Ezra Klein's Blog, page 897

Can the White House tackle the deficit?

When it comes to the budget, no two people in town know more than Bob Greenstein, director of the Center on Budget and Policy Priorities, and Maya MacGuineas, president of the Committee for a Responsible Federal Budget. And yet, Monday, they disagreed. "Does not go nearly far enough," MacGuineas said of President Obama's budget. "An important step toward addressing the nation's long-term fiscal challenge," Greenstein concluded.

But perhaps they're more in sync than they know. I spoke with both today, and they agreed on quite a bit: That this budget, on its own, does not come near to solving our fiscal problems; that more needs to be done, and we're better off doing it sooner than later; that the real question is what happens in the coming negotiations, not what was written into the budget. "What we don't know," MacGuineas says, "is what's happening behind the scenes."

The Obama administration's theory of policymaking amid divided government is a frustrating one. What most people want from the president is to lead. And leading, in this case, means giving a speech, getting behind some unpopular ideas, trying to change public opinion. It means acting like Jed Bartlet in the final five minutes of an episode of "The West Wing." "What are the next 10 words in your budget?" Obama is supposed to ask the Republicans after delivering his bout of tough fiscal medicine. "Your taxes are too high? So are mine. Give me the next 10 words. How are we going to do it? Give me 10 after that, I'll drop out of the race right now."

But the White House has come to the conclusion that that type of leadership doesn't work. It believes that the quickest way to kill a controversial proposal in a polarized political system is to have the president endorse it. Once a high-profile proposal is associated with the White House, Republicans (correctly) view its passage as a threat to their political fortunes. That's why the Obama administration didn't endorse a payroll tax holiday until after the election, when it emerged as part of the tax deal. Endorsing it before the election would've "poisoned the well," one administration official told me after. Republicans would have had to attack it, and that would have made it impossible for them to endorse it later.

Greenstein sees a similar theory at work in the budget. "I don't think Obama could've been clearer that he wants a bipartisan commission on Social Security like they had in the early '80s," he says. "But if you look at what came out of that commission, if those items had been in Reagan's budget the previous February, they would've been dead in 30 days."

Obama echoed this argument at his news conference Tuesday. "If you look at the history of how these deals get done," he said, "typically it's not because there's an Obama plan out there; it's because Democrats and Republicans are both committed to tackling this issue in a serious way."

And are Democrats and Republicans committed to tackling this issues in a serious way? I guess we'll find out. "We're going to be in discussions over the next several months," Obama continued. "This is going to be a negotiation process."

The most serious work being done is in the Senate, where Mark Warner (D-Va.), Saxby Chambliss (R-Ga.), Dick Durbin (D-Ill.), Mike Crapo (R-Idaho), Kent Conrad (D-N.D.) and Tom Coburn (R-Okla.) are meeting regularly to create legislation based off the Fiscal Commission's final report. In theory, that's the sort of project Obama is looking for: a negotiation between sitting senators of both parties. I asked Warner about this today. Should the White House have put its shoulder behind his process? "We're not at the point where the president should get involved yet," he replied.

Wonks -- myself included -- have a preference for the bold plan, the single solution, the sweeping stroke. Slow and incremental just isn't how people who care about policy tend to think. They want to solve problems, not make a bit of progress on them. And from that perspective, the budget was a huge disappointment. That's particularly true when compared to the Fiscal Commission's report, which took on the military, entitlements and tax expenditures. Love it or hate it, it was, at the least, ambitious. And policy types like ambitious.

But policy types don't tend to get much done. And although this administration has been enormously frustrating, what with its preference to let Congress take the lead, to draw few lines in the sand and to let the process play itself out, it's gotten a lot done. Much more than its critics would've expected at the beginning of any particular policy campaign the White House has kicked off. "Let's face it," Obama said at his news conference Tuesday, "you guys are pretty impatient. If something doesn't happen today, then the assumption is it's just not going to happen. Right? I've had this conversation for that last two years about every single issue that we worked on, whether it was health care or 'don't ask, don't tell.' "

Obama's confident recitation of his record doesn't mean he will get this done, too. But I wouldn't be too quick to bet against his administration just because the Simpson-Bowles plan wasn't dropped into his budget. I'd look, rather, at two other things: Is a "grand bargain" on the deficit something he wants, and is it something he can get?

On the first question, I think the answer is yes. In Bruce Reed, Gene Sperling, Jack Lew and Bill Daley, the White House has just brought in or promoted a number of Clinton-era officials notable for their concern with, and success pursuing, deficits. And on a more coldly pragmatic level, if the administration gets something everyone agrees to call "deficit reduction" done, and the economy is recovering, then barring some sort of mishandled foreign policy crisis, whoever the Republican's nominate for president will be starved for issues. Obama becomes, if not a lock for reelection, then closer to it.

As for the second question, well, that's harder. The new class of House Republicans doesn't seem particularly friendly to compromise. And the same political calculus that makes a deficit-reduction bill a political no-brainer for Obama makes it a disaster for the Republicans in 2012. Remember Senate Minority Leader Mitch McConnell's warning that "the single most important thing we want to achieve is for President Obama to be a one-term president." But with the notable exception of cap-and-trade, this White House has been pretty good at confounding critics of its legislative strategy.

Photo credit: Brendan Hoffman Photo.

Health care in Canada

I'm on record as having some problems with how the Canadians run their health-care system. In particular, I think it's good to have a floor for health care -- and that floor could be single-payer, as it is in Canada -- but it's a problem to have a ceiling. It should be easier to pay more for better care. But I think a lot of Americans look at the outcomes of the Canadian system and assume that the Canadians would prefer to be more like us. Not so much:

it's been driving me nuts when I hear: "we were supposed to get our MRI next April, but thankfully we knew someone on the board of directors, so we got it in two weeks," as though there is ANY DIFFERENCE between "knowing someone on the board" and "having enough money to go get it done in the States."

If there's a system where you get what you need faster than anyone else for ANY reason other than "has the most urgent need," it's two-tier, guys.

You hear this a lot when you read Canadians talking about the problems in their system. The issue is rarely that they're not enough like America. In general, it's that they're too much like America. My read is that this has actually led to bad policy, as the fear of Americanization and two-tiered health care has led Canadians to reject certain reforms that would take some of the pressure off their system at the cost of introducing a little more inequality into it. It's rather the reverse of the way the dreaded specter of socialism has impeded Americans from taking smart steps towards a more cohesive and efficient health-care system that could cover more people at a lower cost.

Americans think we're spending too much on defense, in one chart

From Gallup:

So why are we spending so much on defense, and protecting it from real cuts even as Pell grants go under the knife? The problem isn't the polls. It's a learned understanding of the politics. Democratic presidents believe they need the secretary of defense and the Joint Chiefs of Staff on their side if they're going to make major changes to the Defense Department. This is how the Obama administration proceeded on "don't ask, don't tell," and it's what they wanted to do here. But Secretary Robert Gates wouldn't go for more than $78 billion. And though the administration was willing to tell a lot of agencies that they couldn't have what they want over the next few years, they weren't willing to say that to the Defense Department. They're not sure they could win that fight. But looking at these polls, I wonder if they're not too pessimistic on that.

Lunch Break

Oliver Sacks details what hallucination teaches us about our minds:

How penicillin fooled us

Perhaps it's the mark of a good book that after you read it, you begin seeing evidence for its thesis in lots of different areas. Since reading Tyler Cowen's "The Great Stagnation," I've been seeing a lot of support for a claim that I'd initially resisted: the idea that the technological advances of the 19th and early 20th centuries were far more important to both the economy and quality of life than what's come since. Take this observation from Atul Gawande's "The Checklist Manifesto":

I think we have been fooled about what we can expect from medicine -- fooled, one could say, by penicillin. Alexander Fleming's 1928 discovery held out a beguiling vision of health care and how it would treat illness and injury in the future: a simple pill or injection would be capable of curing not just one condition but perhaps many. Penicillin, after all, seemed to be effective against an astonishing variety of previously untreatable infectious diseases. So why not a similar cure-all for the different kinds of cancer? And why not something equally simple to melt away skin burns or to reverse cardiovascular disease and strokes?

Medicine didn't turn out this way, though. After a century of incredible discovery, most diseases have proved to be far more particular and difficult to treat. This is true even for the infections doctors once treated with penicillin: not all bacterial strains were susceptible and those that were soon developed resistance. Infections today require highly individualized treatment, sometimes with multiple therapies, based on a given strain's pattern of antibiotic susceptibility, the condition of the patient, and which organ systems are affected....medicine has become the art of managing extreme complexity -- and a test of whether such complexity can, in fact, be humanly mastered.

Compared with penicillin, the therapies we're developing today offer marginal improvements and carry an incredible cost. In fact, I think a lot of them are a net drag on the economy: The problem with medicine is that it's very hard to say no, and that means we often end up paying a lot for treatments that do us very little good, and that squeezes the resources available to sectors that could do us a lot of good but are easier to say no to.

The death of the gas tax -- and of infrastructure investment?

Perhaps my favorite part of the budget is the Department of Transportation's section (pdf). Readers know that I think infrastructure investment is, at this moment, the biggest no-brainer in the economy. The need is great, the workers are plentiful, the money is cheap, and the material costs are low. And the administration is proposing quite a lot of it: $556 billion over six years. That includes a $50 billion bump in the first year's funding to maximize job creation at a moment when unemployment is high, a $30 billion infrastructure bank, a $32 billion Race to the Top program to encourage states to develop ambitious and innovative reform proposals, and more. It's good stuff. The question is how we're going to pay for all of it.

Traditionally, the underlying law -- the Surface Transportation Assistance Act -- was funded by increasing the gas tax. And when I say "traditionally," I mean beginning with Ronald Reagan in 1982. Yes, Reagan increased the gas tax to fund infrastructure investment. George H.W. Bush and Bill Clinton both followed his lead on that. Then came George W. Bush, and for the first time, the law was reauthorized and given new funding without being paid for. The connection between infrastructure investment and its traditional funding source was severed.

The Obama White House is promising that they'll pay for their infrastructure investment. But they're not mentioning the gas tax. All we get is "the President is committed to working with the Congress to ensure that funding increases for surface transportation do not increase the deficit." I'm sympathetic, of course, to the political professionals in the building who don't want to try to defend a hike in the gas tax. That's unpopular, and this isn't an age when Republicans will go to their base, say, "look, Reagan did it," and partner with the administration because it's responsible policy.

But if the administration is going to duck the fight on reconnecting the Surface Transportation Act and the gas tax, it's hard to see this proposal getting funded and passed. The House GOP isn't lockstep against infrastructure investment, but they do seem to be lockstep against new revenues. Plus: The gas tax was a sensible and smart way to fund improvements in transportation infrastructure. That's why even Reagan signed onto it. It's disappointing to see Bush's irresponsible and ideological rejection of it become bipartisan policy. And though increasing the gas tax surely doesn't poll well, increasing investment in roads and highways does. At some point, a talented political team should be able to find some margin in being responsible in service of popular policy, even if some of the component parts of being responsible are painful.

Photo credit: Jack Adams/Bloomberg.

Is the NYT's web site worth billions?

If you assume "average revenue per user" is the right way to measure value, and the valuation on the Huffington Post is even in the general ballpark, then that's what you get:

About 35% of the HuffPo's users come form Google. They land on cleverly optimized content: stories borrowed from other (and consenting) medias that mostly generate blogging and comments. This is the machine that drove 28m unique visitors in January, which makes the HuffPo close to the New York Times/Herald Tribune audience of 30m UV. With one key difference: each viewer of the NYT websites yields an ARPU of $11, ten times more than the Arianna thing. Based on the HuffPo's valuation, the NYT Digital would be worth billions.

The White House's 'two big theories of action'

Most of the commentary on the 2012 budget is focusing on the headline numbers: How much it cuts, how much it spends, and where it leaves deficits. There's been less attention to the new ways the administration is proposing for how a lot of that money gets spent.

Think of social policy as having one of two goals: Either it's funding a particular program to do something specific, like lower teen pregnancy, or it's funding a broader effort to reform something diffuse, like the education system. The administration views these problems separately. "We have two big theories of action here," says Robert Gordon, executive associate director at the Office of Management and Budget. "In a program intervention, the big obstacle is getting people to use the right approach, based off the best evidence. If you think about systems, the big obstacle is often political -- you're dealing with a complicated space with multiple stakeholders where you have a common goal but there's a coordination problem."

For the program interventions, the administration sees the main problem as getting sclerotic bureaucracies to shift to interventions based on the best and newest evidence. So they're tying funding to evidence -- a practice that's been rarer than you might think. For the systemwide reforms, they see the main problem as getting past political obstruction and broad inertia, and so they're expanding the Race to the Top program -- which handed out money based on the pro-reform laws that states passed through their legislatures -- to new areas.

Saying that new programs -- and a lot of the money feeding old programs -- will be weaned off of so-called "formula" funding, where money is given out according to preset rules, and moved to various forms of competitive funding, where the money is given out based on how much high-quality evidence you can provide that your intervention works, seems like damning with faint praise. Isn't most policymaking based on evidence?

Well, no, says Ron Haskins, former senior adviser for welfare policy in the George W. Bush administration. "Research generally plays a very modest role," he sighs. But he brightens up when he talks about "the spectacular job" the Obama administration is doing changing this.

The Obama administration's favored funding structure involves a three-tiered test. The top tier is for programs that have tested themselves using a randomized control trial in multiple sites, or something close to it. That's the gold standard in evidence, and those programs get the most money. The second tier is for programs with preliminary evidence, and they can get some money. And then there are programs that can make a case for why they're worth trying, and they can get a bit of money -- enough, essentially, so they can develop evidence and come back to qualify for a higher tier. Program funding is being moved to this model across the government, in education and energy and transportation and more. "This is one of the few times I've regretted being a Republican," Haskins says happily. "I just think this is the exact right thing to do, and they're being so thorough about it."

Then there's the systemic level. The model here is the Race to the Top program, which has been at the core of the administration's efforts in the education space. That initiative ran a competitive grant program in which states needed to submit a reform plan, then pass it through their state legislatures, before they could qualify for cash. The money, essentially, was used to buy votes for a broader reform vision.

When administration officials talk about Race to the Top, they get a little starry-eyed. "Widely viewed as leveraging more change than any other competitive grant program in history" is how it gets introduced in the budget. The great thing about the Race to the Top money, administration officials will tell you, is that it proved so highly "leveraged." Only 12 states actually got grants. But more than 40 states adopted a common set of K-12 standards. Dozens more lifted the caps on charter schools and agreed to more rigorous teacher evaluation programs. The money and the competition proved effective at breaking the political logjams that had frustrated reformers, giving them the momentum to pass their packages through state legislatures. And even if a state didn't end up getting the money, it still kept the reforms it had passed while trying to get the money.

It's no surprise that Race to the Top began in the education space, where political intransigence and interest groups are often considered the first-order obstacles to change. But now it's moving beyond education. There's a $200 million Race to the Top program "for communities to invest in electric vehicle infrastructure and remove regulatory barriers." There's a $32 billion Race to the Top program in the transportation space to "create incentives for States and localities to adopt critical reforms in a variety of areas, including safety, livability, and demand management." There a $120 million Race to the Top grant "that rewards States for tangible improvements in juvenile justice systems. There are new Race to the Tops for early-learning, higher education and job training. There are Race to the Tops everywhere.

I think there's a question as to how well the model will work in new spaces. The administration -- and the education-reform community more broadly -- was very clear on the political reforms it thought necessary to improve the schools. It's less clear what they want to see happen in "safety, livability, and demand management." But it's worth a try: The White House may not be able to overcome gridlock in Washington. But perhaps, with the help of a few billion dollars, they can do it in the states.

Wonkbook: Washington reacts to the budget

Today's sunrise marked the first dawn after the release of Barack Obama's proposed budget for 2012. Look closely, and you'll see the changes: Children no longer hold their parent's hand as they walk down the street. Cars drive backwards. All drinks are carbonated. Every television station is live streaming Twitter -- and everyone is watching. And the debt? Totally repaid.

Or not. The budget was not terribly well received. Republicans and many deficit hawks were loudly horrified at the proposal's modest cuts and its decision to sidestep entitlements. They wanted the Fiscal Commission -- or something close to it -- and they didn't get it. Democrats were less distressed, but far from pleased: The cuts that were included in the budget are painful for them, many wanted to see more aggressive action on tax expenditures and military spending, and the much-touted investments made in the document are scattershot. The Atlantic's Derek Thompson summed the reaction up well: "The same way a spork makes a incomplete fork and an ineffectual spoon, this compromise budget provides for both incomplete investment and ineffectual deficit reduction." And so it has found few friends.

But it's worth remembering that this is the White House's opening bid in a negotiation that's just getting started. They have made a decision -- perhaps savvy, perhaps not -- to leave it to the Republicans to take the first step on entitlements and tax reform. The Republicans, due to their criticism of this budget, now have to offer something more far-reaching in their proposal. If they come up with a plan people like and some votes for it, the White House can join with them in negotiations and eventually sign onto a grand compromise. This budget will be largely forgotten. If they come up with a plan people hate that clearly can't get the votes, the White House can attempt a replay of the mid-1990s and hammer them with it.

This budget doesn't lead on long-term deficit reduction. But that's not necessarily because the White House is uninterested in that discussion. Note the section laying out the White House's interest and position on Social Security reform. Rather, they're keeping their options open until Congress makes the first move. This is a strategy that frustrates Washington -- think back to the bipartisan criticism of the leeway the administration gave Congress during health-care reform and the stimulus -- but it's tended to be how the White House approaches major reforms.

Budget Reax

Read Obama's official budget request here: http://bit.ly/aEariq

Lori Montgomery summarizes: "President Obama submitted a budget blueprint for fiscal 2012 on Monday full of surgical cuts and cautious trade-offs to lawmakers clamoring for bold action to reduce government spending and control a budget deficit expected to rise to a record $1.6 trillion this year. The $3.7 trillion plan proposes to trim or terminate more than 200 federal programs, striking areas long favored by Democrats to make room for increases aimed at boosting the economy. The new priorities include spending on education, energy and medical research, and a push to bring high-speed Internet to virtually every American...His budget calls for $1.6 trillion in fresh revenue over the next decade, primarily through higher levies on businesses and the wealthy."

Check out the Post's run-down to see which departments gain and lose: http://wapo.st/hR2G7X

Annie Lowrey explains what the budget would look like if the US made as much as a typical household: "The Obama budget throws around some very big numbers, a dizzying array of billions and trillions, and they are difficult to parse and compare. So let's cut them down to a useful, human, household size. Next year, the government plans to take in $2.63 trillion—and to spend $3.73 trillion. For our purposes, let's use $60,000 as the government's income and $85,000 as its expenses. Where does all of that spending go?"

The business community is skeptical, report Jia Lynn Yang and Michael Fletcher: The fiscal 2012 budget outlines more than $200 billion in higher taxes for oil and gas companies, banks and multinational firms - ideas that have been offered in the past and vehemently opposed by industry. It does not detail a core part of Obama's effort to win the trust of big business: an overhaul of the corporate tax code that would lower the overall rate that firms pay. 'I'm just extremely disappointed,' said Caroline Harris, chief tax counsel for the U.S. Chamber of Commerce. 'I certainly did not expect to see a full plan. But I did think some good-faith effort would have gone a long way with the business community.'"

The GOP wants $61 billion more in cuts: http://wapo.st/fqYCEx

The budget strikes a good balance, writes Robert Greenstein of the Center for Budget and Policy Priorities: "Given current fiscal and political circumstances, the budget strikes a tough but generally sound overall balance among the need for fiscal restraint, the need to avoid large immediate cuts while the economy is still weak, the need to protect effective high-priority programs (especially those that represent effective long-term investments), and the need to avoid inflicting serious harm on the poorest and most vulnerable members of our society...The Administration was on sound footing in not offering, in the budget, various controversial proposals for long-term deficit reduction that policymakers could consider more constructively as part of future deficit-reduction negotiations."

The budget does not go nearly far enough, Maya MacGuineas of the Committee for a Responsible Federal Budget: "It is encouraging that the Administration identifies some areas for real savings. However, the total level of savings is far short of what is needed and too many heroic assumptions are used to achieve them. This budget fails to meet the Administration's own fiscal target, it fails to tackle the largest problems areas of the budget, and it fails to bring the debt down to an acceptable level. While we can certainly appreciate the difficult political environment in which the budget is introduced, the glaring omission of any significant entitlement reforms and the excessive use of 'fill-in-the-blank' budgeting does not help to advance the conversation."

Good start, but more needed, says Senate Budget Committee Chairman Kent Conrad: "The President's budget gets it about right in the first year. Even as it moves to cut spending, it continues investments in the critical areas of education, energy, and infrastructure. These investments will help strengthen the economic recovery, create jobs, and build the foundation for long-term economic growth. But we need a much more robust package of deficit and debt reduction over the medium- and long-term. It is not enough to focus primarily on cutting the non-security discretionary part of the budget, which accounts for just 12 percent of spending this year. Instead, we need a comprehensive long-term debt reduction plan, in the size and scope of what was proposed by the President's Fiscal Commission. It must include spending cuts, entitlement changes, and tax reform that simplifies the tax code, lowers rates, and raises more revenue."

Obama's budget represents a failure of leadership, writes House budget chair Paul Ryan: "Failing to heed the warnings of economists and the demands of the American people, the President's budget accelerates our country down the path to bankruptcy. Far from 'living within its means,' the President's budget puts the government on track to nearly double in size since the day he took office - a direct result of his party's reckless spending spree. His budget destroys jobs by imposing a $1.6 trillion tax hike, adding $13 trillion to the national debt and fueling uncertainty in the private sector. We cannot tax, spend and borrow our way to prosperity. Where the President has fallen short, Republicans will work to chart a new course - advancing a path to prosperity by cutting spending, keeping taxes low, reforming government, and rising to meet the challenges of our time."

The budget is a window into what the federal government really does these days, and what it really does these days is insure people, writes Ezra Klein: "Two of every five dollars goes to Social Security, Medicare or Medicaid, all of which provide some form of insurance. A bit more than a buck goes to the military. Then there's a $1.50 or so for assorted other programs -- education, infrastructure, environmental protection, farm subsidies, etc. Some of that, like unemployment checks and food stamps, is also best understood insurance spending. And then there's another 40 cents of debt repayment. Calvin Coolidge once said that the business of America is business. Well, the business of the American government is insurance. Literally. If you look at how the federal government spends our money, it's an insurance conglomerate protected by a large, standing army."

The changes from last year's budget are cosmetic, writes Douglas Holtz-Eakin of the American Action Forum: http://bit.ly/fVvshM

The Obama administration is finished with stimulus, writes Paul Krugman: "The important thing, I think, is that he has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again."

The budget doesn't do nearly enough on long-term deficits, writes Howard Gleckman: "Mostly due to one-off responses to the Great Recession, such as TARP and the stimulus, all spending as a share of Gross Domestic Product ballooned in 2009-10. While spending will slowly fall over the next couple of years--thanks to an improving economy, the merciful end to various government bailouts, and President Obama's proposed spending freeze for some domestic programs, overall outlays would settle in at about 23 percent of GDP through the end of the decade according to Obama's fiscal plan. That's too high, especially since most costs of the aging Baby Boomers won't have kicked in yet."

The budget is passive aggressive -- but in a good way, writes Jonathan Chait: "People support most actual programs, but they think foreign aid constitutes a huge part of the budget and you can generate mass savings by eliminating waste and bureaucracy. They've believed those things for a long time. What's more, I actually see the administration's budget gambit as a subtle attempt to change peoples' minds. The administration is loudly publicizing the fact that it's cutting programs it thinks are necessary. The message, sometimes made explicit, is that the budget actually does not contain a lot of waste. It's filled with programs that have survived many previous rounds of belt-tightening for a reason. If you want to cut the budget, you have to cut useful and necessary things. I don't think this will have a big effect. But I do think Obama is trying, in a passive-aggressive way, to do what liberals have demanded. He's explaining to the public that the free-ride view of budget cutting -- we can cut our way out of the deficit by eliminating waste and spending that only benefits foreigners -- is wrong."

Grammy-validated interlude: Arcade Fire plays "No Cars Go" at Glastonbury.

Still to come: Noam Scheiber profiles Tim Geithner; Obama's "doc fix" plan faces criticism; the budget includes more funding for education; the White House is defending its cuts to heating aid; and the 8-bit The Great Gatsby video game.

Economy

Noam Scheiber profiles Treasury Secretary Tim Geithner: "Geithner is the lone remaining member of the president's original economic team and arguably the administration's second-most valued official. Indeed, that the White House was willing to let him face down Issa is only the latest sign of a rather remarkable transformation. (Issa ultimately blinked.) Geithner owns the economic portfolio with China and has been tasked with confronting Republicans over the nation's debt limit. He has taken the lead on corporate tax reform and overhauling Fannie Mae and Freddie Mac. With his former lieutenant, Gene Sperling, now running the National Economic Council, Geithner will no longer form part of the multiheaded 'war cabinet' that included Sperling's predecessor, Larry Summers. He is set to play the first-among-equals role of a traditional treasury secretary."

The budget includes a cut to the mortgage deduction for the rich: http://bit.ly/eNAFCa

Banks are still fighting the Fed's new debit card regulations, reports Justin Doom: "The Federal Reserve Board's proposed caps on debit-card transaction fees have drawn 'broad and deep opposition' from U.S. banks and payment networks and should be withdrawn, according to an industry panel. The Fed's approach 'misinterprets and misapplies the Durbin amendment,' said a summary of a meeting between the Board of Governors and the Federal Advisory Council dated Feb. 4 and released today by the central bank...The Fed has proposed capping debit-card interchange fees charged to merchants at 12 cents for each transaction, replacing a formula that averages about 1 percent of the purchase price. Visa Inc. and MasterCard Inc., the world's biggest payment networks, currently set interchange rates and pass the money to card-issuing banks."

Obama and the House GOP are working together to hurt the working poor, writes David Cay Johnston: http://bit.ly/dHY24R

We need to cut corporate tax rates more than Obama is willing to, writes Martin Feldstein: "The U.S. corporate tax rate is 35% at the federal level and 39% when the average state corporate tax is included. The average rate in the other industrial countries of the Organization for Economic Cooperation and Development (OECD) is just 25%. Only Japan has as high a rate. Eliminating every loophole in the taxation of domestic corporate profits identified by the administration's own Office of Management and Budget would raise less than $60 billion of extra revenue in 2011, enough to lower the combined federal-state corporate rate to 35%. The U.S rate would still be higher than in every other country but Japan, and a full 10 percentage points higher than the average in other industrial OECD countries."

The latest technological innovations don't bring a lot of new jobs with them, writes David Brooks: "For example, imagine a man we'll call Sam, who was born in 1900 and died in 1974. Sam entered a world of iceboxes, horse-drawn buggies and, commonly, outhouses. He died in a world of air-conditioning, Chevy Camaros and Moon landings. His life was defined by dramatic material changes, and Sam worked feverishly hard to build a company that sold brake systems... Sam's grandson, Jared, was born in 1978... He loves Facebook, YouTube, Wikipedia and his iPhone apps. But many of these things are produced outside the conventional monetized economy. Most of the products are produced by people working for free. They cost nothing to consume. They don't even create many jobs."

Seems-like-a-joke-but-isn't interlude: The Great Gatbsy NES game.

Health Care

Obama's plan for paying for a Medicare "doc fix" is facing criticism, report Mary Agnes Carey and Christopher Weaver: "Critics quickly pounced on President Barack Obama's proposal to head off scheduled cuts in Medicare payments to doctors, saying his funding method would cause serious problems. In his fiscal 2012 budget plan released Monday, Obama proposed a two-year, $54 billion solution to stop the payment cuts, which otherwise would go into effect Jan. 1. To finance what insiders call the 'doc fix,' the president would reduce waste, fraud and abuse and draw on savings from a variety of sources, including the states, drug makers - even power wheelchair retailers...Some state officials complained about the impact on Medicaid, the state-federal health program for the poor and disabled."

The budget cuts HHS for the first time in history: http://nyti.ms/gt832H

States need relief from health care reform's Medicaid provisions, writes Peter Suderman: "To consider what the expansion of Medicaid under ObamaCare might do to the states, take a look at Massachusetts and Tennessee. In 2006, Massachusetts overhauled its entire health-care system, including a significant expansion of Medicaid. This expansion is costing the state far more than expected. Gov. Deval Patrick approved a record-setting $9.6 billion to cover its share of Medicaid costs last July. It wasn't enough. He's already gone back to the legislature twice, adding almost $600 million in additional funds...Between 1994 and 2004, [Tennessee] expanded its Medicaid program, called TennCare, to cover roughly one in four residents. The price tag reached a quarter of the state budget by 2004."

Passing a public option would save $47 billion easily, writes Jonathan Zasloff: http://bit.ly/fJ8CV2

Domestic Policy

The budget raises spending on schools, report Sam Dillon and Tamar Lewin: "President Obama proposed a 2012 Department of Education budget on Monday that would, if approved, significantly increase federal spending for public schools, and maintain the maximum Pell grant -- the cornerstone financial-aid program -- at $5,550 per college student. Whether it will be possible to keep that Pell maximum remains uncertain, however, given that House Republicans have proposed cutting the maximum by about $845, or 15 percent, in their proposal to extend the current budget. The administration's education proposal asks for $77.4 billion. That includes $48.8 billion for the portion of the education budget that does not include Pell grants, or an increase of about 4 percent above the 2010 budget. Congress has not yet enacted the 2011 budget."

The budget cuts aid for summer classes: http://nyti.ms/hiP6ZU

The budget maintains the pay freeze for federal workers, report Ed O'Keefe and Eric Yoder: "President Obama's proposed 2012 budget recommends a 1.6 percent pay increase for members of the military but keeps intact a two-year pay freeze for civilian federal employees. The government's civilian employees are 'patriots who work for the nation often at great personal sacrifice; they deserve our respect and gratitude,; Obama's budget document said, but the ongoing freeze 'reflects the shared sacrifices we must make.' Federal workers still will be eligible for bonuses, longevity-based raises or higher pay upon promotion. The freeze should save about $28 billion over the next five years by lowering the government's base compensation over the next two years, according to the White House."

It's in the GOP's best interest to embrace immigration reform, writes Harold Meyerson: http://wapo.st/f5XKMy

The GOP budget request includes millions in pet funding for John Boehner, reports Scott Lilly: "There are two things the leaders of the new majority in the House of Representatives have made clear since they began to assume the reins of power three months ago. They would: Cut spending, Eliminate earmarks. Those two frequently repeated objectives are being translated into legislation in a 359-page bill filed on the House floor Friday evening...The legislation added an estimated $450 million for a particular bit of defense spending that the Department of Defense did not ask for and does not want...with a big portion of the funds flowing to two cities in Ohio--Cincinnati, where Speaker of the House John Boehner (R-OH) grew up, and Dayton, the largest city in his congressional district."

Adorable animals suffering from sleep deprivation interlude: The world's tired-est puppy.

Energy

The White House is defending its heating aid cuts, reports Ben Geman: "The top White House budget official on Monday defended plans to slash billions of dollars in low-income heating and cooling aid in the fiscal 2012 budget proposal. President Obama has drawn fire from several Democrats over the White House proposal to cut $2.5 billion -- or roughly 50 percent -- from the Low Income Home Energy Assistance Program. But Jacob Lew, who heads the White House Office of Management and Budget, said the budget proposal that Obama is sending to Congress on Monday is packed with tough choices aimed at freezing discretionary spending. Lew, in a CNN interview, also said the proposed heating-aid cut reflects price trends."

The budget also includes new offshore drilling fees: http://bit.ly/fgYGS4

The EPA's watchdog group is protesting its proposed budget cuts, reports Stephen Power: "The Environmental Protection Agency's in-house watchdog apparently thinks President Barack Obama's spending blueprint for fiscal 2012 doesn't give him enough money to do his job. A note accompanying Mr. Obama's budget proposal, released Monday, says that EPA Inspector General Arthur A. Elkins Jr. has submitted comments setting forth [his] conclusion that this Budget's request...would substantially inhibit the Inspector General from performing the duties of the office.'...The president's proposal calls for giving Mr. Elkins $46 million next year - compared with $45 million that was enacted in 2010. Overall, Mr. Obama proposes to cut the EPA's budget by 12%, to about $9 billion."

The GOP wants deeper EPA cuts than Obama is proposing: http://bit.ly/f4jngZ

The budget includes more money for nuclear energy, reports Andrew Restuccia: "President Obama's fiscal year 2012 budget outlines a plan for reviving the country's nuclear power industry, calling for $36 billion in government-backed loan guarantees for new nuclear reactors and setting aside more than $800 million for nuclear energy research. Obama has said that nuclear power is a key component of the country's energy future. In his State of the Union speech last month, he outlined a plan to generate 80 percent of the country's electricity from low-carbon sources including nuclear by 2035. But the prospect of reviving a U.S. nuclear energy industry faces significant obstacles. The country has not seen the completion of a new nuclear reactor for decades and projects have been hobbled by high costs."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams. Photo credit: Carolyn Kaster photo.

Reconciliation

Recap: The U.S. Government: An insurance conglomerate protected by a large, standing army; it's as if the Fiscal Commission never happened; and the Defense Department won the budget.

Elsewhere:

1) More on the Defense budget.

2) Why are Pell Grants getting cut?

3) Noam Scheiber's profile of Tim Geithner.

4) "The same way a spork makes an incomplete fork and an ineffectual spoon, this compromise budget provides for both incomplete investment and ineffectual deficit reduction."

5) "If I were the president, my line would be closer to the reverse: I don't want to cut Social Security benefits for anyone, but if the Republicans want to tempt me into a compromise they're going to need to make sure that their own core constituency — people born before 1955 or so — pay a fair share of the price."

Recipe of the day: Last-minute Valentine's Day menus.