destroyed almost $6 trillion dollars in housing wealth for homeowner. This reality is compounded by the recent collapse of the stock market. Many baby boomers will only have Social Security and Medicare to rely on in their retirement.”
USA Today updates on $4B in unspent FEMA Katrina funds: “Lawmakers blasted the heads of the government’s Gulf Coast recovery effort Wednesday for delays that have stalled key projects and left billions of dollars in federal aid unspent.”
More Madoffs: Forbes reports, “Wednesday’s fraud tally: three alleged schemes, $660 million, four arrests.”
Interior Sec. Salazar scraps Bush oil-shale development plan, reports AP
Obama budget takes “the first step toward blocking a nuclear waste dump at Nevada’s Yucca Mountain, reports AP
NYT reports on union-netroots political action committee “Accountability Now” to “recruit liberal candidates for challenges against more centrist Democrats currently in Congress.”
Terrance Heath contributed to the making of this Breakfast