Government Executive - Authors - Nancy Cook

When It Comes to Getting a Job, Americans Believe Skills Trump College

Nancy Cook, The Atlantic — Fri, 19 Jun 2015 09:00:00 -0400

Earn a college degree, and you’ll set yourself up for life: a stable job, salary, and mortgage. That was the old adage for generation after generation, following World War II. Yet, both young and old workers no longer hold the same abiding faith in the power of four-year degree, according to the latest Allstate/National Journal Heartland Monitor Poll.

Instead, understanding computer technology, working well with different types of people, keeping your skills current, and having good family connections trump the importance of college—at least, when it comes to people’s notions of what it takes to succeed in the modern workplace. “If you don’t have a good grip on technology, it is very hard to succeed,” said 45-year-old Christine Welch of Idaho, who has three children, ages 17 to 25.

The career paths of Welch’s children personify these new building blocks of career success laid out by many of the poll respondents. Her 25-year-old daughter, for example, works as a graphic designer. She embarked on that career without a college degree, relying instead on her technical and artistic skills to propel her along. Welch’s middle son recently graduated with an associate’s degree in structural engineering from a technical pipe-welder program at Idaho State University. Both children started down these career paths early and mastered highly technical skills, without assuming that a four-year college degree would automatically set them on the best path. (Welch’s third child is still in high school).

College is too expensive now to make that gamble, Welch said—for students to just assume that a degree will set up their career, or automatically confer the skills that they’ll need to get ahead. “If young people can find their calling and pathway, their odds of being successful are so much greater than someone who does not know what they’re doing,” she added. “I’m not sure that college is the best for everyone.”

That’s a startling admission in the United States, where college has long been seen as a Holy Grail to the good life, and, in fact, economic studies show that college graduates still earn far more than those without degrees over their working life. In the Heartland Monitor poll, most people still thought college was an important foundation for a successful work life. But that was hardly an overwhelming verdict either among older or younger people who responded to the poll.

The poll divided respondents into two broad groups: a younger cohort that qualifies as still starting out, and an older cohort that has passed that initial stage of life. The poll defines the younger cohort as all adults aged 18-24, plus the nearly three-fourths of those aged 25-29 who identified themselves as “still ‘getting started in life.’” The poll defined the older cohort as the remaining roughly one-fourth of 25-to-29-year-olds, plus all respondents over the age of 30.

Just 55 percent of the younger group in the poll thought that a four-year degree was “very important” for a good career. Among older respondents, 53 percent agreed. Roughly one-third of each group thought a degree was “somewhat important,” with the remaining one-in-eight in each case considering college not important at all.

That assessment placed the college degree surprisingly close to the middle of the pack for both older and younger respondents when they were asked to rank the attributes that will produce a successful career. For both groups, attributes that reflected an ability to adapt to change topped the list. Older respondents put the most emphasis on “a detailed understanding of how to use computer technology” (85 percent very important); “being able to work with people from many backgrounds” (79 percent); “keeping your skills current through training” (also 79 percent); and “having good family connections” (61 percent). For the older respondents, obtaining the college degree ranked next, ahead of other attributes including “being willing to work long hours” (51 percent very important); “being willing to switch to new jobs and occupations” (48 percent); “being able to create your own job” (45 percent); and “becoming well known in your field and/or your community” (41 percent).

Younger people just starting out largely expressed the same priorities, though in slightly different order. For them, being able to work with diverse colleagues (82 percent very important) topped the list, followed by maintaining skills after finishing school (79 percent); mastering computer technology (77 percent); family connections (59 percent); obtaining the college degree; and becoming well known in your field or community (47 percent). For younger people, being willing to work long hours or to switch jobs, and creating your own job followed at slightly lower levels. Both older and younger respondents placed the least weight on five factors: knowing a foreign language (though this tied with creating your own job among the young); keeping up on cultural trends; having volunteer experience; being willing to relocate to new cities; and mastering social media.

Even poll respondents on track to earn degrees, in followup interviews, presented a more nuanced view of the college credential. “Most jobs now require both experience and a degree,” said 22-year-old Anthony Libutti of Staten Island, who is studying accounting, finance, and economics at the College of Staten Island and simultaneously working for a construction company. “Part of college is being able to make those networking connections.”

On the other hand, even self-avowed technophobes see mastery of computer skills as vital in a world where the economy and career paths change so rapidly and relentlessly. William O’Shea, 79, of Connecticut worked for years as a school superintendent before he retired in 1997. During that time, he said he blissfully never used computers that much. Now, he said, no one in the workplace would be able to get away with that behavior. “It is indispensable now. The world has sped up,” he said.

When asked about other important skills for a successful career, O’Shea, like most poll respondents from both the younger and older cohort, cited social intelligence and the ability to work well with different people. “You have to understand the strengths and weaknesses of human nature, if you want to climb the ladder and appeal to other people,” he said.

And, what about the old reliable standby, the college degree? Even O’Shea, a former educator, sounded a little down on it. “It carries the mystique of success,” he said. “The idea of the importance of going to college and graduating depends on the school. There are colleges and then, there are colleges.”

Attitudes on the centrality of the college degree shifted slightly across racial and ethnic lines, as well as party affiliation. African American and Hispanic respondents, both young and old, viewed a college degree as a more important asset or skill than whites did. Democrats also overwhelmingly listed it as a higher priority, compared to Republican and independent voters.

Even presence of the student debt did not affect younger people’s assessment of college as a necessary skill for the workplace. Although young people with college debts often report more financial strain than those without them, the percentage of young people, with and without student debt, who saw college as a “very important” skill was virtually identical. The same held true for young people, regardless of whether their parents attended college.

(Image via Pressmaster/Shutterstock.com)

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Not Ready to Retire? Not a Problem at NIH.

Nancy Cook, National Journal — Fri, 27 Jun 2014 17:10:39 -0400

Sixty-two-year-old Joe Ellis officially retired from the National Institutes of Health in June 2012. Yet he still shows up at the federal agency's Bethesda, Md., campus roughly two days a week. When he's there, Ellis tackles long-term projects or mentors younger colleagues, but never for more than 20 hours a week.

Call it partial retirement, consulting at one's longtime workplace, or even a grand experiment in trying to hold onto key workers at a federal agency. No matter the name, Ellis's gig is part of a revolutionary federal program designed to retain older, experienced workers and keep them on the job longer than they normally would have stayed.

It's a novel idea to want to keep around older (read: expensive) workers at this particular moment in our economic history. News headlines might suggest otherwise, as many workers in their 50s and 60s have trouble plugging back into the labor market following a layoff, or as Silicon Valley (and its funding machine) often seems to favor wunderkinds over anyone with graying hair and a family.

NIH's program to keep retirees on part time has existed for years, but it did not really take off until the late 2000s, says Julie Berko, Director of NIH's Workforce Relations Division. At that time, the agency needed specialized help in its grant and contracts department—the kind of expertise better left to agency veterans than random contractors or freelancers. With an influx of economic-stimulus cash, NIH managers and human-resources professionals started contacting recent retirees or those on the cusp of leaving to see if they would consider staying on part time.

The conditions? Retirees could not work more than 20 hours a week. Part of that time needed to go toward mentoring younger staff. The program paid people for their time, while still allowing them to collect their federal annuity benefits. Finally, the part-time retirees were meant to stay on at the agency for only three additional years.

Now about 80 of NIH's roughly 20,000 workers participate in the program. For the retirees and the agency, the logistics seem to work out well. Ellis still works on major projects and advises people from his former department. That's boon to the agency because he worked there for about 34 years.

At the same time, he no longer has to manage hundreds of workers, as he did at his final post as the director of the Office of Policy for Extramural Research Administration, which is responsible for the agency's grants policy. "The advantage to me is that I lost my management responsibility," he says. "That is a major reliever of stress." Working part time also gives him the space to spend more time at home and with his family—two of the major reasons he wanted to retire originally.

For the agency, Ellis represents years of well-honed, specific expertise in grants—a key part of the success of any scientific agency devoted to funding research and various labs. "The biggest piece is that we get to retain talent that would otherwise be leaving," says Philip Lenowitz, the agency's former deputy director of the Office of Human Resources, who also participates in the part-time retiree work program. The program also allows NIH workers to ease into retirement. "It's a way to find out how to transition from not putting on a suit and tie every day," Lenowitz adds.

AARP recognized NIH as the best employer in 2013 for workers over the age of 50. Part of that distinction comes from this type of part-time work program for retirees. But the agency also offers other perks to support its older workforce (the average employee's age at NIH is 48) that include an on-site gym, retirement planning seminars, telecommuting, flexible schedules, and back-up emergency care for elderly parents. It is part of a broad menu to help baby-boomer or senior-citizen scientists and administrators stay on the job for as long as they like and can. "I do think people tend to work here longer," Berko says. "People at the NIH are very interested in staying around to chase the next scientific discovery."

In the coming years, working longer will also become a key hallmark of retirement for most Americans. People live longer now than ever before and will need to work more to fund their golden years. AARP advises its members not only to save more but also to work for additional years to ensure they maintain their standard of living as they age. "As we saw in the recession, working longer is not always an option for all workers," says Gary Koenig, vice president of economic and consumer security within AARP's Public Policy Institute.

Yet, if older workers can remain on the job for two to five more years and not draw down on their savings, it can add a huge financial boost to their retirement, says Olivia Mitchell, a professor of business economics and public policy at the Wharton School at the University of Pennsylvania. "If you delay claiming Social Security until you're 70, the payments go up by three-quarters," she says. Instead of freaking people out about an impending retirement crisis, Mitchell says she simply prefers to tell people to work for more years. The NIH is one place that encourages it.

(Image via LoloStock/Shutterstock.com)

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Analysis: Obama's Incredibly Underwhelming Executive Orders

Nancy Cook, National Journal — Fri, 21 Mar 2014 15:28:00 -0400

President Obama tried to boost the fortunes of the aspiring middle class late last week by issuing an executive order to rewrite regulations that dictate which type of workers can collect overtime pay. It was a valiant effort on the part of the administration—and the president's second, recent attempt to prod the economy to work better for a wider swath of people, not just the uber-rich.

Yet over the next year, these moves will help only a fraction of working Americans. One executive order requires companies with new federal contracts to pay workers under those contracts a minimum of $10.10 per hour; the other order would rewrite the rules for overtime pay and ensure that a greater number of white-collar professionals can collect extra money for time worked over 40 hours a week. Yet these executive orders will do little to address the broader economic challenges the country faces like stagnant wages or the near-impossible job market for the long-term unemployed. (Does anyone remember them, those 3.8 million Americans out of work for six months or more?)

Obama's not entirely to blame for small-bore policies that fail to produce significant change. After all, Congress still controls the levers of government spending, and we know how well the White House and Capitol Hill get along. With no breakthroughs in this hyper-partisan environment, though, this is where we find ourselves—staring dumbfounded at a yet-to-recover labor market and leaning on marginal moves to prop it up.

Here's why Obama's recent executive orders on overtime pay and increasing the minimum wage for federal contractors will not take us far enough to improve the lives of the majority of working Americans:

Small impact. It's tough to gauge the potential effect of the Obama's new overtime rules because the Labor Department still needs to rewrite them—a process that an agency spokesman says could take the bulk of 2014. ("We expect that the department will then publish a proposal for public comment later this year," says the Labor Department's Jason Surbey.) That means the proposal to change the rules, not even the policy itself, won't come out until late 2014.

Still, it's possible to do some back-of-the-envelope estimates on the number of workers this could help. The Economic Policy Institute recently released a detailed paper that argues the Labor Department should make eligible for overtime workers who earn $970 dollars a week or less. This would be a major bump up from the current law's threshold of $455 dollars a week. The paper's authors (including Jared Bernstein, the former chief economist to Vice President Joe Biden) estimate this would lift the wages of 5 million to 10 million workers. Meanwhile, increasing the minimum wage for federal contractors could help up to a couple of thousand workers.

At most, these two executive orders, if fully enforced, will benefit roughly 10 million working Americans. For context, as of 2012, there were 103 million Americans working full-time and year-round, according to the latest data from the U.S. Census Bureau. That's not the worst stat, but it also not going to entirely make up for stagnant wages and a labor market that continues to work better for companies than for American workers.

Nothing will happen right away. The other rub about the two executive orders is that they won't go into effect right away, probably not even before the 2014 midterm elections. If the Labor Department is not planning to even release a proposal of its overtime pay plans until later this year, then we're potentially looking at very late 2014, even 2015 as a time frame for when this actually becomes policy. The same goes for the increase in minimum wage for federal contractors. That order only applies to new contracts issued by the government moving forward.

Enforcement. Both executive orders require the Labor Department to enforce them, and it's unclear if the federal agency has the manpower. Can it keep tabs on all future federal contractors to guarantee they pay the higher minimum wage of $10.10? And what about enforcing the more nuanced overtime rules, which depend on the classification of the worker, as well as the amount of money he or she makes per week? "That's millions of small establishments that will be effected by this. They will be hard to monitor," says Harry Holzer, a professor of public policy at Georgetown University and former chief economist at Labor. Anecdotally, we're already seeing reports that some workers who live in states that raised the minimum wage on Jan. 1 are not seeing those extra earnings show up in their paychecks. The new rules could follow a similar script.

The lengthy economy to-do list remains long. Both recent executive orders on workers' wages show that Obama is trying to achieve some lasting reforms for American workers, still battered by the recession. But these policies score political points for Democrats more than they spur economic growth. The federal government still needs to figure out a way to ensure that the economy expands at a faster clip. We need more jobs to be created, not just low-wage ones—and more pressingly, we need to develop an agenda to reconnect the millions of out-of-work and underemployed Americans to the labor market. "The president proposed many ideas in 2011, like tax credits, public service employment, and infrastructure projects, that were never enacted but would have helped change the job market," Holzer adds. "What you need is a much tighter labor market." Unfortunately, those are the bigger picture questions that executive orders like these simply do not tackle.

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Why the IRS Scandals Make It Hard to Fix the IRS

Nancy Cook, National Journal — Mon, 10 Jun 2013 07:10:36 -0400

Two damning Treasury Department reports, ongoing congressional hearings, and one criminal investigation remind Americans how much they dislike the tax man—and not just on April 15. Which means they probably need less convincing now than at any other time in recent years that the tax code needs to change. But even if the scandals increase the desire for reform, they make getting it done harder than ever.

On the momentum question, the top tax writers seem to agree that all the attention can finally make their longed-for issue a priority, and they are trying to keep it going. “A simpler, fairer, flatter tax code would certainly take [away] some of this ability of the IRS to just kind of go on fishing expeditions,” Rep. Dave Camp, the Republican chairman of the House Ways and Means Committee, said during a May 17 appearance on CNBC. “This really might focus the American public on the need for tax reform, which is something I’ve been working on for a couple of years now.”

Sen. Max Baucus, the Democratic chairman of the Senate Finance Committee, also tried to yoke the IRS melee to legislative reform. At a recent hearing, he argued that any big examination of the tax code should look into the provisions for tax-exempt organizations known as 501(c)(4)s. (The first inspector general’s audit showed that the IRS improperly targeted conservative groups organized under this section of the code.) Bruce Bartlett, who was a Treasury official under President George H.W. Bush and a domestic-policy adviser to President Reagan, says, “The scandal slightly improves the odds of tax reform for the simple reason that both parties will want to pass some kind of legislation to fix or deal with the IRS problem, and I think they’ll want to do it this year.”

But even if the IRS ruckus enhances the political argument for tax reform, it also complicates the process from a policy perspective. Huge congressional investigations, like the ones being undertaken by the House Ways and Means and the Senate Finance committees, require tons of preparation by the policy staffers and the members grilling the witnesses. “When there is a nationally televised hearing with that kind of attention, it’s all hands on deck,” says Alex Brill, a former policy director for Ways and Means and a research fellow at the American Enterprise Institute.

This diverts top tax specialists from meetings and brainstorming sessions about rewriting the code and plunges them into the hunt for information about goings-on at the IRS. Both tax-writing committees have dedicated staff members for oversight hearings and long-term investigations, but Brill says it becomes tricky to wall off such experts when the political stakes are so high. For instance, Mark Prater, one of the most experienced tax aides on the Hill and Sen. Orrin Hatch’s chief tax counsel, has been tasked, among his many other duties, with working on the IRS investigation, according to two lobbyists familiar with the committee.

Both Camp’s and Baucus’s press shops insist this is not the case. “The staff that is conducting the investigation is completely different than the staff working on tax reform. The IRS issue will in no way slow down efforts,” says Sean Neary, communications director for the Senate Finance Democrats. The Ways and Means Committee similarly pointed to their separate tax and investigations staffs. But opportunity costs are real:

The IRS scandals open up new terrain for tax reform, and new territory equals lots more work. It’s all well and good to announce, as Baucus did, that lawmakers should examine provisions surrounding tax-exempt groups, but it’s a lot harder to incorporate that into the workload. Already, staffers are mired in detailed technical questions surrounding the taxation of financial products, small businesses, and companies that file through the individual side of the tax code, not to mention the appropriate tax rate for multinational companies. Adding tax administration and compliance to this lengthy To Do list could delay the timing of a bill—even if it also offers new opportunities. Or, as Brill put it, Camp has promised to move a tax-reform bill out of his committee by the end of the year; Baucus has not committed to any time frame.

Finally, the IRS scandals give lawmakers all of the cake and none of the vegetables in talking about the tax code. They allow members to pontificate on television about what should be done without having to take any tough or politically damaging votes, as they will inevitably have to do with any tax-overhaul legislation. (Just wait and see how popular reformers are if and when they try to nix such tax goodies as the mortgage-interest deduction.) Until then, lawmakers simply get to bash the IRS—an agency that no one loves anyway.

Still, even as the IRS rumpus makes the path to reform increasingly difficult, it also suggests it is increasingly necessary by highlighting the massive range of policy the federal government delivers through the agency—from doling out tax breaks to implementing the Affordable Care Act to policing political organizations. “The IRS is really stretched beyond its capacity,” says Michael Graetz, a professor of tax law at the Columbia University Law School and a former Treasury official. “There is administrative difficulty and a high cost of compliance. Tax reform done right is an opportunity to bring it back under control.” And getting the IRS under control may simply mean asking the agency to do less.

This article appears in the June 8, 2013, edition of National Journal as "Mixed Blessing."

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More Scrutiny Ahead for the IRS

Nancy Cook, National Journal — Mon, 20 May 2013 08:24:04 -0400

Think the Internal Revenue Service scandal will fade away in time for summer? That may be wishful thinking on the part of the White House and congressional Democrats, who are poised to endure another week of congressional hearings in both the House and Senate.

Republicans experienced their first live and in-person brush with the IRS’s misdeeds and internal machinations at the House Ways and Means Committee hearing on Friday, a crowded, four-hour event that seemed to excite and enrage the committee’s Republican members.

As Rep. Peter Roskam, R-Ill., put it in his questioning of former acting IRS Commissioner Steven Miller, “On one the one hand, you’re arguing today that the IRS is not corrupt. But the subtext of that is you’re saying: ‘Look, we’re just incompetent.’ That is a perilous path to go down.”

The hearing’s revelations will only feed into this week’s ongoing congressional investigations that surround the IRS and, more specifically, the Treasury inspector general’s recent report that showed the agency inappropriately targeted for special scrutiny conservative groups seeking tax-exempt status from 2010 to 2012. That report concluded that the IRS did this out of mismanagement instead of political malfeasance, yet this has done little to appease House Republicans. In a blistering opening statement, Rep. Dave Camp, R-Mich., the normally low-key chairman of the Ways and Means Committee, called the IRS’s actions an “abuse of power.”

“This revelation goes against the very principles of free speech and liberty upon which this country was founded,” he said.

The Senate Finance Committee plans to take up where Ways and Means left off in a Tuesday hearing, led by Chairman Max Baucus, D-Mont. There, former IRS Commissioner Douglas Shulman will testify. Shulman has not yet publicly spoken since the release of the Inspector General’s report last week. Originally appointed to the position by President George W. Bush, Shulman left the agency in November 2012 at the end of his term. The IRS has been without a politically appointed commissioner since the fall.

The House Committee on Oversight and Government Reform will hold another hearing on Wednesday, featuring Lois Lerner, who spearheaded the IRS unit for tax-exempt groups. Increasingly, Lerner is at the center of the scandal, because she oversees the employees who created the criteria to evaluate social-welfare groups, or 501(c)(4)s, in the months leading up to the presidential election.

Lerner also came under fire last week for deciding to casually bring up the IRS’s role in examining certain conservative groups at a law conference in Washington, instead of first bringing that information to Congress or mentioning it to the Ways and Means Committee when she appeared days earlier.

Among the revelations from Friday’s hearing that will reverberate this week:

Miller, the former acting commissioner of the IRS, said that he did not believe the agency’s missteps were illegal, a charge that infuriated House Republicans.

Deputy Treasury Secretary Neal Wolin knew of the inspector general’s audit of the IRS in June 2012, though he did not know anything about its findings, according to Treasury Inspector General J. Russell George. This data point will become a key one as House Republicans probe the question of who knew what and when, in an effort to link the IRS scandal to the Treasury Department and the White House.

Lerner’s supposed slip of the tongue at the law conference last Friday—which originally set the IRS story in motion—was actually a question planted by Lerner with a lawyer who was present, according to Miller’s testimony on Friday. This insight—that the revelation was staged and not spontaneous—puts an even larger target on Lerner, which could result in mounting pressure for her resignation in the coming days.

The Treasury inspector general said he and his team were continuing to examine the IRS’s tax-exempt group and its activities.

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A Playbook for Undoing the Sequester

Nancy Cook, National Journal — Fri, 26 Apr 2013 17:54:09 -0400

Who would have guessed that the air-traffic controllers and meat inspectors would be the first ones lucky enough to avoid the across-the-board spending cuts known as sequestration?

So it went on Friday, when Congress passed legislation to give the Federal Aviation Administration special flexibility in implementing its sequester cuts. The bill exempted air-traffic controllers from furloughs, which had caused flight delays at major airport hubs throughout the Northeast for the past five days. Meat inspectors also received a carve-out in late March following a powerful lobbying push and under the guise of ensuring food safety.

Now, with a few sequester tweaks on the books, other special-interest groups, unions, and lobbyists are planning to rev up their efforts to undo the cuts bit by bit or, in this case, by a few billion dollars here or there. The actions of the FAA over the past week, alongside airline groups and unions, offer a playbook for others to use as they too seek exemptions.

“What you’re seeing now is an unraveling of the sequester. This is predictable as the sun rising in the east, and it will happen piece by piece over the next 60 to 90 days,” says Steve Bell, senior director of economic policy at the Bipartisan Policy Center and a former staff director for the Senate Budget Committee.

Already, interest groups are plotting new ways to cast their particular sequester cuts as dire or unfair or safety hazards since they see an opening to escape the full force of the legislation. Remember the hollering a few weeks ago about cancer patients being turned away from treatment or clinical trials? Well, the American Cancer Society Action Network plans to ramp up its pressure on lawmakers following the FAA legislation. The group has an energized grassroots organization; a lobbying team in Washington; and lots of face time with lawmakers. After all, if air-traffic controllers can get a pass, then the cancer advocacy group thinks patients should too.

“We’re no longer just talking about why we need this additional funding. We’re talking about people who are dying because of what politicians are unable to do,” says Christopher Hansen, president of the American Cancer Society Action Network, the advocacy arm of the American Cancer Society. The message, he adds, “is going to get more edgy.”

It took a mere six days for the FAA to push Congress to change its language on the agency’s sequester cuts. The furloughs of air-traffic controllers began April 21. Each ensuing day, the agency released a press release and tweeted about the number of flights delayed due to sequestration and the resulting reduced staffing at airports.

On Wednesday alone, 863 flights were delayed at major hubs in New York, Washington, Cleveland, Dallas, and Jacksonville, Fla. On average, New Yorkers’ flights were delayed by one hour, while delays at the Los Angeles airport spanned into two hours, says Mark Duell, vice president of operations at FlightAware.com, an industry tracking group. The airlines also threatened to undo their rule to not keep passengers waiting on the tarmac for more than three hours.

Forget that an additional 2,132 flights were delayed on Wednesday, due to weather or other typical airline mishaps. This week, for instance, New York suffered from high winds, and Florida experienced thunderstorms, Duell says.

When the flights were delayed, the message from the airlines was clear: This is all the fault of the sequester. Pilots and flight attendants in their announcements attributed problems to the government cuts, says airline industry analysts. This riled up consumers and made them aware of the sequester cuts in a way they may not have experienced them before. (In mid-March, a majority of Americans had yet to see evidence of the sequester in their lives, says Gallup pollsters).

Then came the lobbying muscle to fight the FAA cuts. That’s the thing about the airline industry—it has lots of manpower. The airline pilots have a union, as do the air-traffic controllers. Major airlines have an industry group alongside the regional airlines. Even companies involved in shipping, transportation, air express, and postal delivery got involved.

It was all-out blitz, from the cable-news shots of angry passengers delayed at major airports and missing connecting flights to websites set up by the industry to decry the issue. “Don’t Ground America” was the slogan of one industry advocacy site. “The FAA’s unnecessary and reckless action will disrupt air travel for millions of Americans, cost jobs, and threatens to ground the U.S. economy to halt,” says the site.

This combination of angry consumers and a powerful industry—combined with a lack of opposition—forced Congress to vote to give the FAA more room to maneuver with its sequester cuts. In the weeks to come, the question is: Will this prove as a successful template for other industries or a one-off lucky break for the FAA on the sequester?

The Internal Revenue Service recently announced its plans to furlough its employees. The group representing them, the National Treasury Employees Union, wants those furloughs scaled back. “Congress just voted to make it more likely that their flights home for another vacation today will not be delayed, but they should be staying here to find a way to stop the sequester and prevent the loss of services the American people rely on,” said NTEU President Colleen Kelley in a statement.

In the coming weeks, the cuts least likely to receive much attention are those that affect the poor or the unemployed. Already, workers who’ve been out of job for six months or more have seen federal unemployment checks cut by about 11 percent cuts due to the sequester.

“It pains and saddens me that there is no outcry to undo the sequester cuts for them,” says Judy Conti, a federal advocacy coordinator with the National Employment Law Project. “The political reality is that members of the House are not willing to do that.”

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The Real Budget Action Won't Come Until Wednesday's Dinner With the GOP

Nancy Cook, National Journal — Wed, 10 Apr 2013 09:50:00 -0400

Contrary to popular belief, the real budget action on Wednesday won’t begin until the early evening, when 12 Republican senators are scheduled to arrive at the White House for a private dinner with the president.

By then, the White House’s Office of Management and Budget will have released the hundreds of pages of the president’s budget proposal. Congressional Republicans will have united and mobilized to attack it by saying it does not go far enough to tame the long-term debt. And, pundits will have spent hours debating the budget’s overarching themes on the endless loop of cable TV.

Yet this predictable sequence of events is not likely to matter in the coming months. Nor will the president’s actual budget blueprint. Instead, the most important fiscal development of the week will hinge on the success of the president’s dinner with a handful of Republican senators, organized by Sen. Johnny Isakson of Georgia.

This so-called charm offensive is the key to any budget deal this spring, even a small one, and will determine the Republicans’ receptiveness to the president’s offer in his budget to cut Social Security benefits and slash billions from Medicare. “This is an offer, not a starting point for negotiations,” stressed one senior administration official, roughly 24 hours before the White House was to release its fiscal year 2014 budget.

If Wednesday’s bipartisan dinner goes well, as the last dinner with Republican senators did, then the path to a budget compromise this spring and early summer becomes clear: through the Senate. The White House is slowly trying to woo enough Senate Republicans to move a budget deal through the chamber and then pressure House Republicans to act—similar to the script used during the fiscal-cliff deal.

Already, there are a few, small reasons for optimism. Republican senators seem pleased that the president is willing to cut roughly $230 billion in government benefits, including Social Security, by changing the cost-of-living calculations for benefits. “‘Chained CPI,’ means-testing, and age adjustment, I think, will save these programs from bankruptcy and avoid us becoming Greece,” said Sen. Lindsey Graham of South Carolina, who attended the previous private dinner with the president.

“In return, I would raise revenue by flattening the tax code, paying down debt, and lowering some rates,” he added.

Republicans also seem open to the president’s broad budget ideas of cutting roughly $400 billion in health care entitlement programs, closing loopholes, and overhauling the corporate tax code in a revenue-neutral way, though the two parties disagree on the details.

Congressional Democrats and labor unions strongly dislike the idea of chained CPI because they say it would hurt low-income people at a time when multinational corporations often pay low effective tax rates. The White House has said that it will introduce measures to protect the “vulnerable,” including low-income veterans and older senior citizens, from the chained CPI cuts, but those details will not arrive until the official budget release.

Wednesday’s round of the charm offensive brings into the fold 12 more GOP senators, including Utah’s Orrin Hatch, the ranking member of the Finance Committee, who would help to oversee any overhaul of the tax code.

Meanwhile, much of what the president will propose in his budget on Wednesday is a repeat of previous ideas, like instituting a minimum tax on millionaires, known as the “Buffett Rule,” or by capping tax deductions at 28 percent (excluding charitable deductions) for families with household incomes above $250,000. Such moves would raise $580 billion, senior administration officials say—money that will go toward undoing sequestration and reducing the deficit.

New policies such as universal prekindergarten would be paid for through new or higher taxes, say senior administration officials. Overall, the president’s plan would reduce the deficit by $1.8 billion over the next decade and bring the deficit to 1.7 percent of gross domestic product by the year 2023.

What Wednesday’s fiscal blueprint release shows is a president who wants to appear ready to cut a budget deal at any time this spring ahead of the next debt-ceiling fight.

By incorporating the Social Security cuts in his budget, the president is formalizing the final offer he made to House Speaker John Boehner during the fiscal-cliff talks and extending that olive branch to new people—in this case, Senate Republicans. The next few months will determine if they will accept it and, in turn, potentially realize some structural changes to Social Security that have long been anathema to Democrats.

Either way, the White House continues to quietly work the Senate. Since the first dinner, one lawmaker said that he has met with the White House chief of staff in his Hill office.

“We had a very good meeting,” said Sen. Bob Corker, R-Tenn. “Again, there are no concrete steps. I don’t think I know enough yet [about the president’s budget] to make a comment.”

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What to Expect in Obama’s Budget

Nancy Cook, National Journal — Tue, 09 Apr 2013 09:17:53 -0400

If the budgets passed by Senate Democrats and House Republicans offered up competing worldviews, then President Obama will add a third entry to the mix on Wednesday as the White House unveils its spending plan for fiscal year 2014.

The major headline news is already known: Obama will offer to make cuts to Social Security benefits, as he did during the fiscal-cliff negotiations with Republican House Speaker John Boehner.

But, apart from the president’s plan to formalize cuts that he has already proposed, what else can Americans expect from a budget that’s roughly two months late and that follows both parties’ congressional budget proposals?

ON TAXES: Obama will stick to his tax-the-rich theme in this budget, a political idea that helped him win the 2012 election and caricature his opponent, Mitt Romney, as an out-of-touch, country-club Republican.

On the individual side of the tax code, senior administration officials have said that the president will propose a 28 percent cap on itemized deductions for wealthy people, reviving this idea from his fiscal 2013 budget plan. There is one difference this time around. The fiscal-cliff deal made permanent the majority of the 2001 and 2003 tax cuts and, as a result, defined “wealthy people” as those with a household income above $450,000 a year ($400,000 for an individual). This means the capped deduction will not draw as much revenue from taxes, though that may not matter as much because the cliff deal also raised $600 billion in new revenue over the next decade.

The capped deduction highlights one of the few areas of agreement between the two parties on tax policy. That’s the need to reexamine tax expenditures, breaks that cost the government more than $1 trillion a year. The Senate Democrats’ budget called for limiting or eliminating tax expenditures for wealthy people to raise additional revenue, while the House Republicans want to get rid of unspecified tax breaks as a way to lower overall rates and simplify the tax code.

Both congressional proposals were far too vague, but the various budgets—including the president’s—point to a common target and potential area of compromise on tax policy, if and when Congress tackles tax reform.

ON SPENDING: The president’s budget blueprint is expected reflect the new reality that Congress simply will not pass any new stimulus money unless it can find a way to pay for it. Already, nondefense discretionary spending as a share of economic growth is on track to hit a historic low by 2017. The president’s blueprint will keep this script of reduced spending alive.

One new idea—to create more free pre-kindergarten programs for states—would be paid for by raising taxes on tobacco. This echoes a similar spending strategy that the president outlined in his State of the Union address, during which he also proposed raising the minimum wage—an idea in which the higher costs fall to the private sector rather than the federal government.

In the post-fiscal-cliff and sequester era, that may be the only way to propose any new spending programs: find a way to avoid the government having to pay for them.

ON BALANCE: The Obama blueprint will not balance the budget in 10 years, as the House Republican plan purports to do.

This remains a key area of disagreement between the two parties: the necessity of balancing the budget in a 10-year window by cutting spending, transforming social safety-net programs, raising taxes, or implementing some combination of these strategies.

Democrats argue that stabilizing the debt over the next decade goes far enough, especially as the economy continues to recover and unemployment remains high. Republicans, led by House Budget Committee Chairman Paul Ryan of Wisconsin, have argued that failing to balance the budget in 10 years will lead to such high spending levels that it will crowd out money for any other programs apart from the entitlements.

This remains the major sticking point in this round of the budget battles between the two parties—and Obama’s late entry into the budget fray is unlikely to offer a solution.

This article appeared in the Tuesday, April 9, 2013 edition of National Journal Daily.

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House Republicans Map Out Strategy for Debt-Ceiling Battle

Nancy Cook, National Journal — Fri, 05 Apr 2013 09:31:00 -0400

When House Republicans return from recess next week, one of their top priorities will be charting out the next fiscal battle -- the debt ceiling.

Tea party members view this as a key time to extract serious cuts to entitlement programs from President Obama and the Democrats. “This is going to be where the rubber meets the road,” Rep. Tim Huelskamp, R-Kan., said before Congress left Washington roughly two weeks ago.

The trick for the Republican caucus will be holding together its members; maintaining some leverage over the negotiations; and simultaneously, not allowing the party reputation to be damaged by any fiscal brinksmanship, or by failing to raise the debt ceiling and defaulting on the nation's debt.

While the appetite seems low for a massive showdown like the debt-ceiling fight of the summer of 2011, particularly as the Republican Party does some soul-searching on how to best present itself on fiscal and economic issues, House Republicans have continued their aggressive rhetoric. Extracting “dollar-for-dollar [spending cuts] is the plan,” House Speaker John Boehner told reporters just before recess. Huelskamp is quick to say that he and his fellow tea party members want a debt-ceiling compromise to include cuts in funding or major structural changes to Medicare, Medicaid, the Affordable Care Act, and food stamps.

Indeed, House Republicans are approaching the debt ceiling with a renewed measure of confidence. They think the White House botched the sequester negotiations by painting the across-the-board spending cuts as dire economic bombshells that would hit in early March. So far, the cuts have not caused any major economic damage, though forecasters have always predicted that the full weight of the cuts would not be evident until July or August.

"The hyperbole surrounding the sequester and the way the White House played it out was surprising to me. Their ability to lead right now is really diminished," Rep. Peter Roskam, R-Ill., told National Journal Daily.

Republicans also managed to stay united during the fiscal battles of late: a sequence that moved with relative ease from the sequester, to the passage of the House Republican budget, to the approval of a continuing resolution to keep the government funded through the end of the fiscal year in September. The debt-ceiling debate, set to crescendo in July, is the final chapter in this act.

"You've got to go back and look where we started," said Rep. Jim Jordan, R-Ohio, at a recent informal "Conversations with Conservatives" luncheon. The Republicans have come back, he said, from the lost presidential election and the fiscal cliff’s failed Plan B, Speaker Boehner's attempt to present alternative legislation that ultimately did not have enough votes to pass in the House.

"It looked then like the momentum was all in the president’s favor," Jordan said. "Now, we have the Senate doing a budget. The sequester has locked in $85 billion in savings for taxpayers, and a [continuing resolution] will make sure that stays in place.... The momentum is starting to shift."

Of course, Democrats say otherwise, arguing that the slow economic impact of sequestration and the Republicans’ emphasis on spending cuts will come back to haunt them politically. As the White House’s top economic adviser, Gene Sperling, said at a recent economic summit sponsored by The Atlantic: Don’t think the sequester cuts occurring is a win for Republicans.

"They are for higher defense spending. This deeply cuts defense spending," Sperling said. "They say they are for long-term entitlement reform. You know how much long-term entitlement reform is in the sequester? That would be zero. There's a 2-percent across the board on Medicare and then, at 10 years, it ends. So, what is it that anybody is achieving from this?"

That will be the question hanging over the spring, as the two parties contemplate their best approaches to the debt ceiling, and as they continue to see if they can negotiate even a small-scale budget deal.

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Short-Term Flexibility Won't Help Long-Term Impact of Sequestration

Nancy Cook, National Journal — Wed, 27 Mar 2013 10:06:34 -0400

President Obama signed legislation Tuesday to keep the government funded through the end of September and to give greater flexibility to a handful of agencies as they roll out the mandated across-the-board spending cuts known as sequestration.

Still, this flexibility does not change the dollars and cents of the equation, nor will it blunt the long-term economic impact. “I think, honestly, the overall macroeconomic impact and near-term prospects aren’t going to be that dramatic,” said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and president of the American Action Forum, a conservative think tank. “You might do a better job of delivering government services, and people care about that.”

The Defense Department, for instance, will have more control over over the cuts that need to be made. Similarly, programs involving embassy security, meat inspection, and infant nutrition will not see the same level of reductions, or any at all, for the rest of this fiscal year.

Such news has prompted the Defense Department to postpone furloughs for civilian employees for roughly two weeks, according to the Press Secretary George Little. “We have not made any decisions on whether or not the total number of planned furlough days for fiscal year 2013 will change as a result of this delay,” he said. “We believe the delay is a responsible step."

The continuing resolution shifted funding within a select group of agencies from a handful of long-term projects to ones with a more immediate time frame, budget analysts say. Ultimately, this is not dramatic enough to alter the dire macroeconomic forecasts surrounding sequestration—namely, that economic growth could slow by as much as 0.6 percentage points in 2013 and cost the economy 700,000 jobs between now and 2014. Such job losses could push the unemployment rate up by a quarter-point, according to Macroeconomic Advisers, a forecasting firm.

Senate Appropriations Committee Chairwoman Barbara Mikulski, D-Md., was quick to point out last week that the funding bills were not any salve for sequestration. “That's part of the charm offensive that's going on,” she said about the president’s recent outreach to Capitol Hill. “Sequester needs a balanced solution and we will be listening and awaiting their ideas.”

The only way now to undo the across-the-board spending cuts is to change the Budget Control Act that put them in place, and there seems to be little agreement between the two parties on the best way to do that.

The flexibility that the funding bill offers helps ease some of the pain for a small handful of agencies like the Defense Department, but it does not change the indiscriminate nature of the spending cuts, said Sean West, a director at the Eurasia Group, a firm that forecasts political risk. “It certainly delays some of the immediate impact, but we are talking small numbers in a large economy,” he said.

The chief upside of the flexibility only becomes apparent if Congress and the president can reach a larger budget deal this spring, a possibility that seems fairly remote given the ideological gulf between the Republicans and Democrats.

“If there is some sort of deal to modify the Budget Control Act later this year,” West said, “the outlay delay opens the possibility that this spending is not actually taken out of the economy.”

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Analysis: Alternative House GOP Budget Makes Faster, Deeper Cuts

Nancy Cook and Tim Alberta, National Journal — Tue, 19 Mar 2013 09:39:09 -0400

Anything you can cut, we can cut deeper.

That seemed to be the message Monday from the Republican Study Committee, which unveiled an alternative budget for fiscal year 2014 that Chairman Steve Scalise of Louisiana described as “fairer and simpler” than other competing versions, including the one introduced last week by House Budget Chairman Paul Ryan, R-Wis.

Still, Scalise was careful to emphasize his support for Ryan’s budget and to discourage any internal “division” over the two documents.

Flanked by Rep. Rob Woodall, R-Ga., a member of the House Budget Committee who helped draft the RSC version, Scalise addressed perhaps the biggest difference between the two proposals: The RSC budget balances in four years, whereas Ryan’s balances in 10 years.

“We do the same thing; we just do it a little quicker,” Scalise explained.

Scalise said the RSC proposal strikes “a really good contrast” to the Senate Democratic budget introduced last week, but it also highlights some critical contrasts with Ryan’s version. Policy-wise, the RSC budget, titled “Back to the Basics,” goes much further in cutting entitlement programs and in balancing the budget over the next few years than Ryan’s most recent plan.

The RSC blueprint seeks to freeze all discretionary spending through 2017. It proposes turning Medicare into a voucher program by the year 2019, whereas Ryan’s latest budget did not touch Medicare within the next decade. And it targets the political sacred cow of Social Security. The RSC budget calls for a change in the way benefits are calculated—a change that President Obama supports as part of a grand budget deal—as well as an increase in the eligibility age for anyone born in 1979 or later.

Scalise and Woodall said their conservative subgroup of the House Republican Conference has traditionally released an alternative budget in an attempt to pull the conference ideologically rightward. Scalise noted that the last time the RSC did not release an alternative version was in 2008—and that’s because the House GOP budget balanced in four years. “That’s been kind of the sweet spot,” he said.

Part of the goal of this year’s Republican Study Committee budget, much like the Ryan plan, is to establish a standard for balancing the federal budget in a short time period and make that the rhetoric against which all budget documents are measured in the coming years.

“I serve on the Budget Committee, and I believe in what Paul is doing there,” Woodall said. “Having sat in those discussions for two years, I saw how the RSC budget in 2011 ... laid the framework for principles that could pass the House in 2012. And laying out those RSC principles in 2012, now we have a framework for things that can pass the House in 2013. It’s a process.”

Scalise stressed that the contrast conservatives are drawing is not with the House Republican budget, but with the document produced by Senate Democrats—and with the one they’re still waiting for from the president. “We will see his Final Four picks before we see his budget,” Scalise predicted.

This article appeared in the Tuesday, March 19, 2013 edition of National Journal Daily.

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New Hope for a Grand Bargain

Nancy Cook, National Journal — Fri, 15 Mar 2013 09:14:10 -0400

Washington was abuzz this week about the possibility of a grand bargain, and although most people, not just cynics, will dismiss all this as posturing, there really is some basis for optimism this time.

Senate Democrats released their first budget since 2009, even if it was more than a little vague. The chairman of the House Budget Committee, Paul Ryan, revived his ideas for shrinking the size of government, while leaving open a tiny space for compromise; as he told Fox News Sunday, cuts to entitlement programs, short of his own radical ideas, would be acceptable in the interim because they would move the country closer to “balancing the budget.”

President Obama also made some gestures. He invited 12 Republicans to dinner at the swanky Jefferson Hotel. And he left the White House bubble for Capitol Hill, where he attended four separate meetings with Democrats and Republicans on their own turf. Members say the president listened to their concerns in those sessions, and for Republicans, he outlined the Medicare and entitlements cuts he would accept even if they caused heartburn among liberal members of his party.

“I think the fact that he has kept his offer to [Speaker John] Boehner on the table makes clear that he is willing to stand by very difficult long-term entitlement savings,” says Gene Sperling, one of the president’s top economic advisers. “This can give more confidence to people on both sides that he will be there completely with them, if Democrats and Republicans are willing to find a reasonable compromise.”

It’s too soon to tell if budget resolutions and schmoozing can lead to breakthroughs on health care spending or taxes, the main ingredients for a grand deal. But, if nothing else, the past week eased tensions and showed that the government was functioning in a way it hasn’t in several months, from attempting to avoid a federal shutdown to preemptively looking ahead for a deal that coincides with the need to raise the debt ceiling this summer.

The week also left the impression of a mood much improved since the fiscal-cliff deal. In the days following that last-minute compromise, Republicans sulked over the ideological beating they took from raising taxes, and Democrats privately wondered if extending the majority of the 2001 and 2003 tax cuts was actually a victory.

“This is the first step that the president has made to really reach out and do like other presidents in the past—develop relationships and build confidence and build trust,” Sen. Tom Coburn, R-Okla., said after the dinner with Obama. “If they continue to do that, that’s how you set up to get something done.”

The path to a grand bargain now seems to lie either through the regular congressional budget process or through the president’s private talks with Republican senators.

On the first path, the budget can function as the architecture of a deal, said one Senate Democratic aide involved in budget issues. House Republicans and Senate Democrats both produced their budget this week. Now the two sides need to pass budget resolutions in their respective chambers. Then they can see about reaching a compromise during conference. Agreement seems unlikely, given the different worldviews they’ve outlined, but at least the blueprints lay down parameters.

While the budget committees’ put down those markers, the president is pursuing a second path with Republicans. “I’m not one who thinks this is all optics,” says Robert Greenstein, executive director of the liberal-leaning Center on Budget and Policy Priorities. “I think we will look back four or five months from now and think, ‘This was the main act.’ ”

The administration’s goal in following this route is to woo enough Senate Republicans so the White House and Senate can cut a bipartisan fiscal deal that’s more centrist than the Senate Democrats’ budget and contains deeper entitlement cuts. Then the hope would be that Obama’s deal with the Senate would be enough to pressure House Republicans to come around. That path also avoids the strained relationship between the administration and Boehner’s office.

Both sides have political incentives to act. The White House is unlikely to make the headway it wants with other major initiatives such as gun control and immigration reform if the fiscal impasses keep tripping everybody up. The president’s approval rating has slipped since late December, according to a handful of recent polls, and Republicans cannot convince voters they are concerned about economic and pocketbook issues such as job creation if they keep harping on austerity, taxes, and balancing the budget.

The major impediments to a deal remain taxes and health care cuts. On taxes, Republicans believe they resolved the revenue side of the equation when they agreed to raise rates on high-income households and earners at the end of 2012. Democrats, meanwhile, want more revenue for deficit reduction and stimulus-like programs. Those points are driven home in the latest budget proposals in which Senate Democrats call for $975 billion in new revenue and House Republicans seek to reduce tax rates to just two brackets: 10 percent and 25 percent.

The House Democratic Caucus remains split over the need for entitlement cuts, but Minority Leader Nancy Pelosi hinted at a willingness to compromise Thursday, when she said she would be open to changing the cost-of-living calculations for federal benefits, including Social Security, as part of a deal.

Still, if there’s a compromise to be had, this spring seems like the “last best option,” as GOP Sen. Rob Portman of Ohio has called it—the final act in a series of mini-cliffs. Or at least the final act until Congress and the White House manufacture another deadline for yet another fiscal battle. There’s no faster way to slam the window on a possible deal.

This article appeared in the Saturday, March 16, 2013 edition of National Journal.

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Why the Senate Democrats' Budget Will Be Vague

Margot Sanger-Katz and Nancy Cook, National Journal — Mon, 11 Mar 2013 08:19:57 -0400

The GOP has long hoped that by prodding the Senate majority to produce a budget, it could force Democrats to commit to paper some unpopular political choices on spending cuts and health care programs. But if Republicans want specifics this spring, they’ll have to wait. The Senate Democrats’ budget, scheduled for release this week, is expected to offer only broad outlines of many of the party’s usual talking points, leaving the Republicans with little new political ammunition in the ongoing fiscal war.

The new Senate Budget Committee chairwoman, Patty Murray, will propose additional revenue beyond the fiscal-cliff deal, as well as more spending on education, transportation infrastructure, and job training, according to aides and Democratic members familiar with the discussions. Her budget will seek to undo nine years of sequestration, starting next fiscal year, through policy ideas that Democrats have already proposed: closing tax loopholes, for example, and saving money from the troop drawdown in Afghanistan. And it will offer targets for revenue and spending that the federal government should hit over the next 10 years—along with possible instructions for tax reform.

What the proposal is unlikely to do is lay out a detailed blueprint for cutting the federal health entitlement programs that drive the country’s long-term deficit. “Our budget is going to reflect the need to deal with our long-term health care costs without impacting our beneficiaries in a way that puts us in a place where people can’t sustain their own budgets at home,” Murray tells NationalJournal. Two recent budget memos, circulated to Senate Democrats, emphasized the need for revenue and barely mentioned the health programs.

Budget discussions among Senate Democrats are ongoing, and it’s unclear if they’ll go as far as the president did in proposing entitlement savings. As part of a deficit-reduction deal, the White House has said it would be willing to wring $400 billion from Medicare and Medicaid, primarily through cuts in Medicare payments to doctors and hospitals. President Obama is also willing to change the way the federal government calculates certain government benefits, an adjustment to the cost-of-living calculation known as chained CPI, a change that that could also bring in more revenue. In the past, Murray and Majority Leader Harry Reid have considered that verboten.

Even behind closed doors on the deficit-reduction super committee, on which Murray was a cochairman, she was not known as a vocal supporter of significant entitlement changes. Murray and the other Democrats talked about cuts at the margins or the need for greater efficiency within the medical system, says former Sen. Jon Kyl, a GOP member of the 12-person committee. “As a general proposition, the Republicans were disappointed that the Democrats did not put real reforms on the table,” he says.

The vagueness likely to characterize the Senate Democrats’ proposal partly stems from the nature of congressional budget documents, which tend to be more political statements than policy prescriptions. That’s true for both parties. Politicians can propose to cut spending by a certain percentage in a budget without wading too much into the programs, personnel, or agencies that would have to be cut to meet that target. “Primarily, the job of the Budget Committee is to establish a framework and leave it to the committees of jurisdiction to fill in the gaps. We’re supposed to provide a skeleton, and they’re supposed to put the meat on the bones,” says Rep. Chris Van Hollen of Maryland, the ranking member of the House Budget Committee and a close ally of the White House in fiscal matters.

But the nature of budget resolutions isn’t the only thing shaping this particular proposal. It’s also the nature of the politics and the opposition. The Republican chairman of the House Budget Committee, Rep. Paul Ryan, holds a reputation as a policy wonk, whereas Murray is known more as a political animal. “She’s a pretty good arbiter and proxy for the caucus as a whole,” says Rich Tarplin, a lobbyist close to Senate Democrats. “Her own personal views pretty well represent the balance between the progressives and the moderates.”

Ryan’s draft budget proposal is already freaking out moderates in the GOP caucus, whereas Murray’s goal is to craft something that can attract broad support within the Senate Democratic Conference—from liberal members on her own committee, such as Sen. Bernie Sanders, I-Vt., to the handful of centrist members facing tough reelection battles in 2014. So, by political necessity, her budget is designed to be vague.

It’s the only way Murray can rally her Senate colleagues and prove her worth as a good soldier for the leadership. A budget that alienates Democrats on her committee and fails to get a floor vote would be a political disaster. “This is the next best step at replacing the sequester and getting revenue, despite the gridlock,” a Senate Democratic leadership aide says. “We’re not going to negotiate everything away in the first round.”

It’s also a chance for Senate Democrats to show they can produce and pass a budget—a feat not accomplished since 2009 and a favorite jab of House Republicans. In this round of the fiscal wars on Capitol Hill, the bar is pretty low.

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Obama's Dinner With Senators Eases Tensions but Doesn't Fix the Budget

Nancy Cook, National Journal — Fri, 08 Mar 2013 09:43:16 -0500

It turns out that a fancy dinner can ease tensions between even long-avowed frenemies.

That was the Republican senators’ takeaway from their roughly two-hour dinner on Wednesday night with President Obama at the Jefferson Hotel. Among the topics discussed: Medicare and Social Security spending; tax reform; and the need for a big deficit deal by early August.

“To me, we’ve got four or five months here where something constructive could happen,” said Republican Sen. Bob Corker of Tennessee, one of the 12 Republican attendees at the dinner. “I don’t want to heighten the debt ceiling, but we know it’s coming up.”

August is a significant month, because it marks the time when Congress and the White House must act to again raise the debt limit — a fight that few want to be as contentious as the debt-ceiling battle of the summer of 2011 when the country faced the real possibility of default.

At the dinner, the president also expressed an eagerness to reach a compromise before the realities of a second-term presidency set in and some of his leverage fades. “He talked about the political realities that if you get late in the year, you’re not going to get anything done because 2014 is coming,” said Sen. Tom Coburn of Oklahoma, referring to the looming 2014 midterm elections.

The dinner started off pleasantly enough, the senators said, with iced tea and wine served. Sens. John McCain of Arizona and Lindsey Graham of South Carolina sat on either side of the president. Sen. Ron Johnson of Wisconsin, a self-described steak-and-potatoes guy, ate just that — meat and potatoes. The group engaged in about five to 10 minutes of small talk before settling into a wide-ranging conversation about all matters related to the budget.

The feeling was that sequestration was here to stay, for now. The continuing resolution to keep the government funded for the rest of the fiscal year would pass with ease by its deadline of March 27. The next looming battle or “cliff" was really over the debt ceiling, several senators said.

The timetable to tackle a big budget deal hinged on the months leading up to that deadline, which could hit as late as early August, depending on the Treasury Department’s estimates of the rate at which the federal government is spending its money.

Now, the goal seemed to be to construct a deal before that deadline. “The shorter time in which we try to construct this, the more likely we are to get something done,” said Sen. Richard Burr of North Carolina, another attendee, citing the congressional August recess as the perceived deadline.

The idea of revenue — the way to raise it and the amount necessary — remains a sticking point, Johnson said. Even at the dinner, he said, the differing approaches toward taxes showed. The Republicans want revenue to come through tax reform and the economic growth they say lower rates will generate, while the Democrats want to raise revenue by both increasing taxes on wealthy people and closing tax loopholes.

Overall, though, the Senate Republicans seemed temporarily charmed and won over by the White House’s invitation and dinner. The conversation was sincere, honest, and genuine, many said — evidence of how effective politically a little charm offensive can be. The president also plans to visit Capitol Hill next week for lunch with the Senate Republicans and for a separate meeting with the House Republicans, the day after House Budget Committee Chairman Paul Ryan, R-Wis., releases his budget blueprint.

“This is the first step that the president has made to really reach out and do like other presidents in the past: develop relationships and build confidence and build trust,” Coburn said. “If they continue to do that, that’s how you set up to get something done.”

This article appeared in the Friday, March 8, 2013 edition of National Journal Daily.

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Furloughs Come to Main Street

Nancy Cook, National Journal — Fri, 01 Mar 2013 09:26:26 -0500

Washington is the capital of the federal workforce, so it’s understandable that furlough fright is strongest here. What will happen to the tide of commuters coursing along K Street or Rock Creek Parkway every morning? But for federal agencies, the sequester is manifest destiny. The U.S. government’s workforce is scattered across the country, and the automatic spending reductions that begin Friday could affect employees all the way to New Mexico, Texas, and Alaska. Any pay cuts will ripple through the broader economy, create yet another drag on growth, and hurt state and local government coffers.

Only 320,000 of roughly 2.1 million federal jobs—15 percent—were located in the greater Washington area as of September 2012, according to the Office of Personnel Management. The other 1.78 million report in large numbers to jobs in California, Florida, New York, North Carolina, Ohio, Pennsylvania, and Texas. These men and women work at military bases, at regional offices for Social Security and the Labor Department, as border-patrol officers, and at national labs.

On average, the typical federal worker is 46 years old and earns $75,000 per year. The law says that workers can be asked to take up to 22 unpaid days off. Between now and the end of the fiscal year on Sept. 30, that would mean a 20 percent pay cut per worker, says Nigel Gault, chief U.S. economist for IHS Global Insight, a macroeconomics forecasting firm. “That is enormous for people,” he says. “They’ll have to cut back.” They’re likeliest to tighten the belt on entertainment, transportation, food, household supplies, and other types of consumer spending.

Just ask 33-year-old Ryan Gibson about the imminent threat. The officer in the Homeland Security Department’s Customs and Border Protection unit is based in Detroit. His wife is a schoolteacher. They’re a middle-class family with two children, ages 8 and 5. In his spare time, he likes to see movies or catch a Tigers game, but he says furloughs will force him to change his spending habits. He doesn’t look forward to the prospect of having to choose be-tween an occasional trip to the movie theater and the fee for his son’s hockey team. “I’m holding out hope that we won’t have to deal with this,” Gibson says in a telephone interview. “The only guidance we’re hearing is that we’re going to have a have a 14-day furlough. It’s frustrating … because we don’t have any answers.”

The sense of uncertainty is bad enough for federal employees across the country, but their job cutbacks could also take a bite out of their local economies. First, reduced spending on consumer goods would lower states’ and municipalities’ income-tax and sales-tax revenues. “I pay Detroit city taxes out of my paycheck,” Gibson says about his hometown, where the unemployment rate was 11.4 percent in December.

Second, sequester cuts would reduce federal spending on contracts and salaries. Roughly 13.3 percent of the local gross domestic product in Alaska, for instance, comes from federal procurement and salaries, according to an analysis by the Pew Center on the States. Other state economies that depend on federal contracts and salaries for a significant share of economic growth include New Mexico (12.8 percent of the state’s GDP), Alabama (8.9 percent), and South Carolina (7.4 percent). Overall, states rely on federal grants for about one-third of their revenue, meaning that even a small falloff can have big reverberations.

“The fact that federal government activity plays a large economic role puts some states in a tough position when they’re trying to plan and budget,” says Anne Stauffer, project director for the Pew Center on the States. If the federal government employs a large percentage of workers in a state, it’s hard to estimate how much the state government will be able to collect from them in taxes. And, of course, states could take an additional hit in cuts to federally funded programs for education, mental health, and child-care assistance.

Worst of all, the threat of these furloughs and their possible effect on local economies arrives just as states are beginning to recover from the recession. While the furloughs won’t cost federal workers their jobs or drag the country back into a recession, sequestration will slow economic growth by as much as 0.6 percent in 2013, according to Macroeconomic Advisers. The furloughs are just one of the ingredients of the across-the-board budget cuts.

The trickiest part of furloughs is that their full impact won’t be known until summer. If they don’t begin until April—a possibility, as agencies are still sorting out what the sequester will mean for them—analysts say monthly economic data should begin to show the fallout in July and Au-gust. “The economic effects of sequestration will not be widespread at first,” says economist Mark Zandi. “But over time, as you move into the summer months, the economy will start moving more slowly.” And the slowdown will be national, mirroring the profile of the cuts, not just centered in Washington.

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Sequester Fears May Be Overhyped, Overblown and Overly Politicized

Nancy Cook and Niraj Chokshi, National Journal — Thu, 28 Feb 2013 13:52:02 -0500

Let’s be clear about one thing: The across-the-board spending cuts known as the "sequester” aren’t a doomsday scenario, or a meteorite that will blow up the economy.

Teachers, FBI agents, and Border Patrol officers will not get fired tomorrow, when the sequester kicks in. The Internal Revenue Service will still be able to process your tax return in April. Preschool programs won't kick out 70,000 little kids until the fall, according to Education Secretary Arne Duncan—and that’s if the spending cuts stick. Unemployed people, arguably some of the worst-off of the lot, will not see their federal benefits reduced by 11 percent until April at the earliest, says the National Employment Law Project. This is roughly four weeks away, giving Congress and the White House time to act beyond the March 1 deadline that has been touted in headlines and press conferences for the past week.

The immediate impact of sequester is “absolutely overhyped,” says Steve Bell, senior director for economic policy at the Bipartisan Policy Center and a former Republican staff director for the Senate Budget Committee. “A sequester will occur and, the next day, the likelihood is that almost no one will know that it started.”

The only guaranteed effect over the next few days, Bell and his colleagues say, is that federal employees across agencies will likely start receiving 30-day furlough-warning notices. The 150,000 federal employees, represented by the National Treasury Employees Union, still have little guidance on the timing or structure of those furloughs, says Colleen Kelley, the union’s national president.

So why all the shouting about these disastrous spending cuts? Well, in the long run (i.e., the next six months), they will put a drag on the economy, cost us jobs, and cut money from the federal budget in a blunt -- rather than careful -- manner. But for now, much of the doomsday talk is old-fashioned politics.

Sequestration is not an economic or policy fight. It’s an ongoing, roiling political argument about the amount of money the federal government spends and the manner in which it does it. This long-time spending argument between the political parties has been distilled in this round of fiscal warfare to a wonky-sounding word and given an ominous deadline. Yet, its greatest immediate legacy may be the fodder it has provided for the 24/7 news cycle and the ammunition it has given the White House as it tries to beat down the Republicans in the court of public opinion.

To cut through the hysteria surrounding sequestration, here are some facts to counter the myths.

THERE’S FLEXIBILITY AGENCY-TO-AGENCY

The myth is that the sequester cuts will hit all at once on Friday, and federal budget officers at various agencies will be forced to immediately cut a big chunk of money from a very specific list of departments and programs. In truth, the administration and certain agencies do have a little flexibility depending on the way they define their programs, projects, and activities. The specificity of those definitions varies not just between agencies, but within them as well.

Take the Defense Department. Civilian salaries, funds for fuel, and other forms of operation and maintenance are defined at the account level, meaning that the department may have more flexibility in how to make those cuts.

So, instead of reducing costs for refueling, they could furlough more people, or instead of furloughing, find another fix, say Shai Akabas of the Bipartisan Policy Center. Sequestration only mandates cuts at the “program, project, and activity” level, as defined by the laws governing each agency’s appropriations.

DELAYING THE CONSEQUENCES

Federal departments and agencies also have some flexibility in the timing of the sequester cuts, says Charles Konigsberg, a former assistant director of the Office of Management and Budget during the Clinton administration. They could, for instance, delay implementing any cuts until the summer or fall. Of course, this strategy could backfire if Congress does not act and an agency runs out of money, but if a budget officer is willing to take the risk, such a move could also buy time and possibly more money through the fiscal year … with the assumption that Congress will eventually undo sequestration.

FURLOUGHS WON’T START FOR ANOTHER MONTH

There’s so much hand-wringing about the furloughs, when most of them will not even begin until April or later. Teachers and aides, for instance, will not face furloughs until the fall, Duncan said at a White House briefing on Wednesday. The timing of other furloughs could be seriously delayed, as the unions that represent some federal employees negotiate with the agencies on the timing and structure of the unpaid leave.

A SLOW-MOTION ECONOMIC IMPACT

Even the immediate economic impact of the sequester may be overblown. Yes, the spending cuts will take money out of the economy and drag down growth by as much as 0.6 percentage points in 2013, but “the immediate impact will not be that large,” says Nigel Gault, chief U.S. economist of IHS Global Insight. The stock market certainly isn’t worried. The Dow closed at level not seen in the past five years and close to a record high.

Instead, the economic impact of the spending cuts will seem like a slow-moving train wreck, Bell says. It will take months to work its way into the economy, drag down growth, and lead to enough job losses to tick the unemployment rate upward in 2014.

“I think what the economic data effectively shows is: ‘Here’s what will happen once everything is phased in,” Gault adds. It’s just that the full weight of the cuts won’t kick in until the summer and early fall, making March 1 and all the hype surrounding it seem like a manufactured crisis.

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Jack Lew Could Be Treasury Secretary by the Weekend, but His First Moves Are Unclear

Nancy Cook, National Journal — Tue, 26 Feb 2013 10:08:50 -0500

So far, the Senate proceedings on President Obama’s nominee for Treasury secretary, Jacob Lew, have been surprisingly free of political fireworks, which could pave the way for a confirmation vote by the end of the week.

The Senate Finance Committee is scheduled to vote on Lew’s nomination Tuesday morning, with a floor vote possible by Friday for the former Obama chief of staff, two-time White House budget director, and one-time top policy aide to the late House Speaker Tip O’Neill, D-Mass.

Lew is expected to sail through the confirmation process, despite Republican attempts to score political points by attacking his investment in a Cayman Islands-based fund (on which Lew says he lost money) and digging into his tenure at Citigroup, where he oversaw a unit that made some of the bank’s riskiest investments and later, benefited from the government’s bailout of big banks.

These rhetorical points will quickly fade if and when Lew assumes the top post at Treasury. Then, he will face a lengthy, complex To Do list, including completion of financial regulations under the Dodd-Frank reform law; playing a leading role on the Financial Stability Oversight Council, which is charged with identifying risks to the financial system; and developing key policies related to U.S. currency and economic sanctions against other countries.

Yet few Wall Street analysts, academics, or Treasury observers say they know where Lew, a longtime budget master, comes down on many of these issues. “I have no sense, none at all,” says Chris Low, chief economist for FTN Financial. “The White House has identified the budget as the toughest fight they’re going to wage. That’s why they picked him. The other stuff becomes quite secondary, but it’s important.”

That will be the test for Lew as he moves into the Treasury Department: getting up to speed on this web of issues, projecting confidence on the international economic stage, and balancing domestic fights over the budget with Treasury’s international role.

“That will be the challenge for him coming out of the block,” says Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods, a small investment bank. “He does not have the same relationships internationally and on Wall Street as Timothy Geithner [the previous Treasury secretary] did.”

One of the most symbolic regulations yet to be released by Treasury is the final version of “Volcker Rule,” perhaps the most visible part of the Dodd-Frank law. Named after former Federal Reserve Chairman Paul Volcker, the rule attempts to reduce the risks that major banks can take by prohibiting them from making certain trades and investments with their own money and for their own gain.

The way Treasury and other bank regulators choose to word the rule—and the types of exemptions they allow—could offer a window into the tone and tenor of Lew’s stint at Treasury and how friendly he would be toward Wall Street. “The Volcker Rule is very controversial because, to many people, it’s a symbol of everything that went wrong during the financial crisis,” says Lawrence White, a professor at New York University’s Stern School of Business. “It will show the consequences of Dodd-Frank, both in terms of symbolism and real effects.”

A spokesman for the Treasury Department declined to comment on the first steps Lew is considering if named the next secretary.

The toughest task for him initially, though, may be splitting his time between domestic issues and broader economic ones—and avoiding the all-consuming yet familiar pull of Washington’s roiling budget wars.

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Coming to A State Near You: Big Spending Cuts

Nancy Cook, National Journal — Mon, 25 Feb 2013 08:42:33 -0500

The White House is trying to raise pressure on Congress to cancel automatic spending cuts by releasing the most detailed accounting to date of how the reductions would hit in the 50 states. The cuts, known as the sequester, take effect on March 1.

Among the highlights of the White House’s report:

Virginia would see 90,000 civilian Department of Defense employees furloughed for the remainder of the year, decreasing their pay by roughly $648 million.
In the swing state of Ohio, 350 jobs for teachers and school aides would be at risk.
Eleven Navy ships, based in Norfolk, Va., would not see any maintenance in 2013.
California would lose $5.4 million to cover the cost of meals for senior citizens.
And, in Rhode Island, a state with a consistently high employment rate, 4,550 fewer residents would receive job training and assistance.

This new data is part of the White House’s ongoing effort to prod Republicans to acquiesce on raising taxes, again, as part of a bigger deal to unravel the sequester. Republicans are loath to raise any new taxes following the fiscal cliff deal. Instead, they would prefer to make cuts to entitlement programs in lieu of the sequester’s rough across-the-board nature.

Yet, by providing a slow-drip of information over the last several days about the impact of the spending cuts, the White House has succeeded in making the pressure feel constant and fresh. On Friday, for instance, Transportation Secretary Ray LaHood joined the White House press briefing to outline potential cuts that could increase wait times and delays at airports by as much as 90 minutes. The White House released a state-by-state report on the cuts on Sunday, and early this week, the president is scheduled to travel to Newport News, Virginia to a shipbuilding factory to talk about—you guessed it—the sequester.

“It’s the president’s responsibility to make the American people understand what’s at stake here in this debate. This is going to have a very real impact on people’s lives and their communities,” Dan Pfeiffer, a senior adviser to the president, said on Sunday. “There are hundreds of thousands of Americans working today who will lose their jobs as a consequence of this Republican position.”

The Republicans, of course, have been saying exactly the opposite: That the president’s failure to lead and to propose any large changes to the country’s spending trajectory and to entitlement programs got us into this mess.

"Republicans in the House have voted - twice - to replace President Obama's sequester with smarter spending cuts. The White House needs to spend less time explaining to the press how bad the sequester will be and more time actually working to stop it," Michael Steel, a spokesman for House Speaker John Boehner, said in a statement.

Republicans believe their political hand will strengthen as the cuts start to occur since it will be up to the administration to oversee the process of carrying out the reductions, says one House Republican aide.

Recent polling from the Pew Research Center and Bloomberg shows that the American public, for now, will largely blame the Republicans if the sequester cuts happen.

But once hundreds of thousands of workers lose pay and little kids get booted from Headstart programs and Navy ships are neglected, the politics of sequestration could rapidly change. When that happens, it’s unclear which party, if any, can win the political argument in the face of lots of public anger and serious fatigue with Washington’s ongoing budget battles.

(Image via iQoncept/Shutterstock.com)

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Analysis: New Simpson-Bowles Plan Overstates the Deficit Problem

Nancy Cook, National Journal — Wed, 20 Feb 2013 17:49:18 -0500

Deficit hawks Alan Simpson and Erskine Bowles just don’t quit.

The duo unveiled the latest iteration of their deficit-reduction plan on Tuesday, which calls for $2.4 trillion in cuts over 10 years — yet another chapter in their ongoing debt campaign that has not gained much political traction since 2010.

At first, Simpson and Bowles' newest proposal comes across as innovative: they learned from the past, rejiggered their suggestions, and rolled out a new framework during a quiet week when Congress was out-of-town. The new framework acknowledges the elusiveness of the big budget deal and instead lays out incremental spending cuts and tax increases that could occur over the next few years and into 2018. "Just the idea of a 'grand bargain' is at best on life support," said Erskine Bowles, the former chief-of-staff under President Bill Clinton, at a breakfast sponsored by Politico.

Such reasonableness attempts to cast the pair as aggressive, yet savvy deficit hawks who have taken a different, more nuanced tact that’s more in sync with the political reality of a very divided Congress and White House.

Yet, that’s not necessarily an accurate portrait of the current state of Simpson-Bowles. In fact, it appears to be doubling down on deficit-hawkishness just as the economy is improving and the deficit is shrinking.

The new plan calls for a 3:1 ratio of spending cuts to tax increases, whereas previous versions called for a more balanced ratio. That means that Simpson and Bowles are calling for the majority of future deficit reduction to come from spending cuts at a time when a wide swath of economists, including a prominent conservative economist from the American Enterprise Institute, have warned against sudden austerity measures.

Simpson-Bowles and like-minded hawks also uphold the belief that solving the deficit is the headline economic problem of 2013. Just check out the new website Debt Deniers, funded by Fix the Debt, a Simpson-Bowles sister organization run by the same web of alarmists.

The Debt Deniers site, unveiled late last week, calls out people “who claim America has no debt problem.” In ominous red, black, and white writing and graphics, the site criticizes “debt deniers” (cough, cough — like economist and New York Times’ columnist, Paul Krugman) who argue that the debt will solve itself, thanks to the slowly recovering economy, tax increases from the fiscal cliff deal, and spending caps set by the Budget Control Act of 2011. There’s nothing wrong with this strategy politically, except that it does not jibe with current economic data.

The deficit is not the primary economic problem of 2013; it’s just at the forefront of the political battles. (See: long-term unemployment, stagnant wages, or a slow-to-recover housing sector if you want to see real economic problems). Through the year 2016, the annual deficit is expected to shrink. (The Congressional Budget Office predicts it will decrease to $476 billion in 2016, compared to $845 billion in 2013).

Part of the reason the deficit is going down, at least temporarily, is that the federal government is taking in more revenue (25 percent more in the next two years). The rate of health care spending has slowed down considerably, and the economy is recovering, which means that Americans can pay more in taxes and/or rely less on the federal government for costly social safety net programs such as unemployment insurance or food stamps.

The deficit will start to significantly rise again by 2021 — though that’s a demographic and health care spending problem rather than an all-out crisis involving just too much debt. By then, the baby boomers will start to sign up en masse for Medicare, and no one from either end of the political spectrum has figured out a way to constrain health care costs given the large spike in people who will suddenly take advantage of federal benefits.

Arguably, that’s where Simpson and Bowles should expend their energy instead of talking about a deficit crisis that has yet to arrive on Washington’s doorstep, or by rejiggering a well-worn plan that’s made them wise, talking heads in Washington who still lack political juice.

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Obama May Avoid Talking Sequestration in State of the Union

Nancy Cook, National Journal — Tue, 12 Feb 2013 08:36:29 -0500

When President Obama delivers his State of the Union address tonight, he’s expected to give scant attention to one of the most pressing issues facing Washington: $85 billion in deep spending cuts set to begin on March 1 for government programs from Head Start to the Food and Drug Administration to the Pentagon's weapons purchases.

Known in D.C. parlance as “sequestration,” the spending cuts will affect a wide swath of life for everyday Americans. It could mean fewer FBI agents and cuts to free pre-school programs; reduced loan guarantees for small businesses; furloughs for food safety inspectors; and less manpower for the Internal Revenue Service to process tax returns. This says nothing of the military budget cuts. Already, that threat has delayed the take-off of an aircraft carrier to the Persian Gulf. Sequestration would cut $1.2 trillion over the next decade from federal spending, with the $85 billion as the first annual installment.

Yet, none of these potential cuts will receive the same attention during the speech as job creation, the economy, innovation, or infrastructure spending: proposals that the president has not been able to pass through the divided Congress since the stimulus bill in 2009.

“We’re so caught up in dealing with these short-term, self-imposed crises that it’s undermining our ability to come up with a long-term comprehensive plan,” says Rep. Chris Van Hollen, one of the Democrats’ primary budget experts with close ties to the White House.

That’s true, but much of the hold-up is because of fiscal fights rather than stalled economic questions. Republicans remain uninterested in any plan that involves new stimulus spending. Instead, they would prefer to spend the next few months paring down the size of the government, revamping the tax code, or overhauling the federal health insurance programs, all in the name of boosting economic growth through lower tax rates and reducing the deficit.

The president’s reluctance to tackle these major philosophical fiscal issues in his prime-time speech seems like a missed opportunity. Why not lay out for Americans the contours of the fight and the way the geeky-sounding budget machinations relate to job creation, the slowly recovering economy, or the social safety net? Instead, he is expected to use his speech to push big-picture economic ideas that have no chance of passing Congress.

“On the face of it, the State of the Union should be about the state of the union,” says Douglas Holtz-Eakin, former director of the Congressional Budget Office and President of the right-leaning think tank, American Action Forum. “He won’t talk about budget issues because they’re a bad news story for him. The large, projected increases in debt are hampering the economy.”

The latest budget and economic outlook from the Congressional Budget Office doesn’t offer a conclusive road map for immediately tackling Washington’s budget fights. Still, it does give some perspective on the next 10 years.

The federal deficit will shrink in the short-run, as the federal government collects roughly 25 percent more revenue through the year 2015 and as the rate of healthcare spending slows down. The ‘spending problem’ Washington so frequently talks about is really a demographic problem, which involves too many baby boomers entering federal healthcare programs at the end of the decade, all at the same time. That becomes a problem around 2020 when deficits start to significant rise again.

By 2023, the federal debt held by the public will hit 77 percent of gross domestic product. That’s a high ratio that Americans should care about because it makes it hard, under those circumstances, to spend additional money to respond to another recession, or pay for another war.

These are facts that President Obama could lay out during this State of the Union address to showcase Democratic ideals and the contours of the upcoming budget debates that will inevitably dominate politics through August: from sequestration to the funding of the government to fights over the increase in the debt ceiling.

The president could use the State of the Union pulpit to talk about the way the budget plays into that vision. Politically, for Democrats, that means funding and preserving the social safety net. It means treating policies like immigration reform or the Affordable Care Act as the newest, most politically expedient way to deliver progressive economic policy.

And, for Republicans, the budget fights offer the chance to highlight the ways they would cut spending over the next decade by changing Medicaid or Medicare, or cutting spending on federal agencies like the Environmental Protection Agency or on programs such as food stamps.

It's not a bad idea to clue Americans into the budget ideals of both parties, since they will dominate the next several months and since they’re essentially a fight over the long-term future make-up of the government.

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Why the vote to suspend the debt ceiling didn't end the threat to the U.S. economy

Nancy Cook, National Journal — Fri, 25 Jan 2013 08:21:46 -0500

Washington breathed a sigh of relief this week when the House passed a bill to temporarily suspend the debt ceiling through May 18—pushing off a massive fiscal fight for yet another day.

To the Democrats, it seemed that House Republicans had finally realized that brinkmanship over the economy was bad for their brand. Politically, the delay bought the Republicans more time to develop a strategy to enact the deeper spending cuts they so desire. But no one should break out the bubbly or plan any summer vacations just yet.

Pushing off the debt-ceiling battle until mid-May still poses major risks for the economy and may even heighten the severity of the economic impact. Prolonging the debate and putting it at the end of the spring’s fiscal-fight queue, after the sequester and the question of funding the government, only keeps investors and markets nervous for a longer period of time. If the debt ceiling is suspended through May 18, the Treasury Department’s extraordinary measures could kick in anew and keep the government funded through July and into early August. This leaves an additional seven months of uncertainty, a situation that economists such as Simon Johnson of the MIT Sloan School of Management dislike.

“You will continue to undermine the private sector. You will continue to delay investment and to reduce employment relative to what it would be otherwise,” Johnson said at a recent House Ways and Means Committee hearing.

The prospect of failing to raise the debt ceiling freaks out investors and financial markets so much because it means the U.S. government would not be able to pay the bills on debt it has already accrued. In the real world, default would mean that military officers may not get paid. Little old ladies would not receive Social Security checks, and the equity markets might go haywire, tanking people’s 401(k)s and pensions.

Mostly, the idea of defaulting is scary because no one is quite sure exactly what would happen. It’s like the no-man’s-land of fiscal policy. There is “no guarantee of the outcome; risks are risks,” writes the Bipartisan Policy Center in its comprehensive debt-ceiling analysis.

Of course, other fiscal speed bumps lie ahead. A potential government shutdown in late March (when Congress will need to vote to keep government operations funded) would slow economic growth in the second quarter by roughly one-fourth of a percentage point for every week it lasted, says the forecasting firm Macroeconomic Advisers. Few analysts expect such a shutdown, if it happens, to last long. Still, it would force 36 percent of nonessential federal employees to take time off and lose pay, according to the firm’s calculations. National parks might close for a few days, and defense contractors might lay off some workers.

But that hardly compares to the economic impact of defaulting on the national debt, according to Steve Bell, senior director of economic policy at the Bipartisan Policy Center. “A government shutdown has almost no long-term economic impact on the country,” he says. “We did this in 1995 and 1996, and nothing happened, even though everyone ran around with their hair on fire. Afterward, people yawned and went back to work.”

The debt-ceiling fight is larger and scarier because it hints at the shakiness of the country’s long-term economic picture. The federal government cannot afford all of the programs it has promised over the next few decades.

The threat of default—and this is just the threat, mind you—may be enough to slow down economic growth by about half a percentage point in 2013, according to new data from Macroeconomic Advisers.

This uncertainty eats up the Treasury Department resources, hampering its ability to tackle big-picture fiscal matters such as overhauling the tax code. In the summer of 2011, the possibility of default proved to be expensive. It cost the Treasury $1.3 billion in additional borrowing, according to a Government Accountability Office analysis.

As investors and business executives know, no temporary suspension of the debt ceiling will make it any easier to deal with the consequences of hitting the limit—which will eventually happen, because the move is no permanent fix.

“If you’re a businessperson trying to make a long-term investment decision on opening a plant, this [suspension] does not change your calculus that much,” says Michael Hanson, a senior economist at Bank of America Merrill Lynch. “It’s encouraging if it’s moving away from brinkmanship, but it isn’t obvious that this is what the signal is yet.”

And that’s the greatest economic hit of all: Washington’s perpetual muddied and mixed signals on fiscal matters.

(Image via Vince Clements/Shutterstock.com)

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Analysis: The man who could save Obama's legacy

Nancy Cook, National Journal — Wed, 09 Jan 2013 12:36:31 -0500

(Editor's note: With President Obama expected to name Jack Lew as Treasury secretary on Thursday, here's a profile in the Nov. 3, 2012 print edition of National Journal.)

Jacob Lew isn’t the most obvious figure to be charged with securing the Obama legacy. The purposefully low-key White House operative is content to work behind the scenes, and he always takes care to speak strictly on behalf of the president. Yet this Jewish son of middle-class parents from Queens, a stranger to President Obama’s Chicago-centric universe, could help cement the way the first African-American president is remembered if Lew can cut a sweeping budget deal in the coming months.

To do that, however, he might have to give ground and trigger what critics may see as the first steps in the dismantling of the modern social-welfare state by allowing Republicans to chip away at the very ideal that has inspired and informed Lew’s public service since the days he learned Washington’s mores at Tip O’Neill’s side.

It’s a lot to ask. But that will be Lew’s job as Obama’s chief of staff, a position that could expire in two months and, with it, his leverage. Should Obama win, Lew is seen as a top contender for Treasury secretary, with the biggest mark against him that he is so highly valued in his current post, Obama might prefer to keep him at the White House. Either way, the task of cutting a “grand bargain” doesn’t grow any easier. If Lew can close a lame-duck compact that somehow chops the deficit, avoids the hated sequester, and largely leaves Medicare, Medicaid, and Social Security intact, Obama would be ranked with Presidents Reagan and Clinton, who cut large-scale budget deals that preserved costly entitlements. If he blows it, Lew becomes just another in a long list of aides who couldn’t break the stranglehold of dysfunction that has seized the capital.

With the president’s backing, Lew is determined to not let that happen. And he has no interest in repeating the mistakes of the debt-ceiling standoff. This time, there will be no chats on the Truman Balcony or glasses of Merlot for John Boehner, as took place in 2011 when the GOP House speaker and Obama tried to strike a grand bargain on the budget.

Instead, the administration plans to play hardball in the six weeks after the election. And the White House is looking not just to House Republicans for the contours of the compromise. Under Lew’s direction, the administration instead will reach out to the Senate and to House Democrats to try to build a consensus before dealing too much with the tea party portion of the Republican Party.

At the center of this push will be Lew, a 30-year veteran of budget battles under Presidents Reagan and Clinton. Tall and thin, with Harry Potter-like glasses and salt-and-pepper hair, he looks like a typical Washington technocrat, an image that belies his talent for combat. “He’s like a labor-union negotiator. He’s not going to give you an inch if he doesn’t have to,” says Judd Gregg, the Republican former senator and Budget Committee chairman. “He’s a true believer in the causes.”

By causes, Gregg means Medicare and the rest of the social-safety net. These are the progressive ideals close to Lew’s heart, friends and former colleagues say—and programs he will cut or change only in exchange for an equally big prize: in this case, the Republicans agreeing to more revenue, as Obama has called for from the campaign trail.

Lew has long been mindful of the tension inherent in his task. He has spoken publicly for years about the importance of deficit reduction. Yet he believes that budget cuts must be made with care, using a scalpel rather than a butcher’s knife. “That is the only way to do it,” he said in 2011 in a speech at a conference for a Jewish nonprofit organization. “I describe budgets as a tapestry: When it’s woven together, the picture amounts to our hopes and dreams of a nation.”

Read the full story on National Journal.

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Thankless job awaits Jack Lew if he heads to Treasury

Nancy Cook, National Journal — Fri, 04 Jan 2013 16:55:09 -0500

nomination of Jacob ‘Jack’ Lew.

Lew possesses the impeccable resume of a long-time Washington insider. He now works as the White House chief-of-staff and has earned the trust of the president in a very short period of time for no-drama approach and deep knowledge of fiscal matters. His previous tours of duty include stints in two administrations as budget director and as a former top policy advisor to the Democratic Speaker of the House Tip O’Neill.

Any major landmark budget legislation of the past 20 years has involved Lew. He helped to cut the 1997 balanced budget deal under President Clinton and the 1983 Social Security legislation, which has kept the entitlement program solvent for the past two decades.

The Treasury Secretary job would just be yet another career progression for a man known as a super staffer. Still, that doesn’t mean it will be glamorous. In this hyper-partisan climate, in fact, it’s far more likely that the Treasury Secretary position will be a thankless one.

Sure, the final fiscal-cliff deal averted a possible recession and dive in the stock market, but it also created a series of mini-cliffs that the federal government must contend with this spring: from the delay of the across-the-board spending cuts known as the sequester to the debt ceiling fight in February to the government funding war in March. All of this will make the fiscal cliff fight seem like child’s play, especially since Republicans have promised to enact real spending cuts this spring.

Lew will get sucked into these negotiations, just as Geithner took blows the past four years over the stimulus package, the auto bailout, the president’s annual budget proposal, and you name it. Just watch C-Span reruns of any Geithner appearance on the Hill, where Republicans tried to paint him and the administration as out-of-control spending liberals who caused some yet-to-arrive debt crisis and who put the country on a path to economic despair.

Geithner always gave it back to them with sharp-tongued responses. That doesn't mean the verbal sparing was fun, though, especially when it was such a reoccurring motif.

The Republicans on the Hill, like Chairman Dave Camp of the House Ways & Means Committee, also seem quite intent on pursuing tax reform in 2013. Camp reiterated this goal on the night the House (barely) passed the fiscal cliff deal. Tax reform will force the administration vis-à-vis Lew to argue over tax policy and the future of the tax code with the House GOP; we know how frequently those two sides agree on policy. While both have said they want to lower the corporate tax rate, that’s really where the similarities end.

Not to mention, House Republicans strongly dislike Lew. GOP members and staffers negotiated with him on the debt ceiling deal in the summer of 2011: an experience that left them with deep-seated, raw feelings of disdain for a man they view as condescending, too liberal, and unable to get to “yes” in a negotiation.

“Always trying to protect the sacred cows of the left” was the way Speaker Boehner’s former chief-of-staff, Barry Jackson, described Lew in Bob Woodward’s book, The Price of Politics. Republican sources in the book also characterized Lew as someone “who tried to explain why Democrats’ view of the world was right and the Republicans’ wrong.” That bad blood still exists.

The upside for Lew as the potential next Treasury Secretary is that the position encompasses both domestic and international portfolios. Inside the U.S., the fiscal policy battles seem inevitable and intractable. But globally, the country’s economy is still seen as a safe haven given Europe’s woes with high deficits and deep unemployment and serious pension obligations.

Inside D.C., Lew could face what amounts to a congressional firing squad and a never-ending calendar of budget battles, but he’ll have the global stage to take a refuge. It’s one of the beauties of a post at Treasury. You’ll always have Europe.

Caren Bohan contributed to this report. ]]>

Fiscal compromise sets stage for new year of mini-cliffs

Nancy Cook — Tue, 01 Jan 2013 08:34:25 -0500

This article has been updated.

My, my, how far lawmakers’ ambitions for the fiscal cliff negotiations have fallen in the past two weeks.

Aiming to pull the country back from the fiscal cliff, the Senate early Tuesday easily approved a measure that would delay automatic budget cuts known as the "sequester" and raise taxes on household income above $450,000. The deal, worked out between the White House and Republican Senate Minority Leader Mitch McConnell, still needs approval by the House.

The measure is a small-bore compromise on a huge array of tax and spending issues that had deadlocked Washington for months. If it passes the House, financial markets will breathe a sigh of relief and the action by politicians could combat a growing perception that they favor ideology over the economy's health.

In addition to delaying the across-the-board spending cuts and agreeing to some tax hikes, the deal would also permanently patch the alternative minimum tax; extend business tax breaks for one year; increase the rate on capital gains and dividends to 20 percent for families that earn more than $450,000; increase the estate tax from its current levels; and extend President Obama's 2009 stimulus tax credits for five years for college students, families with children and low-income families.

In the coming days, the Democrats will bill the deal as a historic win for the party by saying it broke the Republicans' no-new-tax orthodoxy. That is true, but the small-scale deal poses its own problems over the long run for the White House and congressional Democrats.

Sure, the deal extends the middle class tax cuts permanently, but part of that extension involves accepting a huge swath of the Bush administration's tax policy legacy. The deal also defines the wealthy as those who earn close to half a million a year. That's hardly a tax just to benefit the middle class. Even high-income earners in expensive states like New York or California would be hard-pressed to define anyone making $395,000 as just another hard-working Joe.

That’s a huge political victory for the Republicans because it ensures that the Bush-era cuts have become part of our accepted reality.

“This is now part of the tax code,” says Roberton Williams, a senior fellow at the Tax Policy Center. “Any change in taxes is now measured relative to that.”

The package also does not raise as much revenue as the White House had proposed (just $600 billion to the administration's original request of $1.2 trillion). The small-scale deal in play does little to boost economic growth because the package does not contain stimulus money and quietly does away with the payroll tax holiday. Nor does not it streamline the tax code, the pet project of the business lobbyist groups, or deal with the deficit in a meaningful way, as the Wall Street Journal aptly laid out.

The biggest takeaway is that the package shoves many of the tough decisions about long-term tax and spending policy into January and February, when lawmakers will face not only the debt ceiling but also the sequester: a moment that Republicans view as ripe for an overhaul of entitlement programs. And, they're right to anticipate that this will be a time when the Democrats will give ground on spending cuts and potentially the social safety net.

The clock already has started ticking on that fight, even though the fiscal cliff saga is not even over yet. Treasury Secretary Timothy Geithner announced last week that the federal government would hit the debt ceiling on Dec. 31, requiring Treasury to take “extraordinary measures." Those steps will allow the federal government to pay its bills for about two months.

That is a long way of making one major point. The fiscal cliff is not just one mountain but a series of hills that the country will face over and over again in the coming months. If you thought Washington acted in a dysfunctional manner now, give it a few more weeks. At this rate, the same drama will revive itself in time for Valentine's Day: another holiday for lawmakers to spend on Capitol Hill.

As the minutes ticked by toward midnight on Monday night, it seemed like the fiscal cliff drama would end in most anti-climatic of ways: A New Year’s Eve celebrated on the second floor of the Capitol building, among grumpy security guards, cafeteria workers, and journalists dressed in sequin tops that doubled as evening party wear.

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Analysis: Newtown shooting provides perspective amid fiscal cliff

Catherine Hollander and Nancy Cook, National Journal — Tue, 18 Dec 2012 09:21:36 -0500

Two days after the Newtown school massacre, Congress returned to Washington with a more subdued attitude toward partisan bickering and with a newfound focus on finding a compromise on the fiscal cliff.

Neither party seemed to want to drag out a public battle over taxing the wealthy, or cutting Medicare bienefits, as an idyllic Connecticut town began to bury 20 of its children. The shooting brought some perspective to Congress, a focal point outside of its ongoing fiscal battles over $500 billion in tax and spending policy.

The pace of activity on the fiscal cliff negotiations has picked up in the last few days. President Obama and House Speaker John Boehner met for 45 minutes on Monday morning at the White House—yet another interaction since Friday afternoon, just hours after the shooting, when Boehner privately agreed in a phone call to increase tax rates on household income above $1 million. In a counteroffer, the White House proposed setting the income limit for tax increases at $400,000 in a plan that would raise $1.2 trillion over a decade. That's a reduction from an earlier offer from Obama that sought $1.4 trillion in new tax revenue.

In a change that would slow the growth of entitlement spending, the White House also said it would be willing to tie annual benefit increases in programs like Social Security to a less generous measure of inflation.

Still, it was unclear whether the Newtown tragedy had drastically altered the tone and pace of the fiscal-cliff talks, or if the negotiations would have picked up anyway given the fast-approaching deadline of the New Year and members’ desire to return home for the holidays. Neither Boehner’s office nor the White House wanted to comment on the link between the state of the fiscal-cliff talks and the Newtown shooting.

The attitude on the Hill, however, was remarkably gentler on Monday than in recent weeks. House Minority Leader Nancy Pelosi planned to meet with family members and survivors of mass shootings on Monday evening, while senators took turns giving floor speeches to express their condolences for the victims or to outline their positions on gun control. Some observers of Congress are predicting that Newtown may help create an environment in which neither party wanted to seem petty or unreasonable, or too attached to party orthodoxy, as the country grieved.

“I think the magnitude of this tragedy, the incredible emotional force that it has had on everyone, is going to force all political leaders to essentially act like adults, at least for a little while,” says Matt Bennett, a senior vice president at the centrist think tank Third Way. “And so I think it’s going to kind of require that they negotiate in good faith and really attempt to find a deal.”

Other congressional experts do not think the Newtown shooting will spur deep policy changes, rather just a superficial, short-term change in tone. “If it creates any change in attitude, it is on the Republican side. They are already seen as the obstacle to an appropriate deal, not a facilitator of it,” says Thomas Mann, a senior fellow at the Brookings Institution. “The Connecticut massacre gives them more incentive to get this done because their position will not improve.”

The bipartisan rallying around the Newtown tragedy reminded many political observers of the days after the shooting of former Rep. Gabrielle Giffords, D-Ariz. Then, too, members grieved and experienced a brief honeymoon of bipartisanship. Politicians called for an increase in security for politicians and stricter gun-control laws.

Yet, just weeks later, Boehner unveiled legislation to repeal the health care law and to cut discretionary spending by $100 billion. Later that year, a battle royale erupted over raising the debt ceiling, prompting Giffords to return to Congress for a surprise visit in August 2011 to cast her vote for the increase. The honeymoon, in other words, did not last long.

Instead of linking the Newtown tragedy to the shift in the fiscal-cliff talks, some congressional observers attribute the breakthrough more to coincidence and timing. As the holidays approach, the Republicans want to avoid a repeat of last December’s showdown over the payroll-tax holiday. Then, Obama successfully painted the Republicans as unsympathetic to a tax cut for the middle class just days before Christmas. In the end, the Republicans caved and passed a two-month extension of the payroll-tax holiday but not before losing on the optics.

Other experts point out that Republicans, like Democrats, increasingly do not want to go over the fiscal cliff, fearing an economic slowdown and the blowback of a deadlocked Congress following a divisive and bruising election.

“I think the script is already written,” says Daniel Mitchell, senior fellow at the Cato Institute and formerly an economist for the Senate Finance Committee. “Republicans, for whatever reason, are back on their heels and sort of negotiating with themselves, and I just … I don’t see [Newtown] having a material effect on the outcome.”

The only people, though, who really can answer that question and know their motivations remain the speaker and the president.

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