President Makes Case For Bold Budget
JAKE TAPPER (ABC): … Senate Democrats are writing a budget … they’re not including the middle-class tax cut that you include in the stimulus, they’re talking about phasing that out, they’re not including the cap- and-trade that you have in your budget … Will you sign a budget if it does not contain a middle-class tax cut, does not contain cap-and- trade?
PRESIDENT OBAMA: Well, I’ve emphasized repeatedly what I expect out of this budget. I expect that there’s serious efforts at health care reform and that we are driving down costs for families and businesses … I’ve said that we’ve got to have a serious energy policy that frees ourselves from dependence on foreign oil and makes clean energy the profitable kind of energy … We’ve got to invest in education, K through 12 and beyond … And I’ve said that we’ve got to start driving our deficit numbers down.
Now, we never expected, when we printed out our budget, that they would simply Xerox it and vote on it. We assume that it has to go through the legislative process. I have not yet seen the final product coming out of the Senate or the House, and we’re in constant conversations with them. I am confident that the budget we put forward will have those principles in place.
When it comes to the middle-class tax cut, we already had that in the recovery. We know that that’s going to be in place for at least the next two years. We had identified a specific way to pay for it. If Congress has better ideas in terms of how to pay for it, then we’re happy to listen.
When it comes to cap-and-trade, the broader principle is that we’ve got to move to a new energy era, and that means moving away from polluting energy sources towards cleaner energy sources. That is a potential engine for economic growth. I think cap-and-trade is the best way, from my perspective, to achieve some of those gains, because what it does is it starts pricing the pollution that’s being sent into the atmosphere. The way it’s structured has to take into account regional differences. It has to protect consumers from huge spikes in electricity prices. So there are a lot of technical issues that are going to have to be sorted through.
Our point in the budget is: Let’s get started now. We can’t wait. And my expectation is that the Energy Committees or other relevant committees in both the House and the Senate are going to be moving forward a strong energy package. It will be authorized. We’ll get it done. And I will sign it. OK?
TAPPER: [Are you] willing to sign a budget that doesn’t have those two provisions?
OBAMA: No, I — what I said was that I haven’t seen yet what provisions are in there. The bottom line is, is that I want to see health care, energy, education, and serious efforts to reduce our budget deficit.
Politico translates: “Chill out. I’m just not going to get all worked up about the fact that Kent Conrad and some other moderate Democrats are upset about the cost of my plans. If they want to tinker, go ahead. But you watch—I’ll get nearly everything I want.”
President Obama responds to concerns about deficits and more pessimistic CBO projections by emphasizing pro-growth investments in health care, energy. education and infrastructure:
OBAMA: …the main difference between the budget that we presented and the budget that came out of the Congressional Budget Office is assumptions about growth. They’re assuming a growth rate of 2.2 percent; we’re assuming a growth rate of 2.6 percent … Now, none of us know exactly what’s going to happen 6 or 8 or 10 years from now. Here’s what I do know:
If we don’t tackle energy, if we don’t improve our education system, if we don’t drive down the costs of health care, if we’re not making serious investments in science and technology and our infrastructure, then we won’t grow 2.6 percent, we won’t grow 2.2 percent. We won’t grow.
Mother Jones’ David Corn analyzes: “While supporting or concocting various bailouts for the corporate crowd—including that toxic assets plan that could end up a better deal for banks and hedge funds than taxpayers—Obama is also holding firm to the liberal tenet that the nation can invest itself out of its current economic dilemma. This is the left-of-center core of his economic policies, and he declared his commitment to it once more.”
The Treatment’s Jonathan Cohn praises Obama’s consistency on health care and the budget: “What’s more, he seems to say the same things in private. As I discovered in my reporting on the development of his budget proposal, many of his advisers worried that an aggressive push on health care this year would be unwise–that it might cost too much money, at least in the short- to medium-term, or that it might be too tough politically. Obama heard those arguments and rejected them. Health care, he said, wasn’t distinct from the economic crisis. It was part of it. And the answer to our fiscal problems was to get control of medical costs as soon as possible, which meant pushing for reform right away.”
Looking for Positives in Conrad Budget
Democrats in the House and Senate said they plan to cut hundreds of billions of dollars from Obama’s spending request over the next five years. They also are scrapping Obama’s plan to devote more cash to the financial sector bailout. And they are restoring some of the money-saving budget gimmicks the president said he eliminated last month when he unveiled his $3.6 trillion request for the fiscal year that begins in October …
…Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said he would leave out new spending for Obama’s proposed expansion of health care coverage, a program likely to cost in excess of $1 trillion over the next 10 years, as well as the president’s proposal to make permanent an $800 tax credit for working families.
Lawmakers would be free to adopt those policies as long as they did not increase the deficit, Conrad said. That means health care reform would have to be accompanied by tax increases or spending cuts equal to its entire cost, not just the $634 billion down payment Obama had proposed. And the president’s tax credit, dubbed the Making Work Pay credit, would have to be scrapped unless it were paired with a money-raising initiative of equal value.
White House budget director Peter Orszag reacted favorably to the Senate blueprint, saying it would “fulfill the president’s objectives” on health care, education, clean energy and deficit reduction. Orszag acknowledged that the Making Work Pay credit may be lost, but said the administration has “two years to figure this out” before the temporary version of the credit — established in the recent economic stimulus package — expires…
…To bring down deficits, Conrad proposes slashing $160 billion from Obama’s request for nondefense programs over the next five years, including a reduction of $15 billion in fiscal 2010 that targets international programs, among others. Conrad also would jettison the $250 billion Obama included in his budget for the Treasury Department’s bailout of the financial system, a move that lowers the deficit projection but would not prevent Obama from requesting the funds.
Conrad also pressed some Bush-era budget maneuvers eliminated by Obama back into service: Instead of a 10-year budget that shows deficits steadily accumulating, for example, Conrad is proposing a five-year spending plan. And Conrad assumes that the alternative minimum tax will strike millions of middle-class families, generating billions of additional dollars in 2013 and 2014, though Congress has acted repeatedly to prevent that.
House budget leaders declined to provide similar details about their budget blueprint, which is scheduled to be unveiled today. Rep. John M. Spratt Jr. (D-S.C.), chairman of the House Budget Committee, said he was headed in the same direction as the Senate on many issues, but that the House plan would include a procedural shortcut that would permit Democrats to push an overhaul of the health care system through the Senate without Republican votes.
Conrad adamantly opposes the move, known as reconciliation, as does Senate Finance Committee chairman Max Baucus (D-Mont.). A final decision about whether to use the maneuver will be made when the two chambers reconcile their differences in conference committee later this spring.
Politico on Conrad’s health care move: “…his budget doesn’t even assign a dollar value to the reserve fund he creates to help the Senate Finance Committee move ahead in the future. At one level, this means the panel could have more flexibility in charting its own course as to what is needed for health care reform. Then again, it makes the whole budget exercise so vague that the Senate debate will be less meaningful and offer no real measure of support for the initiative.
Politico on the lack of revenue from a carbon cap found in Obama’s budget proposal: “even House Democrats, like Conrad’s budget, have backed away from taking a very forceful stand in support of the cap-and-trade revenue bill sought by Obama as part of his climate change initiative.”
Conrad’s budget resolution does not set aside a fixed amount of money for the president’s healthcare reform or cap-and-trade proposals. Instead, it creates “deficit-neutral” reserve funds that give Senate and House committee chairmen a free hand to craft their own proposals as long as they do not add to the deficit.
But at least one powerful chairman, Sen. Max Baucus (D-Mont.), head of the Finance Committee, interprets Conrad’s “deficit-neutral” healthcare fund as giving him a free hand to spend hundreds of billions to reform the nation’s health system.
“I think he’s come up with a good budget,” said Baucus. “I’m very happy that healthcare reform does not have to be paid for in the first five years. We could not do meaningful healthcare reform [otherwise].”
Obstructionist Bayh Bloc Starts To Feel Pressure
Roger Hickey of Campaign for America’s Future talks about the campaign on MSNBC’s Hardball: “We’re the groups that taught the Democrats how to fight on Social Security … and gradually the Democratic Party came around, even the more conservative ones.”
Americans United for Change releases ad urging Congress to support Obama budget. Politico reports: “[The ad is] going up on the air TODAY in 11 states and Washington, D.C., in an effort to push Senate Budget Committee Chairman Kent Conrad (D-N.D.) and members of a new rump group of centrist Democrats to get behind a blueprint which many of them have already criticized.”
MoveOn releases radio ads targeting Bayh and Bloc members Warner and Shaheen in the Senate, plus several House members.
Bayh Bloc leaders Bayh, Lincoln and Carper pen disingenuous W. Post oped: “The stakes are too high for Democrats to fear a policy debate. Such debates produce better legislation. On nearly all important votes, a supermajority of 60 senators will be needed to pass legislation.”
1. Bayh, Lincoln and others want to force a supermajority of 60 to get health care and global warming legislation passed, by preventing use of simple majority budget rules. They pretend it is a necessary hurdle which requires their precious help.
2. They claim they want a policy debate, but we have yet to hear them debate Obama’s policy proposals. Because Obama’s proposals are popular and their obstruction is not.
Push For Stronger Financial Regulation
“AIG highlights broad failures of our financial system,” Geithner said. “Our regulatory system was not equipped to prevent the buildup of dangerous levels of risk.”
The call for greater authority, which President Obama raised last week, would be a major expansion of government power in the economy, echoing the wide authority granted to Washington during the Great Depression.
Geithner said such power would be part of a new financial regulatory framework that he would outline Thursday and that also could include tougher limits on executive compensation…
…The House committee’s chairman, Rep. Barney Frank (D-Mass.), endorsed the idea. “When nonbank, major financial institutions need to be put out of their misery, we need to give somebody the authority to do what the FDIC can do with banks,” he said … In recent weeks, other lawmakers, such as Sen. Bob Corker (R-Tenn.), have expressed surprise and concern that federal officials have no authority to seize struggling large companies, such as AIG or General Motors Corp., that pose a major risk to the economy, so they can be restructured or dismantled in an orderly fashion. But some Republicans weren’t ready Tuesday to grant the new authority. House Minority Leader John A. Boehner (R-Ohio) called it “an unprecedented grab of power.”
Insurance Lobby Tries Concession To Prevent Competing With Public Plan
The country’s leading health insurers Tuesday offered to end their long-standing practice of charging sick customers higher premiums … underscor[ing] the pressure the industry faces from Congress and the Obama administration as policymakers move ahead with plans to reshape the nation’s healthcare system…
…it came with a catch: The insurers said all Americans must first buy health insurance to boost the size of the risk pool, a concept opposed by many consumer groups…
…unclear is whether the insurers’ proposal will head off calls for a government-run insurance program … many congressional Democrats are committed not only to stepping up regulation of the insurance market but also to creating a so-called public plan to bring down the number of uninsured.
Such a plan, which liberals and interest groups say is necessary, would compete directly with private insurers. Industry representatives vehemently oppose it, saying it would drive insurers out of business and lead to the creation of a single-payer system akin to those in Canada and Britain. [Top insurance lobbyist Karen] Ignagni and [Blue Cross Blue Shield's Scott] Serota reiterated their opposition Tuesday in the letter…
…an aide to Senate Finance Committee Chairman Max Baucus (D-Mont.), who is a leader in the effort on Capitol Hill to overhaul the healthcare system, said he would not back away from creating a new government insurance program…
…Richard Kirsch, who heads Healthcare for Americans Now, a leading consumer group in Washington, blasted the letter as cynical ploy. “It’s a sign of their desperation,” Kirsch said. “They are still looking to find out how they can charge us as much as they want and have no competition from a public plan.”
NYT catches another catch: “…the two executives said insurers wanted to retain the right to charge different premiums based on the age, place of residence and family size of subscribers. Richard J. Kirsch, the national campaign manager of Health Care for America Now, a consumer group, said: ‘If the goal is to make insurance affordable, the latest concession does not go far enough. Insurance companies should also be prohibited from setting rates based on age or sex, and the rating reforms should apply to small businesses as well as individuals.’”
NYT lays out the various arguments for and against the public plan option. (Best opposing argument still seems to be: too many people will like the public plan!)
GoozNews calls public plan option essential: “Forcing everyone into the private marketplace through a mandate will not deal with the social chaos in the bottom half of the U.S. job market, which is now in freefall due to a severe economic downturn. Most Americans change jobs at least once a decade, and for many people in the bottom half of the workforce, work amounts to a succession of low-paid and dead-end jobs, many of which do not provide health insurance and even when they do, it’s usually inadequate with high deductibles, high co-pays and huge holes in coverage. The best and most efficient option for maintaining health coverage for people who lose their jobs is to have them automatically default into a public plan. The last thing someone newly unemployed needs is a call from the government saying, ‘don’t forget, you’re required to go out into the individual marketplace and buy your own insurance plan. But don’t worry. We’ll subsidize you because you’re unemployed.’ Is this what we want the unemployed to do? Spend time looking for health insurance instead of looking for a job?’”
Carbon Cap Strains Dem Caucus
Politico: “Democrats from industrial and coal-producing states hit hard by the recession, such as Michigan and Ohio, fear that a cap-and-trade bill will fail to include provisions to keep new, green jobs at home. Sen. Debbie Stabenow (D-Mich.) has gathered a group of 16 industrial and Rust Belt state Democrats to try to limit any potential economic damage the proposal could wreak on their states … [but] the Environmental Defense Fund released a map earlier this month identifying more than 1,200 companies in 12 industrial and swing states that will benefit from cap-and-trade legislation. The map is searchable by congressional district and is intended to convince moderates that the legislation will create jobs.”
WSJ: “[The President's] remarks come as House Energy and Commerce Committee Chairman Henry Waxman, (D., Calif.), finalizes a climate-change bill that he wants to vote out of his committee by the end of May. He has set March 31 as the target date by which he will release a draft of the legislation. So far, the Obama administration has failed to provide a proposal to Capitol Hill, frustrating lawmakers who say that providing a detailed proposal would be more helpful.”
Specter Refuses To Move EFCA … For Now
Sen. Specter flip-flops on EFCA, taking away a possible filibuster-proof supermajority, but hints at future flip. W. Post: “In his statement yesterday, Specter said he had always had reservations about the bill, which would make it possible for workers to form a union if a majority sign pro-union cards, without a secret-ballot election; stiffen penalties for employer violations; and require mandatory arbitration if a union and an employer can’t reach a contract in 120 days. While he agreed with unions that the current system is broken, he said he prefers more limited reforms, particularly during a recession. Only if more limited reforms prove ineffective, he said, ‘then I would be willing to reconsider … when the economy returns to normalcy.’”
Sen. Reid suggests other GOPers may support. The Hill: “Senate Majority Leader Harry Reid (D-Nev.) dismissed the suggestion that Specter’s vote is the death knell … ‘Oh, I don’t think so,’ Reid said. ‘He’s not the only Republican who has indicated a willingness to consider something being done.’ When asked what other Republicans might support the bill, Reid said, ‘We have other suspects.’”
The Seminal’s Jason Rosenbaum: “People should be calling out Specter’s political move for what it is. He’s participating in obstructionism and he’s making it harder for our economy to recover, all because he perceives a bigger threat from the discredited and dis-empowered right than he does from an ascendant left. It’s a strange choice, and a choice that will likely cost him. I’m not sure he’ll reconsider his decision here, but if he doesn’t, Democrats should have 60 votes in the Senate outright by the end of the 2010 election, including a new blue seat in Pennsylvania.”
Newshoggers: “Has the courting process by both unions and prominent Dems, either though it is a short run failure, been sufficient to cement the impression of mistrust that conservative Republicans have of Sen. Specter? Has Sen. Specter been hugged to political death?”
More Toxic Asset Plan Analysis
…the plan gives the banks the whip hand. If the price doesn’t meet their minimum, they don’t sell, or anyway not much, and that’s the end of the story. It won’t take more than an auction or two to find out.
The Geithner plan’s real design is thus not to help the market but to steer it. It is not to discover a price but to create a new one, based on rules the Treasury is just now making up. It is, in effect, to create a new asset, a derivative, that can sell where the existing, underlying security (also a derivative) does not. The new rules—especially the leverage and the non-recourse feature—create in effect a new kind of bond, with a very high expected return, accessible to those who take the toxic assets from the banks.
Thanks to the FDIC’s loan guarantee, there is a big upside if the assets do well. That upside is there to lure the rich guys in. That is why the big funds were happy; that is why the stock market went up. For the high rollers, this casino could be very attractive.
And what happens if the assets really are trash? Well, first of all, you’ve now put the residential-mortgage-backed securities in the hands of some pretty aggressive investors. Are they likely to be forgiving of the poor home buyers in trouble? And cooperative with foreclosure relief? It’s doubtful, I’d say.
The private investors need the government because there are so many bad loans held in the financial sector that only the government’s balance sheet can handle taking them over. The government needs help from private investors so it doesn’t get hoodwinked by the banks.
Why will investors participate? The deal is structured so that firms will be responsible only for losses on their initial investment. The hope is that by giving this big “freebie,” the government will induce investors to participate, and that competition among them will lead to higher offer prices for the loans and securities, thus encouraging banks to sell them.
A lot of ifs, but if indeed successful, the plan accomplishes mission No. 1, namely the removal of the bad assets from banks’ balance sheets. Even if banks wanted to do this on their own, they can’t because the market for these illiquid assets has dried up.
But let’s not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent in making clear that there is still a wealth transfer taking place here – from taxpayers to investors and banks…
…What happens if removing toxic assets from a bank’s balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, “Why keep insolvent banks afloat?”
Bloomberg on AIG bonus tax bill delay: “Senate Democrats are re-evaluating a proposal to impose heavy taxes on employee bonuses paid at insurer American International Group Inc. because of lawmaker opposition and concerns expressed by President Barack Obama. Asked when legislation might advance, Senate Finance Committee Chairman Max Baucus told reporters yesterday, ‘There are so many ideas floating around. That’s hard to answer at this point.’”
WSJ on other options: “One potential alternative to the AIG tax bill could be House legislation giving the Treasury and the U.S. attorney general enhanced authority to recoup excessive bonuses. In addition, Mr. Geithner’s proposal to change regulation of financial markets is expected to give the Fed powers to ensure that compensation and bonus structures at systemically important companies aren’t totally divorced from the long-term performance of the companies.”
NYT publishes letter from AIG employee now quitting.
Bloomberg on China’s call for a global currency: “‘The Chinese are a little disingenuous in saying that it’s so bad that we own all these dollars,’ former Fed Chairman Paul Volcker, an adviser to Obama, said at the Wall Street Journal’s ‘Future of Finance’ conference in Washington. ‘They own all the dollars because they chose to buy the dollars and they didn’t want to sell the dollars.’ China is promoting use of the yuan to smooth currency volatility and to serve ‘a long-standing interest’ to raise its status to that of a global reserve currency, said Ben Simpfendorfer, an economist at Royal Bank of Scotland Group Plc in Hong Kong. Such moves are not ‘a knee-jerk response’ to the economic crisis, he said.”
ePluribus Media’s Chris White argues discussing it can’t hurt: “Even if discussed at the G20 probably the most that would come out is a committment to another conference discussion, or international agenda item.”
Nominate an Unsung Progressive Hero
Nominations are open for the 3rd Annual Maria Leavey Tribute Award, honoring the person whose tireless, behind-the-scenes work has been critical to the success of the progressive movement in the past year.
Terrance Heath contributed to the making of this Breakfast.