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Austerity Is Here to Stay

A collective shudder swept through financial markets and across official Washington late last month after Federal Reserve Chairman Ben S. Bernanke announced it soon will be time for the U.S. central bank to step away from a half-decade of stimulating the economy with trillions of dollars in easy money. As stock prices slumped and falling bond prices pushed interest rates to a two-year high, the financial world signaled little confidence that Congress and the White House would veer away from their determined course of fiscal contraction.

Especially for the past two years, the Fed has counterbalanced with its monetary stimulus the spending restraint and tax increases that lawmakers and President Barack Obama have embraced, propping up a fragile recovery while giving elected officials room to debate, and enact, a series of measures that add up to an American version of fiscal austerity.

It was inevitable that the Fed would reverse course — the threat that its lax policies would lead to a destabilizing degree of inflation was much too great. Yet, now that Bernanke is telling everyone that the economic landscape is changing, there’s no sign that lawmakers and executive branch officials are prepared to respond in kind by loosening fiscal policy to balance a tighter monetary environment. If anything, the course of fiscal constraint appears to be locked in.

Many economists fret that austerity Washington-style will put the brakes on more rapid economic improvement. If the U.S. recovery falters, that would seriously harm the global economy, and the result might be a second worldwide slump to rival the one that has only begun to show in the rearview mirror.

"The budgetary procedure that is in place in the United States, which leads to a budgetary adjustment, seems to us absolutely inappropriate," said Christine Lagarde, managing director of the International Monetary Fund, at an economics conference in France earlier this month. Lagarde’s comments are all the more notable because her organization had been preaching austerity, particularly for Europe, since the 2008 financial crisis. But the IMF is now clearly backpedaling, and last month it took aim at U.S. fiscal policy in a report that said "the deficit reduction in 2013 has been excessively rapid and ill-designed."

The federal deficit, more than any other measurement, tells the story of persistent fiscal constraint. The deficit is projected by the Congressional Budget Office to fall to $642 billion this year, a 41 percent one-year decline that will bring the annual shortfall to roughly half what it was just two years ago. The CBO says the deficit is likely to continue shrinking until it is a mere 2.1 percent of gross domestic product in fiscal 2015, after peaking at 10.1 percent in 2009.

This rapid shrinkage is the result of a mix of spending cuts, including the sequester that took effect in March, higher taxes that came with the fiscal-cliff agreement at the very start of this year and a clear strengthening in the economy — most pointedly in housing.

In the fiscal-cliff deal, Congress raised taxes by more than $600 billion over a decade, and no one is talking about cutting taxes below that level right now. Spending has been reduced by more than $2 trillion over a decade through the 2011 debt limit law, which established 10 years’ worth of discretionary spending caps and set in motion the automatic spending sequester.

And while Democrats would like to replace the $1 trillion sequester with revenue increases and alternative spending reductions, Obama and lawmakers from both chambers of Congress have essentially agreed — both in the laws that have been enacted and the budget plans that have been proposed — to continue on the current deficit-cutting path in the immediate years ahead.

House Speaker John A. Boehner, a critic of the Fed’s bond-buying program of "quantitative easing," welcomed Bernanke’s comments about winding it down. "I think it’s over the top and puts us in very dangerous territory," the Ohio Republican said in a recent CNBC interview. "We all knew this day was going to come when he was going to start to back up a little bit — better now than later."

The message was clear enough: The sharp differences between Republicans and Democrats over the specifics of fiscal policy preclude any agreement to change course.

"It looks to me like we’re sort of stuck in a gridlock situation right now," says William G. Gale, co-director of the Urban-Brookings Tax Policy Center and an economist on the White House Council of Economic Advisers in the early 1990s under President George Bush. "Even if we weren’t, I wouldn’t expect there to be more expansionary policy. The Republicans don’t want it because it suggests that government can be part of the solution, and for whatever reason, the Democrats are not asking for it," Gale says.

The Fed’s threat to begin withdrawing stimulus by ending its $85-billion-a-month bond-buying program adds a new dimension to the economic tableau. Many Democrats have supported the efforts of Bernanke, a Republican. But many GOP lawmakers called the Fed’s actions an "extraordinary intervention" in the economy that risks causing inflation and distorting economic activity.

Bernanke has defended the Fed’s actions — which have included holding the central bank’s benchmark interest rate at essentially zero since December 2008 — as an important support to the recovery. "Notably, keeping longer-term interest rates low has helped spark recovery in the housing market and led to increased sales and production of automobiles and other durable goods," Bernanke told the Senate Banking Committee in February. "By raising employment and household wealth, for example through higher home prices, these developments have in turn supported consumer sentiment and spending."

Now, it appears, Washington may be on track to find out how much the economy can grow while policy is intent on contraction.

Party leaders spar over Senate rule changes

WASHINGTON (AP) — The top Senate Democrat says Congress’ inability to get things done is a reason lawmakers have an approval rating, in his words, "lower than North Korea’s." His Republican counterpart says Democrats are manufacturing outrage to railroad their agenda.

The Sunday sparring comes on the eve of a rare closed-door session where all senators will consider a proposal that would change Senate rules to remove a 60-vote threshold for President Barack Obama’s nominations to win confirmation.

Democratic Majority Leader Harry Reid says the changes are minimal and would help Obama round out his team with qualified nominees.

Republican Minority Leader Mitch McConnell says Reid would be "breaking the rules of the Senate in order to change the rules of the Senate."

The two appeared separately on NBC’s "Meet the Press."

©2012 The Associated Press

After Sandy, New York aims to fortify itself against next big storm, climate change

NEW YORK ? Off a narrow road in a swampy part of Staten Island, Thomas Morello is preparing his two-
family home for the next time the water pours in from Lower New York Bay, a quarter-mile or so away.

When Hurricane Sandy hit more than eight months ago, inundating but not destroying his converted summer cottage, Morel­lo discovered the house was not anchored to its foundation. Now, as he repairs the damage from water that rose almost to the second floor, he is bolting and screwing the structure to its pilings. He has moved its electrical and heating systems to the roof. A previous owner had taken the most critical step, elevating the house about six feet.

Soon, the city will make similar preparations but on a vastly grander scale. Under a $19.5 billion blueprint released last month, New York outlined plans to fortify itself not only against the next big storm but against seas that scientists say could rise 21 / 2 feet by the 2050s and other climate-related challenges, including heat waves.

The 438-page plan, which involved a neighborhood-by-neighborhood survey of potential problems along 520 miles of coastline, vaults New York to the forefront of U.S. resilience planning, experts said, along with the gulf coast of Louisiana, which released its $50 billion plan in 2012.

“New York City’s sophistication in approaching climate adaptation is way at the top,” said Debra Knopman, vice president and director of the Rand Corp.’s justice, infrastructure and environment division, who has worked with Louisiana and is familiar with New York’s effort. “It’s a very, very impressive report.”

Still, many are waiting to see whether New York can and will follow through. That might depend on whether the next mayor is as committed to resilience planning as Mayor Michael R. Bloomberg (I) and whether the city can find the remaining $4.5 billion needed to carry out its plans. Officials here acknowledge that they will be returning to a deeply divided Congress for more money and to the Federal Emergency Management Agency for regulatory changes that will enable some of their efforts.

“The question is whether Sandy is enough of an impetus to maintain and sustain a plan like this,” said Jordan Fischbach, a policy researcher at Rand. “Is it close enough to the top of the list, and will it compete with other priorities in the decade or two to come?”

As Morello, a carpenter, and city officials here can attest, adapting to climate change is generally not technologically complex. It is mostly about raising homes, buildings and other vital facilities to escape rising seawater or, if that is impractical, building barriers . It is about taking advantage of the natural topography to help sap the strength of damaging storms, waterproofing and protecting critical infrastructure such as electrical grids and assessing the possible results of prolonged heat and drought, and trying to mitigate them.

“It’s not rocket science. A lot of these things are things we do already,” said Jessica Grannis, adaptation program manager at the Georgetown Climate Center at Georgetown University Law Center, a clearinghouse for information on such preparations. “It’s just tailoring them to a changed future.”

“It’s planning. It’s money. And it’s will,” said Daniel Zarrilli, New York’s director of resiliency, who lives on Staten Island, one of the areas hardest hit by Sandy.

Nineteen states and many localities, including Washington, are preparing such plans, according to Vicki Arroyo, the Georgetown center’s executive director. Chicago, which faces little flood danger, is figuring out how to cope with increasing heat. The five counties around low-lying Miami must determine how they can respond to rising waters. In Norfolk, there is talk of retreating from neighborhoods that flood regularly.

Still, the sheer scope of what New York hopes to protect is staggering. Under the FEMA maps last issued in 1983, 33 square miles of the city, or 11 percent of its land, were in danger of flooding in a 100-year storm ? a storm that has a 1 percent chance of occurring in any year. Preliminary 2013 maps have increased that to 48 square miles. By the 2050s, 72 square miles, or 24 percent of the city, will face that danger because of sea-level rise.

About 398,000 homes will be in those flooding zones under the new FEMA maps. (The city has more waterfront than Miami, Boston, Los Angeles and San Francisco combined.) New York’s panel of climate experts predicts that the number of days each year when the temperature is above 90 degrees could triple to 52 by 2050.

The city supplies electricity to about 8.3 million people and 250,000 businesses; in the summer, its grid handles almost twice the load of the next largest city, Los Angeles. As Sandy showed, some critical power plants are in the flood plain, and distribution lines run underground. Both were disrupted.

Each day, 7.6 million people ride the city’s subways and buses, an additional 2 million cross bridges or come through tunnels, and 850,000 ride commuter rails. The city must provide food and water to similar numbers, and health care to tens of thousands. It supplies the 3.4 million gallons of gasoline and diesel fuel that vehicles burn every day.

The plan calls for an array of solutions. On Staten Island’s eastern shore, for example, the city wants to build levees and floodwalls, some 15to 20 feet high, that would protect, among other places, Morello’s Midland Beach neighborhood. On Newtown Creek, the Army Corps of Engineers would build surge barriers that would close during storms to keep water out of Long Island City. The hard-hit Rockaway Peninsula would get a dune system, including a double dune in Breezy Point, where 126 homes burned down during Sandy.

Coney Island’s beaches would be renourished, and breakers might be installed off the shores of Staten Island and the Bronx’s City Island to dampen waves. A wetlands restoration project in Queens is designed to do the same thing.

The most innovative project might be construction of a “Seaport City” atop a levee designed to protect the East River shoreline south of the Brooklyn Bridge. Modeled on Battery Park, the area would be home to residences and commercial development.

The city would offer $1.2 billion in loans or grants to help people retrofit homes against floods, mostly by elevating electrical, heating, air-conditioning and fire equipment and reinforcing walls.

And officials want FEMA to provide breaks on costly flood insurance for the 26,000 buildings in the new flood zone that cannot be elevated if owners take other measures, such as moving critical equipment higher.

One thing the city won’t do, said Seth W. Pinsky, president of the New York City Economic Development Corp., is retreat from the waterfront, where hugely expensive structures exist. With the exception of one neighborhood of 168 homes on Staten Island, there is no talk of buying out owners.

For Morello, who was trapped in his home with his wife and son during Sandy by water that rose to within two steps of the second floor, the choices are simpler. Standing in a yard adjacent to his house, not far from fields of eye-level weeds, he speaks of replacing joists, fortifying his house and “bringing it back to life” by the first anniversary of the storm.

Whether his plans or the city’s pan out depends on cost, priorities and the determination to see them through. But there is little disagreement among those who study climate change that they must.

“People realize this is the new normal and the next normal,” Georgetown’s Arroyo said. “It’s going to be a future that doesn’t look like the past, and it’s going to be a future that is dynamic.”

Deceptive Floral Advertising

Consumers spend millions of dollars each year ordering “local” roses, lilies, daffodils, and floral displays from thousands of websites all across the states. Most online sites simply gather the order, charge an extra fee to the customer, and then contact a local florist to deliver flowers. Local in this context means the flowers come from a local merchant even if the online florist is thousands of miles away.

Some online florists advertise that they are “local,” and this is interpreted to mean the website is actually located in the community where the flowers originated. The issue has been hotly debated in state legislatures for two years now as lawmakers attempt to sort out whether advertising associated with these sales is deceptive. Predictably local florists and their national competitors are on opposite sides of this issue.

Keep Reading…

GOP Immigration Feint in the House? Or Just a Faint of Heart?

Wednesday’s all-House-Republicans-on-deck meeting on immigration has lost its potential to generate the summer’s biggest congressional news.

Caucus leadership has already concluded there’s no chance a majority of the majority is back from the July Fourth recess ready to tackle the issue in anything close to a comprehensive or speedy manner.

That news was buried in the third sentence of the 15th dense paragraph of a memo that Majority Leader Eric Cantor sent out to a nearly empty Capitol on July 5. Although creating a citizenship pathway for the 11 million people who are in the United States illegally would be the most consequential change in domestic policy of the decade, and spurning the idea would be political hemlock for the GOP, the idea barely merited a passing afterthought in his discussion of the House’s July legislative agenda.

Instead, the bulk of the next four weeks will be devoted to passing a trio of “drill, baby, drill” deregulatory Republican energy measures that have no chance of even a serious hearing in the Democratic Senate. That will be joined by five spending bills that are more likely to complicate than to smooth this fall’s inevitable budget crisis.

Read More on Hawkings Here: GOP Immigration Feint in the House? Or Just a Faint of Heart?

113th Congress On Pace To Be Least Productive In Modern History

WASHINGTON — The current Congress has had just 15 bills signed into law so far, the fewest in recent history.

This is not an insignificant feat. After all, the 112th Congress (2011-2013) was the most unproductive since the 1940s. But even that Congress, by this time in its first year, had 23 bills signed into law.

And the low number can’t be blamed on President Barack Obama. He’s vetoed just two pieces of legislation during his time in office, both in 2010.

The Huffington Post compiled the data from GovTrack, which lists laws since 1973. Back then, significantly more legislation made its way into public law. The height was the 94th (1975-1976) and 95th (1977-1978) legislative sessions.

While the 113th Congress has passed a couple of significant pieces of legislation — including the reauthorization of the Violence Against Women Act and disaster relief for Hurricane Sandy victims — the approvals have often been accompanied by intense partisanship not seen in the past, when both VAWA and disaster relief received strong bipartisan support.

Other bills that became law this year, however, have been significantly less weighty — awarding a congressional gold medal and a measure regarding commemorative coins.

Last year, Thomas Mann of the left-leaning Brookings Institution, and Norm Ornstein of the conservative American Enterprise Institute, published a Washington Post op-ed saying that the GOP deserves the blame for the dysfunction.

“We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional,” they wrote. “In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.”

In an interview with Washington radio station WAMU aired on Monday, Rep. Gerry Connolly (D-Va.) bemoaned the productivity of Congress and called on his colleagues to do more.

“The first six months of this Congress have been among the least productive in American history,” Connolly said. “Only 13 bills have been passed into law in the first six months of this year. That’s gotta be a record low.”

Economic View: Austerity Won’t Work if the Roof Is Leaking

I RECENTLY spent a week in Berlin, where the entire city seemed under construction. In every direction, cranes and other heavy equipment dominated the landscape. Although many projects are in the private sector, innumerable others — including bridge and highway repairs, new subway stations and other infrastructure work — are financed by taxpayers.

But wait. Hasn’t Germany been one of the most outspoken advocates of fiscal austerity after the financial crisis? Yes, and that’s not a contradiction. Fiscally responsible businesses routinely borrow to invest, and so, until recently, did most governments.

Lately, however, fears about growing public debt have caused wholesale cuts in American public investment. The Germans, of course, yield to no one in their distaste for indebtedness. But they also understand the distinction between consumption and investment. By borrowing, they’ve made investments whose future benefits will far outweigh repayment costs. There’s nothing foolhardy about that.

The German experience suggests how we might move past our own stalled debate about economic stimulus policy. In the aftermath of the economic crisis, the policy discussion began with economists in broad agreement that unemployment remained high because total spending was too low. Keynesian stimulus proponents argued that temporary tax cuts and additional government spending would bolster hiring. Austerity advocates countered that additional government spending would merely displace private spending and that we already had too much debt in any event. And the debate has languished there.

A preponderance of evidence suggests that Keynes was right. But as the German experience illustrates, progress is possible without settling that question. The Germans are investing in infrastructure not to provide short-term economic stimulus, but because those investments promise high returns. Yet their undeniable side effect has been to bolster employment substantially in the short run.

Not all German public investments have met expectations. Berlin’s new consolidated airport, for example, has suffered multiple delays and cost overruns, and parts of the city’s recently constructed central rail station are to have major repairs. But private investment projects suffer occasional setbacks, too, and no one argues that businesses should stop investing on that account.

The Germans didn’t become bogged down in debate over stimulus policy, and they didn’t explicitly portray their infrastructure push as stimulus. But that didn’t hamper their strategy’s remarkable effectiveness at putting people to work. The unemployment rate in Germany, at 5.3 percent and falling, is now substantially lower than in the United States, where it ticked up to 7.6 percent last month. (By contrast, in March 2007, before the financial crisis, the rate in Germany was 9.2 percent, about five percentage points higher than in the United States.)

A prudent investment is one whose future returns exceed its costs — including interest cost if the money is borrowed. Opportunities meeting that standard abound in the infrastructure domain. According to the American Society of Civil Engineers, the nation has a backlog of some $3.6 trillion in overdue infrastructure maintenance. No one in Congress seriously proposes that we just abandon our crumbling roads and bridges, and everyone agrees that the repair cost will grow sharply the longer we wait.

The case for accelerated infrastructure investment becomes more compelling with our economy still in the doldrums. That’s because many of the needed workers and machines are now idle. If we wait, we’ll need to bid them away from other tasks. Also because of the sluggish economy, the materials required for the work are now relatively cheap. If we wait, they will become more expensive. And long-term interest rates for the money to pay for the work continue to hover near record lows. They, too, will be higher if we wait.

Austerity advocates object that more deficit spending now will burden our grandchildren with crushing debt. That might be true if the proposal were to build bigger houses and stage more lavish parties with borrowed money — as Americans, in fact, were doing in the first half of the last decade. But the objection makes no sense when applied to long-overdue infrastructure repairs. A failure to undertake that spending will gratuitously burden our grandchildren.

In 2009, austerity proponents argued against stimulus, predicting that the economy would recover quickly and spontaneously. It didn’t. Later, they said we tried stimulus and it didn’t work. But in the face of a projected $2 trillion shortfall in the spending needed for full employment, Congress enacted a stimulus bill totaling only $787 billion, spread over three years. And much of that injection was offset by cuts in state and local government spending.

Now austerity backers urge — preposterously — that infrastructure repairs be postponed until government budgets are in balance. But would they also tell an indebted family to postpone fixing a leaky roof until it paid off all its debts? Not only would the repair grow more costly with the delay, but the water damage would mount in the interim. Families should pay off debts, yes, but not in ways that actually increase their indebtedness in the longer term. The logic is the same for infrastructure.

Austerity advocates, who have been wrong at virtually every turn, are unlikely to change their minds about stimulus policy. But with continued slow growth in the outlook, it’s time to reframe the debate. Our best available option, by far, is to rebuild our tattered infrastructure at fire-sale prices. If the austerity crowd disagrees, it should explain why in plain English.

Robert H. Frank is an economics professor at the Johnson Graduate School of Management at Cornell University.

Economix Blog: Progress on Housing Finance Reform

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

Taxpayers received $66 billion of good news last Monday in the form of dividends to the Treasury from Fannie Mae and Freddie Mac as part of the compensation for the bailout of the two government-sponsored enterprises (G.S.E.’s). The bad news is that these payments reflect the fact that the two firms remain in government hands nearly five years after being taken into conservatorship in September 2008, putting taxpayers at risk in the event of another housing downturn.

A fundamental change in this situation requires Congressional action, which is always difficult in our divided political system. Even so, legislation introduced recently by a bipartisan group of eight senators led by Bob Corker, a Tennessee Republican, and Mark Warner, a Virginia Democrat, has focused renewed attention on housing finance reform.

I was among the many people providing technical advice to the group working on the Corker-Warner proposal and think there is much to like in it. The legislation includes the essential elements of housing finance reform: a dominant role for private capital; considerable protection for taxpayers against future bailouts; a secondary government backstop to ensure stability; competition and entry by new firms into housing finance so that no future entity is too big to fail; a clear delineation of the roles of private firms and the government; an empowered regulator to ensure that loan quality remains high for guaranteed mortgages; and support for activities related to affordable housing.

A paper I wrote with Ellen Seidman, Sarah Rosen Wartell, and Mark Zandi has a proposal similar in many respects to the Corker-Warner bill. Clicking through to the biographies of my co-authors quickly reveals that the four of us come at this issue from quite different political perspectives. The common ground we reached in a sense mirrors that of the bipartisan group of senators in looking to move forward with reform rather than allowing Fannie and Freddie to remain effectively part of the government, which is the outcome that will obtain if no action is taken.

A key feature of the Corker-Warner proposal is the requirement that private investors must put up capital equal to 10 percent of the loans that will be guaranteed by a new government agency set up along the lines of the Federal Deposit Insurance Corporation. This provision alone goes a long way toward restoring the dominant role of private incentives and protecting taxpayers against the possibility of another costly housing bailout. Indeed, Fannie and Freddie would have easily made it through the crisis had this been in place. The legislation further allows new firms to enter the mortgage securitization business now dominated by the two G.S.E.’s. With enough competition, no firm in the future housing finance system will be too big to fail.

At the same time, a secondary government guarantee behind the private capital would ensure that mortgage financing is available across economic conditions, with taxpayers compensated for taking on residual housing credit risk. This contrasts with the failed system of the past in which the government backstop was implicit but free.

The U.S. Mortgage Market

Some background might be useful for readers unfamiliar with the workings of our convoluted housing finance system.

Originators such as banks make loans, which Fannie and Freddie then buy and bundle into mortgage-backed securities with a guarantee against losses from homeowner defaults. The two firms then sell these securities to investors, now including the Federal Reserve as part of its quantitative easing program. Banks and other lenders like the arrangement because they can readily sell loans to Fannie and Freddie and get cash to lend to yet again. The setup benefits home buyers through the greater availability of financing and lower interest rates as American families effectively tap into global financial markets for their mortgages.

There is a cost, however, borne by taxpayers. When the government took over the two firms in 2008, the Treasury Department promised to provide cash as needed to keep Fannie and Freddie afloat, effectively ensuring that the two firms’ $5 trillion in obligations will be honored (in addition to guarantees, that huge sum includes debt issued by the G.S.E.’s to finance their own purchases of mortgage-backed securities). Investors had long believed that the government would support the firms in a pinch, a belief that gave the G.S.E.’s an advantage over other financial firms.

Actions taken during the crisis turned the previously implicit government guarantee into an explicit one, at a cost to taxpayers that peaked at $189 billion at the end of 2012. American families at least got something from the bailout of Fannie and Freddie, as mortgages were available throughout the crisis even as other parts of credit markets experienced strains. The firms have paid some $132 billion in dividends to the government, but these funds do not get credited as paying down the taxpayer assistance. Moreover, the firms are not allowed to build up reserves with which to cover any potential future losses. Instead, the firms’ profits are swept to the Treasury, where they provide a temptation to Congress and the president as a means by which to pay for new government spending.

Fannie and Freddie today are linchpins of the nation’s housing finance system, providing guarantees on two-thirds of the mortgages originated in 2012. Together with agencies like the Federal Housing Administration, the government stands behind nearly 90 percent of new mortgages. Taxpayers are thus extraordinarily exposed to future housing-related losses.

Many who follow Fannie and Freddie had long warned that their problems posed a risk to the financial system. The imperative of housing finance reform is to devise a new system that protects taxpayers against another costly bailout while ensuring that American families have access to mortgages on reasonable terms.

Challenges With Reform

A key challenge in moving forward with reform is that bringing in private investors who take losses ahead of taxpayers will translate into higher mortgage interest rates, reflecting the compensation demanded by private investors to take on housing credit risk. Indeed, in the past, proponents of reform were sometimes derided as being “anti-housing” for supposedly wishing for higher interest rates. The crisis has mostly silenced this criticism, with broad agreement that reform must involve greater private capital to take losses ahead of any potential government backstop.

The Corker-Warner proposal requires investors to put at risk funds equal to 10 percent of the value of the mortgages included in mortgage-backed securities to be guaranteed by the government. The total losses of Fannie and Freddie during the crisis were equal to about 4 percent of the firms’ combined assets. The firms were shielded by homeowner down payments and by private mortgage insurance before they had to make good on their guaranteed securities, but the housing price collapse of more than 30 percent combined with concentrations of Fannie and Freddie’s risk in key bubble states such as Nevada combined to generate losses that wiped out the firms’ thin capital cushions of less than 1 percent of their assets.

With a 10 percent capital requirement, the firms would easily have made it through the worst housing cycle in recent memory. To be sure, a 10 percent capital requirement is not the same as the 100 percent in a fully private system. But a fully private system is neither feasible nor stable. By the standards of the recent housing debacle, the Corker-Warner legislation provides considerable protection for taxpayers.

Still, any government guarantee gives rise to moral hazard, since investors will naturally seek to obtain government backing on risky mortgages that provide a high private upside if the loan works out, and a loss for taxpayers if it does not. The Corker-Warner legislation creates an empowered regulator with a mandate to ensure that underwriting standards remain high. This is helpful, but not enough by itself — after all, regulators failed to prevent the previous bout of poor lending behavior.

An important insight, however, is that requiring substantial private capital to take losses ahead of the government guarantee helps to mitigate the moral hazard. This is because the investors with their funds at stake have a powerful incentive to enforce prudent underwriting. The presence of first-loss private capital thus brings market discipline to bear by aligning private interests with those of the government. This is exactly the point made by the Federal Reserve chairman, Ben S. Bernanke, in an April 2007 speech on financial regulation. The Corker-Warner proposal involves sufficient private capital to generate a meaningful incentive for prudence.

A further critique of the Corker-Warner approach is that the government inevitably will charge too little for its guarantee. Indeed, this would be in keeping with other government insurance offerings, such as the federal flood insurance program. In the first place, setting a price for the guarantee will be better than leaving it implicit and unpriced, as in a system that is notionally private until the crisis actually hits. Moreover, as reform brings in private capital and the government share of the housing market recedes from its current 90 percent, market-based mechanisms like auctions can be used to set the price of the government backstop.

Moving Forward

The policy debate over housing finance reform is a microcosm of the larger debate about the role of the government in society. A government guarantee lends stability and ensures that taxpayers can get mortgages across economic conditions, but puts taxpayers at risk in the event of the next housing downturn. The Corker-Warner proposal seeks a balance by ensuring that considerable private capital is at risk ahead of the guarantee.

Other possible outcomes for housing finance reform are to maintain the status quo in which Fannie and Freddie are controlled by the government and there is no private capital, or to move to a private system in which government involvement is limited to the small share of loans made with the involvement of agencies such as the Federal Housing Administration that work with targeted groups of borrowers.

Both of these alternatives are flawed. The current government-dominated system exposes taxpayers to needless risk and stifles the possibility of beneficial competition and innovation. Not moving forward with reform would lock in this unfortunate situation.

A move to a fully private system seems desirable, but it is difficult to see this as a stable outcome or one that actually protects taxpayers in the event of an inevitable future crisis. This is because the government will feel compelled to intervene in the face of any future housing market collapse, regardless of promises that the system was private. To do otherwise would be to countenance an economic catastrophe. A housing finance system that is notionally private would inadvertently recreate the key flaw of the past with an implicit, and uncompensated, guarantee.

Moreover, it is a political reality that legislation for a fully private system has scant chances. Delay in moving forward with a pragmatic reform maintains the current system in which there is a dominant government role with a full guarantee and no private capital. Holding out for the unattainable but theoretically perfect housing finance system thus cements in place the nationalized outcome least favored by proponents of a market-based approach.

White House delays health-care rule that businesses provide insurance to workers

The White House on Tuesday delayed for one year a requirement under the Affordable Care Act that businesses provide health insurance to employees, a fresh setback for President Obama’s landmark health-care overhaul as it enters a critical phase.

The provision, commonly known as the employer mandate, calls for businesses with 50 or more workers to provide affordable quality insurance to workers or pay a $2,000 fine per employee. Business groups had objected to the provision, which now will take effect in January 2015.

The decision comes as Obama is working to secure his domestic legacy, urging Congress to pass an overhaul of immigration laws and using his executive powers to combat climate change. With the prospects for immigration reform uncertain in the House ? and new environmental regulations still more than a year way ? implementation of the 2010 health-care law has singular importance.

The White House portrayed the delay as a common-sense step that would reduce financial and regulatory burdens on small businesses. Republicans, who are planning to target “Obamacare” in the 2014 midterm campaigns, said the delay is an acknowledgment that the health-care overhaul is flawed.

The decision will spare Obama what might have been a major distraction as officials begin to implement the centerpiece of the health-care law, which remains in place: a requirement, starting in 2014, that most Americans obtain insurance through their employer or through federally backed and state-backed marketplaces, known as exchanges.

The decision by Obama, who was on Air Force One returning from Africa on Tuesday when the announcement was made, to delay a controversial part of the law underscores his willingness to use the power of the executive branch to help to protect the legislation’s image at a defining moment.

“We believe we need to give employers more time to comply with the new rules,” Valerie Jarrett, a senior adviser to Obama, wrote in a blog post Tuesday evening. “This allows employers the time to .?.?. make any necessary adaptations to their health benefits while staying the course toward making health coverage more affordable and accessible for their workers.”

Republicans say they expect higher costs as a result of the law. House Speaker John A. Boehner (Ohio) said the decision “means even the Obama administration knows the ‘train wreck’ will only get worse.” He added, “This is a clear acknowledgment that the law is unworkable.”

Bob Kocher, a former top health-care aide to Obama, said he was disappointed by the delay because it will create uncertainty about what parts of the law will take effect. “It confuses people,” he said, adding that it “will undermine all the other rules because people will expect delay.”

The health-care law, which had been a source of confusion for years, is expected to have a bumpy rollout. The employer mandate would have added complexity.

Small businesses, many of which would have had to install systems to track and report which employees are receiving coverage, had been complaining about the difficulty of complying with the requirements, giving way to fears that companies might reduce their workforces to fall below the 50-worker threshold.

The decision comes as a result of years of bumps and setbacks for the overhaul, including legal challenges and political opposition that have hampered its implementation. Last summer, the Supreme Court upheld the law but struck down a mandatory expansion of Medicaid. State officials and businesses held off changing their policies through the 2012 presidential campaign because Obama’s GOP opponent, Mitt Romney, had promised to repeal the law.

Some populous states, including Florida and Texas, have decided not to set up exchanges, putting a far bigger burden on federal health officials to serve Americans. The exchanges are being designed to offer a variety of insurance plans; the federal insurance exchange is set to begin in less than three months.

Although the overhaul was passed in 2010, federal officials continue to issue clarifications to its language. Many of the rules critical to employers were issued this year, or remain in draft form. As a result, businesses have been scrambling to understand their obligations, said Larry Levitt, senior vice president of the Kaiser Family Foundation, a nonpartisan health think tank.

“When I talk to large companies, even though they already offer coverage they are still scrambling to understand the rules so they can comply,” he said. “Employers were feeling like they had to make these decisions under some amount of pressure, and this gives them a year to be more deliberative about it.”

A senior White House official said the administration’s decision goes beyond delaying the employer mandate. Officials also are working to simplify the depth of information that businesses will have to provide to the government about the coverage they offer.

The launch of the exchanges is a landmark moment in the overhaul, and White House officials have been warning that there will be rough spots. The White House hasn’t received the funding it requested to implement the law, and officials have expressed concern that Americans eligible for coverage won’t know how to get it.

Earlier this year, the administration said businesses that buy health plans for their workers through health exchanges would not have access to the full range of options in 2014, promising to have them in place a year later.

The decision to postpone the employer mandate is not expected to have a major impact on employees. Those workers who would have received coverage from their employers as a result of the law will now be expected to use the exchanges. Employees who cannot afford coverage on their own are eligible for federal subsidies.

The vast majority of businesses ? 96 percent, according to the White House ? have fewer than 50 employees and therefore are exempt from the mandate. And nearly all firms of 200 or more workers offer their employees some sort of coverage, according to the Kaiser Family Foundation.

“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” Mark J. Mazur, an assistant Treasury secretary, wrote in a blog post. “We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”

Mazur wrote that Treasury, which oversees part of the law, will issue more details about the delay within a week.

Several business groups praised the administration, saying the delay will give businesses time to adjust to the new requirements.

“This one year delay will provide employers and businesses more time to update their health care coverage without threat of arbitrary punishment,” Neil Trautwein, a top official with the National Retail Federation, said in a statement. “We appreciate the Administration’s recognition of employer concerns and hope it will allow for greater flexibility in the future.”

But others maintained that the provision will never be workable.

“Temporary relief is small consolation,” said Amanda Austin, director of federal public policy with the National Federation of Independent Business, which last year lost the landmark Supreme Court case challenging the law’s constitutionality.

Delayed employer mandate the latest change for increasingly unsteady health-care law

The Obama administration has postponed one of the fundamental provisions of the health-care reform law, responding to mounting concerns from business owners who would have been required to start providing health coverage to their employees next year.

On Tuesday evening, Treasury Department officials announced the government would not penalize businesses that fail to provide health insurance next year, delaying what is known as the “employer mandate” component of the law until 2015. Starting then, firms with more than 50 employees will be required to provide at least a minimum level coverage to their workers or pay a steep fine to the federal government.

Officials made the decision to push the requirement back after fielding a flood of complaints from business owners about its implementation.

“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” Mark Mazur, assistant secretary for tax policy, wrote in a blog post announcing the postponement, later adding that the administration plans to use the additional time to “consider ways to simplify the new reporting requirements” for business owners.

The newly delayed mandate has been a major point of contention for small business owners and lobbyists since it was approved as part of the Affordable Care Act in 2010. Many warned that it would cause administrative nightmares for small employers and discourage those near the cutline from expanding beyond 50 workers.

Meanwhile, some firms have started scaling back their payrolls to get underneath the cap.

“Small companies have told us they are confused by the law and are simply finding it difficult to comply with, no matter when it goes into effect,” Rep. Sam Graves, chairman of the House Small Business Committee, said in an email to The Washington Post. “Instead of providing relief for businesses, this simply kicks the can down the road.”

A White House official said the added time would help small business owners adapt to the changes, arguing that the law will still drive down prices for coverage on Main Street.

“This allows employers the time to .?.?. make any necessary adaptations to their health benefits while staying the course toward making health coverage more affordable and accessible for their workers,” Valerie Jarrett, an adviser to Obama, wrote in a blog post on Tuesday.

This latest delay is the most consequential in a series of setbacks for the president’s signature law, which has shown signs of fragility as the initial deadline for full implementation approaches at the end of the year.

In April, the administration announced it would delay for one year a key cost-cutting feature of the law’s new small business health insurance marketplaces. Initially, the exchanges were supposed to allow employers to choose different plans for different workers; now, for the first year, they must select only one plan from a single carrier for their entire business.

More recently, the Government Accountability Office announced that federal and state officials have fallen well behind schedule setting up the marketplaces, which are scheduled to open for enrollment in October.

“This is simply the latest evidence that implementation of this terrible law is going to be difficult if not impossible, and the burden is going to fall on the people who create American jobs,” Amanda Austin, director of federal public policy at the National Federation of Independent Business, said in a statement.

The NFIB, a small business lobbying group, has pushed back against the health care law since it was making its way through Congress, later spearheading an effort to repeal the legislation that ended at the hands of the Supreme Court. The group has since focused on repealing some of the provisions it considers most detrimental to businesses on Main Street, including the employer mandate and a new tax on insurers.

Instead of delayed, Austin argued the mandate should be eliminated altogether.

“Temporary relief is small consolation,” she said. “We need a permanent fix to this provision to provide long term relief for small employers.”

Follow On Small Business and J.D. Harrison .

Budget cuts trim federal wildfire spending

WASHINGTON (AP) — This year’s across-the-board budget cuts are slicing tens of millions of dollars from the federal government’s funds for battling wildfires, reductions that have meant fewer firefighters and could cause agencies to dip into other programs designed to prevent future blazes.

The U.S. Forest Service’s $2 billion-a-year firefighting budget, which comprises the bulk of the federal effort, has been reduced by 5 percent, a cut that has meant 500 fewer firefighters and 50 fewer fire engines than last year, agency officials say. The Interior Department’s $37.5 million reduction has meant 100 fewer seasonal firefighter positions and other lost jobs as well, department officials say.

The reductions come as officials brace for a wildfire season they say might rival last year’s, when about 9.3 million acres burned, one of the largest totals on record. The West in particular faces tinderbox conditions, which, combined with high winds, proved deadly last weekend when a wildfire killed 19 members of a firefighting crew outside Yarnell, Ariz.

"This reduces our capability and significantly constrains our work in fire response" and restoring land after fires, Interior Secretary Sally Jewell told the Senate Energy and Natural Resources Committee last month about the cuts.

So far, more than 22,000 wildfires have burned more than 1.5 million acres across the country, according to the government’s National Interagency Coordination Center in Boise, Idaho, which helps oversee federal firefighting efforts.

Together, the Interior Department and the Agriculture Department, which includes the Forest Service, have around 13,000 firefighters.

The across-the-board budget cuts – called the sequester – have affected most federal programs and are the product of a deficit-reduction stalemate between President Barack Obama and congressional Republicans. The budget reductions, which are scheduled to cut federal spending by $1.2 trillion over the coming decade, have forced many agencies to take steps, including putting thousands of workers on unpaid furloughs.

Congressional aides said that because of the sequester, the Fire Service’s suppression fund – which pays for overtime and other costs of fighting wildfires – has been cut from $538 million this year to $510 million. The service was also facing a $50 million cut in its fire preparedness budget, the fund used to hire firefighters and buy equipment.

The Interior Department, whose firefighting budget was $832 million before the sequester, was saving money from its reduced hiring of seasonal firefighters.

Many are being hired for shorter periods to save money, Jewell testified. Including the seasonal firefighters, the department will have 250 fewer positions in its fire programs, officials said.

When faced with emergency expenses for fighting wildfires that drain their funds, both agencies would draw money from other accounts in their budgets. From 2002 to 2012, the Fire Service transferred $2.7 billion from other programs to pay for fighting fires, $2.3 billion of which Congress eventually restored. That "still led to disruptions within all Forest Service programs," Thomas Tidwell, chief of the Forest Service, told the Senate Energy panel last month.

Agency officials and environmental groups say such transfers can be harmful over time. For example, getting money to fight fires by taking it from programs for removing hazardous fuels from dry areas can make it likelier that future wildfires will occur.

"When we have emergencies burning, the U.S. government will continue to spend money on firefighting, even if they don’t have the money," said Christopher Topik, director of the Restoring America’s Forests project for The Nature Conservancy, the environmental group. "So then they’ll take it out of these other kinds of accounts, which are the ones that actually reduce the risk. That’s what will end up happening, and that’s not a good policy."

Officials said the across-the-board cuts have had no direct impact on the 110 Hotshot crews around the country, the highly trained units based mostly in the West who respond to the worst wildfires. Most are financed and trained by the Fire Service and some by the Interior Department, but a handful – like the Arizona crew whose members died – are run locally.

"I don’t know of any Hotshot crew that’s been disbanded or not filled or been mothballed because of the sequester," said Tom Nichols, division chief for fire and aviation management of the National Park Service, a part of the Interior Department. "Because they really are our first line and our elite line for dealing with wildfires."

©2012 The Associated Press

Key federal student loan rate doubles

The interest rate on a key federal student loan doubled Monday, as expected, but it is unclear whether Congress will allow the increase to stand before the new school year gets under way.

Federal law has set the rate for new subsidized Stafford loans at 6.8 percent, up from 3.4 percent. The subsidy means that these loans, for undergraduates with demonstrated financial need, do not accrue interest while the students are in school. It is estimated that the rate hike would add about $1,000 in interest over the life of a loan for many borrowers.

Subsidized loans taken out before Monday are not affected. Nor are other federal loans to undergraduates, graduate students and parents.

More than 7 million students are projected to take out subsidized loans for the coming school year.

Lawmakers and President Obama sought to prevent the rate hike but were unable to reach an accord before Congress left Washington for its July 4 recess. The Republican-led House passed a bill in May to tie loan rates to the government’s cost of borrowing, but the administration criticized some of the provisions and threatened a veto. The Democratic-led Senate stalemated.

Like congressional Republicans and some Democrats, Obama has proposed tying loan rates to annual market benchmarks instead of the current practice, in which Congress fixes rates. But lawmakers have been unable to agree on the details of such a switch, such as rate caps and annual rate variability for individual loans.

Many congressional Democrats want to extend the fixed 3.4 percent rate for a year, echoing a measure enacted a year ago. The Senate is expected to vote July 10 on whether to take up such a bill, which would be retroactive to Monday. It is likely to face a Republican filibuster.

Experts say that Congress still has time to act before the rate hike ripples through the higher education system. But if Congress adjourns for its August recess without passing a bill, the impact on students will be significant.

They said the sequester would be scary. Mostly, they were wrong.

Before “sequestration” took effect, the Obama administration issued specific ? and alarming ? predictions about what it would bring. There would be one-hour waits at airport security. Four-hour waits at border crossings. Prison guards would be furloughed for 12 days. FBI agents, up to 14.

At the Pentagon, the military health program would be unable to pay its bills. The mayhem would extend even into the pantries of the neediest Americans: Around the country, 600,000 low-income women and children would be denied federal food aid.

But none of those things happened.

Sequestration did hit, on March 1. And since then, the $85 billion budget cut has caused real reductions in many federal programs that people depend on. But it has not produced what the Obama administration predicted: widespread breakdowns in crucial government services.

The Washington Post recently checked 48 of those dire predictions about sequestration’s impact. Just 11 have come true, and some effects are worse than forecast. But 24 predictions have not come to pass. In 13 cases, agencies said it is too soon to know.

So many predictions fell short because, in recent months, the administration and Congress did what was supposed to be impossible: They undid many of sequestration’s scariest reductions. In the process, this supposedly ironclad budget cut ? ostensibly immune to political maneuvering ? became a symbol that nothing in Washington is beyond politics.

In some cases, politicians transferred cuts from high-value programs to lower-value ones. Employee travel was limited. Maintenance deferred.

But in other cases, they found “cuts” that didn’t cause much real-world pain. The Justice Department, for instance, prevented furloughs by “cutting” $300 million in money that had already legally expired, as well as $45 million meant to house detainees who didn’t exist.

This is why the sky didn’t fall. Sequestration was intended to show there was no longer any escape from austerity in Washington.

There was.

“The dog barked. But it didn’t bite,” said Robert L. Bixby of the Concord Coalition, which pushes for fiscal responsibility in Washington. Bixby said he worries that this budget maneuvering will eventually backfire.

After all, sequestration is not finished, and another round of cuts is coming in October. “Next time you warn about those things, people just say, ‘Yeah, sure,’ and write it off as political hype,” Bixby said. “There is that danger.”

Sequestration had been drawn up as a “dumb” cut ? it would slash accounts at many federal agencies equally. There would be no gaming the system. No getting out.

It “won’t consider whether we’re cutting some bloated program that has outlived its usefulness or a vital service that Americans depend on every single day,” President Obama said on Feb. 19, decrying sequestration as a “meat-cleaver approach.” “It doesn’t make those distinctions.”

Now, however, it does.

The Post found enormous variation among the outcomes of those administration predictions. In 13 cases, the results were unclear. Almost four months after sequestration took effect, the agencies could not, or would not, say if their predictions were coming true.

In 11 cases, sequestration turned out to be as bad as advertised, or worse.

The Labor Department had predicted that emergency unemployment benefits for the long-term unemployed would be cut by 9.4 percent. But in some states, the reductions have been larger: 11 percent. For an individual, that could mean $450 less in benefits this year.

At the Pentagon, officials had predicted that they would reduce training for the Army, flying time for the Air Force and ship deployments for the Navy. They did all three. “It’s extremely hard to show a degradation in our readiness, although we feel it deeply across the force,” Pentagon spokeswoman Beth Robbins said.

Across the government, more than 125,000 employees have been furloughed from the Environmental Protection Agency, the Department of Housing and Urban Development, the Internal Revenue Service, and other agencies. About 650,000 Defense Department civilians will start taking 11 unpaid days next week. Public defenders are losing up to 15 days of pay.

In 24 cases, however, The Post’s review showed that the predictions were wrong ? sequestration had not lived up to the administration’s alarms.

That included some cases in which furloughs were threatened but then reduced or eliminated. Customs and Border Protection agents, for example, faced up to 14 unpaid days before the Department of Homeland Security shifted money around last month to avoid furloughs.

Administration officials say they didn’t exaggerate sequestration’s effects on purpose. They believed it would be that bad. But then they got unexpected help from Capitol Hill.

“Subsequent to those estimates, Congress took action that changed a number of things,” an administration official said. The official was made available by the administration on the condition that the official speak anonymously.

So this is how politicians took the scare out of the sequester: In some cases, agencies dug into their budgets and found millions they could spare. In other cases, Congress passed a law that allocated new funds or shifted money around. In others, lawmakers signed off on an agency’s proposal to “reprogram” its money.

In the process, the “meat cleaver” of sequestration often became a scalpel. It spared crucial programs but cut second-tier priorities such as maintenance, information technology, employee travel and scientific conferences.

At the U.S. Geological Survey, for instance, officials had said they would have to shut off 350 gauges that provide crucial predictions of impending floods. They didn’t. The real number is less than 90. What was cut instead?

For one thing, $2.7 million in conference expenses have been chopped since February.

“That’s where science gets done, at those meetings. That’s where you present your preliminary results,” said Jerad Bales, the agency’s chief scientist for water. One example: Bales said the government spends about $1,000 per scientist who goes to an annual conference in San Francisco.

Last time, it sent 469 scientists. The attendance for this fall’s conference has not been set, but Bales guessed it would be more like 350, for a cost of $350,000. “We are not investing in the future,” Bales said.

In other cases, however, budget maneuvers made sequestration even less painful. It wasn’t a cleaver. It wasn’t a scalpel. It was more like liposuction ? carefully removing the things that would be missed the least.

The Justice Department, for instance, cut more than $300 million in what it called “expired balances.” In essence, this was money that had been allocated to the department in past years but wasn’t spent. When those years ended, the money expired; without Congress’s permission, it generally couldn’t be spent on anything new.

But, with Congress’s permission, it could still be “cut.”

So, instead of saving money by furloughing FBI agents and prison guards, the department lost only what it wasn’t free to spend anyway.

“It really was a loophole that allowed the Justice Department to largely escape the consequences of sequester,” said Scott Lilly, a former congressional staffer who works at the liberal Center for American Progress. “It’s a good thing that they got past it. But it also sort of nixed this whole notion that everybody’s being treated the same ? and everybody’s having to tighten their belt in the same way.”

At the Federal Aviation Administration, Congress found a similarly painless cut. Furloughs were looming for air-traffic controllers. Travel delays were predicted to pile up.

But they didn’t. Congress prevented the furloughs by substituting another “cut.” It took $253 million from the FAA’s Airport Improvement Program, which gives grants to airports (among the longtime recipients: Lake Murray State Park Airport in Oklahoma, which was eligible for $150,000 per year, despite averaging one takeoff and one landing per week).

But the FAA’s loss wasn’t as bad as it sounds: The grantees that were entitled to this money had already told the government they didn’t need it this year. They didn’t have anything immediate to spend it on. The FAA might still, however, have given it to somebody else.

At the Department of Homeland Security, officials had predicted that there would be insufficient space to hold detained illegal immigrants. It was one of four Homeland Security predictions that didn’t come true; another one, about cutbacks at the Coast Guard, did.

What was cut instead? Some things that hurt: Maintenance. Employee bonuses. Hiring.

And some things that didn’t.

The department, for example, cut $7.8 million for a grant program that helped prepare for disasters. But it told Congress that this program had $36 million waiting in the bank, “neither dedicated to a project nor an activity.” And it said the program was duplicative, anyway. Other federal programs were already doing the same thing. “There is no impact from this reduction because of the duplication,” the department told Congress.

At smaller agencies, predictions also turned out to be wrong. U.S. Park Police officers were supposed to have 12 days of furloughs. They took three. The National Park Service found $4 million in savings in its budget.

It was, in sum, a remarkable disappearing act.

The Obama administration still gives credence to estimates that sequestration might cost the country up to 750,000 jobs. Research by Goldman Sachs has shown declines in federal payrolls and layoffs at defense contractors.

But sequestration has not become a daily hassle for most Americans, and its effects on the economy have been softened by a stronger job market and low interest rates.

“It was more the unquantified predictions of calamity by politicians that were wrong,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics, a research firm.

But now, the Obama administration will seek to make the threat of the sequester reappear. In October, when the new fiscal year begins, so will another round of sequestration. The administration expects a new, $109 billion cut.

This time, it says, there will be fewer ways to soften its impact. Many of the easier trims have already been made. The White House is again pressing Congress to agree on a broader budget deal, and replace the sequester entirely, before October comes.

The problem is, officials said all that before.

“Their credibility ? I don’t want to say it’s shot, but it’s definitely diminished,” said Rep. Jeff Duncan (R-S.C.), who chairs a House subcommittee that has oversight over Homeland Security and has examined its sequestration predictions. “They’re going to have a hard time doing that, when they had the doomsday scenario, and the sky didn’t fall.”

Gay marriage ruling will help many veteran spouses

WASHINGTON (AP) — For Stewart Bornhoft, who completed two tours of duty in Vietnam, the Supreme Court’s decision granting federal benefits to married, same-sex couples means that he and his spouse, Stephen McNabb, can one day be buried together at Arlington National Cemetery.

For Joan Darrah, who served nearly 30 years in the Navy and lived through the 9/11 attack on the Pentagon, the decision means her spouse, Lynne Kennedy, can join her more generous, less expensive health plan.

Just two years ago, gays and lesbians were prevented from serving openly in the military. Now, with the Supreme Court ruling this week, same-sex spouses of gay veterans and service members will be able to share in their benefits.

The Williams Institute, a think tank at the UCLA School of Law, reports that 650,000 same-sex couples live in the United States and about 13 percent of those relationships include a veteran. The institute said it’s unknown how many of those estimated 85,000 relationships involve marriages. A dozen states and the District of Columbia allow for gay marriage.

Same-sex spouses of military veterans now will be able to get help with college tuition and can be buried in a national cemetery. They also can get a monthly indemnity payment that compensates them for the death of the veteran. Meanwhile, veterans receive enhanced disability compensation for their injuries if they’re married, generally amounting to several thousands of dollars over the course of a lifetime.

But under the Defense of Marriage Act and the law covering Veterans Administration benefits, such extra assistance was unavailable to veterans who were part of a same-sex marriage. That all changed with the Supreme Court ruling Wednesday.

President Barack Obama said he’s directed Attorney General Eric Holder to work with all members of the Cabinet to ensure that changes to benefits are implemented swiftly and smoothly.

David McKean, legal director at Outserve-SLDN, which provides legal counsel to gay and lesbian service members and veterans, said Congress may need to update the statute governing VA benefits because it stipulates that marriages are valid only if they are viewed as such by the state where the veteran lives. That means the current VA statute doesn’t recognize as valid a marriage that takes place between two residents of, say, Texas or Florida, even if the veteran has a marriage certificate from Massachusetts or Vermont.

Sen. Jeanne Shaheen, D-N.H., has introduced legislation that would liberalize the definition of spouse to include anyone whose marriage is considered valid in the state where it occurred.

After the court’s decision, Shaheen wrote letters to Defense Secretary Chuck Hagel and Veterans Affairs Secretary Eric Shinseki saying she hoped policies that “discriminate against loving, same-sex couples will no longer be enforced.”

“The sooner people can access benefits that should be available to them, the better for them and their families,” she said.

Testifying last month at a Senate hearing, the VA said it supported exempting the department from the Defense of Marriage Act, and that it supported the Shaheen bill.

Sen. Bernie Sanders, I-Vt., the chairman of the Senate Veterans’ Affairs Committee, said the panel would take up Shaheen’s bill next month if the VA cannot act on the Supreme Court’s decision without congressional legislation. “The ruling means that all men and women who served our country and their families must be treated fairly and equally,” Sanders said.

But Rep. Jeff Miller, R-Fla., the chairman of the House Veterans’ Affairs Committee, said he’s waiting for an analysis from the VA to determine how it will comply with the court’s ruling.

“Until VA’s review is complete, any talk of legislative actions in response to the Supreme Court’s ruling is premature,” he said.

Josh Taylor, a VA spokesman, said the department was reviewing relevant statutes and would try to implement any changes to benefits for veterans “swiftly and smoothly.”

In the days leading up to the Supreme Court’s decision, Bornhoft said he felt the nation he had served for 26 years was discriminating against him.

“There is not equal treatment. There is not equal protection. There is not equal support,” said Bornhoft, a resident of Bonita, Calif., who served in the Army and graduated from West Point in 1969.

After the ruling, Bornhoft said he wanted to read the ruling’s fine print before celebrating.

“I’m obviously in no hurry to get planted at Arlington Cemetery, but it’s very comforting to know that eventually Stephen could be there by my side, as he has been in life,” Bornhoft said.

Darrah, a resident of Alexandria, Va., said it’s been stunning to watch the country move from the “Don’t ask, don’t tell” policy on gays and lesbians serving in the military to having her marriage recognized, all in less than two years. She, too, hopes one day to be buried at Arlington with her spouse.

“Change is never fast enough, but I’m dumbfounded with how quickly the country has moved,” Darrah said. “I wanted it to happen. I never thought it could happen.”

Major veterans groups have been largely silent on the issue of extending benefits to married, same-sex veterans. One exception was Iraq and Afghanistan Veterans of America, which applauded the Supreme Court’s decision.

Earlier this year, Shinseki approved the first burial of a same-sex spouse of a veteran in a national cemetery, but officials emphasized at the time the decision didn’t establish a precedent or policy. Rather, Shinseki used his discretion as secretary to approve a specific veteran’s request based on a showing of a committed relationship.

One of Leon Panetta’s final acts as defense secretary was extending certain benefits not covered through DOMA, such as access to on-base commissaries.

The financial gain from the Supreme Court’s decision could be significant for some veterans. For example, a veteran considered 100 percent disabled gets VA compensation amounting to $2,816 a month. A similarly disabled veteran with a spouse gets $2,973 – a difference of nearly $1,900 annually. In another example, a spouse of a veteran who died as a result of injuries or illness incurred while on active duty is eligible to receive at least $1,195 a month in indemnity compensation.

Under the Post-9/11 GI Bill, veterans can transfer to their spouse or children their unused educational benefits. The VA will pay the in-state tuition rates and fees for veterans attending public schools and up to $17,500 for veterans attending private schools.

©2012 The Associated Press

House Democrats’ Online Fundraising Shoots Up Ahead Of 2014 Elections

WASHINGTON — Worried about the budgets proposed by Rep. Paul Ryan (R-Wis.)? Don’t like what Rep. Michele Bachmann (R-Minn.) has to say about anything? Concerned about election spending by the billionaire Koch brothers and oil companies? House Democrats have the answer: Vent your distaste by sending them $5, $10 or $25.

Using partisan appeals to its base, the Democratic Congressional Campaign Committee has seen its online fundraising from small donors skyrocket in recent years. According to the DCCC’s digital director, its online giving — which averages $20 per donation — has jumped from $9 million in 2008 to $49 million in 2012. The committee is on pace to break its record from the last electoral cycle, having raised $7.3 million from 400,000 online donations in the first five months of the year compared to $2.9 million in the same period of 2011 from 100,000 donations.

The online program’s success is the main reason that total DCCC fundraising is up $6.7 million over last cycle through the first five months. Online donations account for $4.4 million of that increase, while contributions over $30,000 have risen by just $1.3 million from the last cycle.

The chief drivers of the House Democrats’ Internet money machine are an enhanced digital team working with a massive list built largely over the last election cycle, a growing social media presence and — most important of all, according to DCCC staff — the actions of the House Republican majority.

Digital director Brandon English described the DCCC’s primary online funding appeal: “For us, it’s sort of mostly watching what [House Republicans] are doing on the Hill and providing our supporters with an outlet to fight back and defeat these guys or give them a hard time for some of these crazy votes that they’re taking in Congress.”

This means blasting the email list and messaging to the committee’s 1 million Facebook friends and 70,000-plus Twitter followers when Republicans tackle issues like Medicare, Social Security and women’s rights or when Republicans say something that could offend Democrats.

The DCCC’s biggest online fundraising days, according to English, have come after Ryan’s speech accepting the GOP vice presidential nomination at last year’s Republican National Convention, when a House committee refused to hear testimony from Sandra Fluke on birth control, and following the passage of Ryan’s 2013 federal budget.

The National Republican Congressional Committee deploys similar partisan messaging to help raise money online, although its numbers lag those of the Democrats. The NRCC says that its top performing email in recent months was one from House Majority Leader Eric Cantor (R-Va.) calling for contributions to “make sure Nancy Pelosi will never again be Speaker of the House.”

The NRCC is expanding its digital team this electoral cycle and will be investing more money and time into building bigger contact lists.

“The NRCC’s Digital Team focuses on two things: 1) acquire assets to raise money and 2) improve our Patriot and Young Guns online operations,” the committee’s digital director, Gerrit Lansing, said in an email. “We’re spending significant resources this cycle to acquire enough assets to compete with anyone. In addition, we’ve tripled the size of our digital team to help our candidates and members be successful online.â€?

The strategies of both party committees follow the successful tactics of Congress’ most partisan members in soliciting money online from small donors. Reps. Bachmann, Alan Grayson (D-Fla.) and Joe Wilson (R-S.C.), as well as former Rep. Allen West (R-Fla.), have all used their own statements, often inflammatory, or the actions of their opposition to tap into partisan discontent to raise money.

For the party committees, however, money is just one benefit of online interaction. The DCCC uses data collected from Internet donors and those who respond to emails and online petitions to determine which of their supporters might also volunteer their time for House Democrats.

“If you’re the kind of person who gives $5 or $10, you’re definitely more likely to be the kind of person going out knocking on doors and making phone calls,” English said.

The committee is also working to expand its mobile program to even more directly activate volunteers, get out the vote and raise money.

“Email is great for reaching out to folks, but ultimately if you get a text message, you’re going to open it,” English said. “The open rate on text messages is going to be over 90 percent, so especially for volunteers and for GOTV [get-out-the-vote efforts], for the folks that you really want to make sure that you are connecting with, that they’re seeing your message, mobile is the way to do it.”

GOTV, especially through mobile means, looks to be one of the biggest growth areas for the DCCC digital team as they seek to boost the turnout of major Democratic constituencies, including young adults, minorities and single women, who tend to vote at a much lower rate in midterm elections.

“2014 is just going to be so important in terms of turnout, and reaching folks in as many channels as possible is going to be very important,” English said. “What we’ve seen in all of our testing out there is that the more networks and the more places you can make that connection with folks, the better.”

Congress contemplating small tweaks to help small businesses weather health care reform

An effort to repeal a tax on insurance companies in the new healthcare reform law is gaining momentum in Congress, fueled by concerns that the fee would hit small businesses particularly hard.

The legislation would eliminate a fee on health insurance companies scheduled to take effect when the law goes into full effect next year. The fee, commonly referred to as the health insurance tax (HIT tax), will be calculated based on the plans insurers sell directly to individuals and companies, known as the fully insured market, and excludes plans set up and managed by firms themselves, called the self-insured market.

Most large companies self-insure their employees; consequently, experts warn that insurance firms will pass the added costs of collecting the fee to small businesses, which tend to purchase coverage in the fully insured market.

“It’s pretty straightforward, what’s going to happen, that the tax is going to be passed along,” Rep. Jim Matheson (D-Utah) said in an interview, noting that insurance agents and underwriters have told him as much. “It isn’t really taxing the insurance companies, it’s taxing the people paying the premiums, and in this case, that’s small business owners.”

Matheson is among a handful of Democrats who have thrown their support behind legislation repealing the HIT tax, joining nearly every Republican in the House. Recently, the bill, H.R. 763, hit the 218-cosponsor mark, enough to secure its passage in the lower chamber; the tally has since increased to 221.

Sam Graves (R-Mo.) credited the bill’s momentum to concerns voiced by small business owners, including many who have testified during hearings before the House Small Business Committee, over which he presides.

“We keep hearing that from small businesses; that they’re premiums keep going up, keep going up, and now this thing’s coming along, and they’re going to go up even more,” Graves said. “That’s the reason you’re hearing so much about this tax and why you’re seeing such bipartisan efforts to repeal it.”

However, those efforts are flying against the political headwinds on the Hill, where lawmakers on both sides of the aisle have shied away from proposals to tweak the health care law, but for different reasons.

In many cases, Democrats are hesitant to admit the law is not perfect. Some fear they will “open a can of worms” if they acknowledge potential problems and pursue targeted solutions, Matheson said.

Meanwhile, Republicans stand to gain politically if the law many oppose fails, which has deterred most from seeking anything less than full repeal.

But that has not deterred small business lobbyists from pursuing small fixes, and they are starting to see signs of progress. For instance, Sens. Susan Collins (R-Maine) and Joe Donnelly (D-Ind.) last week introduced legislation that would change the health care law’s definition of full-time employee from 30-hour workers to 40-hour workers, a move intended to keep labor laws more consistent for businesses.

“It makes sense to change this,” Donnelly told Post reporter Sarah Kliff. “From Maine to California, every business agrees a workweek is 40 hours. What we’re trying to do is reflect the common sense we have on this in America.”

Supporters of the bill include the National Federation of Independent Business. The small business lobbying group led an effort to repeal the law last year and (when that failed at the hands of the Supreme Court) later zeroed in on the health insurance tax and employer mandate provisions.

“Small business owners would appreciate any type of relief that we can get moving forward on some of these provisions in the law,” Amanda Austin, NFIB’s director of federal public policy, said in an interview. “It’s definitely a challenge from a political standpoint, but these small tweaks could make a big impact.”

Austin says the HIT tax repeal “is now teed up” for a serious debate in the fall, once lawmakers have completed work on immigration reform and other issues taking precedent right now in Washington.

Its biggest hurdle, though, may be finding ways to make up for revenue the health insurance tax was intended to generate for Obamacare. H.R. 763 would simply repeal the fee; it makes no mention of how to offset the losses, which the Congressional Budget Office estimates at $101 billion over 10 years.

“I’m not going to lie, that’s going to be a serious challenge,” Austin said, noting that her group is taking the offset discussions “very seriously.”

If proponents can find the revenue elsewhere, Matheson says there is reason to believe the bill can continue to gain supporters on the Hill.

“On a law of this magnitude, you know everything wasn’t done correctly and there are some tweaks that are going to have to happen,” Matheson said. “On a few of these issues, there’s a growing sense that some changes would be supported by a large group of people in Congress.”

Follow On Small Business and J.D. Harrison .

Small business owners support Obama’s clean energy and environmental policies, poll shows

Most small business owners support some of the climate control and clean energy plans outlined this week by the Obama administration, according to a poll released Thursday.

More than three-fourths (79 percent) of small employers think the the government should set a national goal to increase energy efficiency by half over the next decade, and nearly twice as many believe government incentives for clean energy innovation should be a high or top priority than believe they should be a low or non-priority.

The results are part of a report released by the American Sustainable Business Council, a business advocacy and research organization. David Levine, the group’s chief executive, noted that most of the responses did not vary based on respondents’ political persuasions.

“Small business owners across the country and across the political spectrum believe that clean energy makes sense not only for the environment, but it makes good business sense, too,” Levine said in an interview. “There’s a recognition that these clean energy policies really are better for their financial bottom lines.”

During a speech in Washington on Tuesday, Obama announced several ambitious proposals aimed at reversing recent climate changes and making the country more self-sufficient. Most notably, he ordered the Environmental Protection Agency to limit carbon dioxide emissions for coal- and gas-powered utilities by 2015.

“I refuse to condemn your generation and future generations to a planet that’s beyond fixing,” Obama told students during the event at Georgetown University.

Small business owners support that objective, too. Nearly two-thirds think the EPA should cap emissions in existing power plants, including 86 percent of Democrats and 54 percent of Republicans.

More than half of employers believe the government should also encourage banks to consider environmental criteria when evaluating loan applications and investment opportunities, according to the poll, which was based on 515 responses from employers with fewer than 100 employees. Sixty-three percent support a government mandate that would require 20 percent of electricity to be generated from sustainable energy sources.

It’s a slightly surprising stance from a group that is often considered purely anti-regulations and anti-government involvement, but one small business owner noted that these rules would mainly affect large energy and electricity producers, not firms on Main Street.

Susan Labandibar, president of Tech Networks of Boston in South Boston, Mass., added that devastation from recent natural disasters, including Hurricane Sandy and the twisters in the Midwest, has probably prompted some small employers to take climate shifts more seriously.

“Small businesses are uniquely vulnerable to severe weather events, and there has been a huge amount of disruption from some of these storms,” Labandibar said, noting that her own firm was hit hard by Sandy.

Meanwhile, Levine says the overarching “businesses-hate-regulations” notion has been fueled by policy discussions that have more to do with political sparring than reviving the economy.

“This shows that, when you ask some of these questions outside of the political arena, you get a different take than what you hear in Congress,” he said. “We need to change the dialogue in Washington, and get away from party-line rhetoric and talk more about what’s actually good for business and what’s actually good for the economy.”

Follow On Small Business and J.D. Harrison .

John Boehner Sticks With Tough Path For Immigration In House

WASHINGTON — The Senate may have passed a long-awaited bipartisan overhaul of the immigration system Thursday, but House Speaker John Boehner stood by his plan to set an exceptionally difficult path for a similar measure to succeed in his chamber.

“The House is not going to take up and vote on whatever the Senate passes,” Boehner (R-Ohio) told reporters, speaking shortly before the Senate bill passed. “We’re going to do our own bill, through regular order.”

Not only will that legislation have to go through the entire committee process in the House, whatever emerges will have to meet the “Hastert rule,” named after former Speaker Denny Hastert (R-Ill.), which says the majority of the party in control of the House must back a given measure for it to receive a vote by the full chamber.

“For any legislation, including a conference report, to pass the House, it’s going to have to be a bill that has the support of a majority of our members,” Boehner said, referring to the members of the Republican caucus.

GOP opponents of the Senate bill said there was no way that bill would make it in the House.

“I doubt this bill can [pass in the House], but hopefully the issue can,” Sen. Saxby Chambliss (R-Ga.) told HuffPost.

“I also don’t think this is a bill that will pass the House of Representatives,” Sen. Roy Blunt (R-Mo.) predicted on the Senate floor.

Republican senators who back the bill were also not confident of its chances in the other chamber.

“Speaker Boehner has a tough job,” said Sen. Bob Corker (R-Tenn.), declining to guess if a majority of Republican House members would get on board.

“We’ll see,” said Sen. Lindsey Graham (R-S.C.), though he did argue that it was in the GOP caucus’ interest to act.

“I’m very pleased, thankful — got a long way to go,” Graham said. “I think a lot of folks in the House will have a different view of this bill, but understand that you’re not going to put everybody in jail, and self-deportation is not practical.”

He was referring to staunch opposition on the right to any pathway to citizenship for undocumented immigrants, including any measures that allow them to be legalized while remaining in the country.

Boehner declined to give his own position on a pathway to citizenship, but said his caucus would meet July 10 to hash out a plan going forward.

In the meantime, he said, individual committees would keep working on separate parts of an overall reform — a piecemeal approach that reform proponent Sen. John McCain (R-Ariz.) has warned will fail.

This story has been updated to reflect passage of the bill in the Senate.

Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.

Administration says it will press to provide marriage benefits in all states

President Obama signaled Thursday that his administration would extend federal benefits to gay couples living in states that don’t recognize their marriages, a relief for advocates left with a thicket of uncertainty a day after their historic Supreme Court victory.

The president said the government should define marriage based on where a couple weds and not necessarily where they live ? a definition of wedlock that’s essential to how the administration will implement the court’s decision Wednesday to strike a key provision of the federal Defense of Marriage Act.

“It’s my personal belief ? but I’m speaking now as a president as opposed to as a lawyer ? that if you’ve been married in Massachusetts and you move someplace else, you’re still married, and that under federal law you should be able to obtain the benefits of any lawfully married couple,” Obama told reporters at a news conference in Dakar, Senegal, on a trip to sub-Saharan Africa.

The president called the ruling a “victory for American democracy” and said he has directed his administration to “comb through every statute” to ensure that gay couples receive federal benefits for which they are now eligible.

The task is already proving daunting.

As jubilant same-sex couples scrambled to call attorneys and agencies and scour the Internet about new rights, officials across the government continued reviewing the 1,110 federal rights, benefits and obligations that marriage confers.

They range from Social Security and pension benefits to green cards for spouses who are not citizens. All but two are regulations the administration can change without congressional action. Social Security and veterans’ benefits are the two exceptions that may require Congress to make the legal changes to ensure that married same-sex couples get the benefits of those programs.

A White House official said the process will take time, but benefits for same-sex couples will come on a rolling basis.

But since the court stopped short of ruling that the right to marry must be extended to same-sex couples no matter where they live, state lines still determine who is legally married and who is not. And that’s where much is left for the Obama administration to interpret ? and opponents of same-sex marriage to contest.

Thirty-seven states do not allow same-sex unions. Virtually every federal agency has a different standard for how it defines marriage, whether based on the place a couple weds or where they live. Some agencies do not address either definition, such as the Office of Personnel Management, which makes policy on benefits for 2 million federal employees.

The federal employee retirement law, for example, defines a marriage for retirement benefit purposes as one recognized in the jurisdiction “with the most significant interest in the marital status” of the individual, unless that law is contrary to federal policy, according to the Congressional Research Service.

A decision on which state has the “most significant interest” likely would take into account where the employee lived while working and during retirement, and where the person eventually died. Also taken into consideration would be where the couple had financial assets and where the surviving spouse lives, personnel experts say.

Some issues are more clear-cut. For example, once the ruling takes effect, gays will be able to apply for green cards for their foreign-born spouses. Under immigration law, marriages are considered valid if they were legal where they were performed.

But most others are not.

“You could have federal employees in D.C. getting all the benefits of marriage,” said Fred Sainz of the Human Rights Campaign, a gay rights advocacy group. “Legally, across the river in Arlington [County], they would not get them.”

Sainz called the president’s comments Thursday an “in­cred­ibly encouraging” sign to resolving the murkiness.

“We are literally sitting on pins and needles waiting on guidance from the administration on how the court’s decision will be put into practice.”

As with immigration, the Pentagon defines marriage based on the place of celebration. Defense Secretary Chuck Hagel said the military will extend to same-sex couples medical and dental care, access to base housing and commissaries and other benefits, including the right to a burial at Arlington National Cemetery.

But for Defense Department civilians, who are covered by OPM’s murkier definition of marriage, these benefits are not as cut-and-dried.

Hagel said there is no estimate yet on how much it will cost to make the changes mandated by the ruling. “But make no mistake, it will be implemented in its entirety,” he told reporters.

Defense officials said they have launched an effort to update systems for issuing identification cards for same-sex spouses, but estimate that it will take six to 12 weeks to complete.

Stephen Peters, president of the American Military Partner Association, said some same-sex military couples now in domestic partnerships are planning to travel to states where gay marriage is legal and get married to qualify for benefits.

Shannon Simpson, who married Army 1st Lt. Ellen Schick at the U.S. Military Academy at West Point in November, said the couple are already examining what steps they will need to take to get access to the same benefits provided opposite-sex couples.

“We were looking at some of that material last night, trying to figure out what kind of paperwork I’ll have to file,” said Simpson, 26.

Simpson, who lives off-post with her spouse, will also have access to the Keller Army Community Hospital on the West Point campus where Schick, a registered nurse, is assigned.

“There’ve been times I’ve gotten ill and we’ve had to drive 45 minutes over a mountain to get to an urgent-care clinic, and thinking the whole time that this is ridiculous that we can’t drive five minutes to the hospital where she works,” Simpson said.

Questions remain about how the Supreme Court decision will affect taxes and tax filings for same-sex couples. Currently, federal law treats them differently depending upon whether their states recognize same-sex marriage and whether the couple owns property.

“We had to find special accountants who knew how to do it,” said California resident Karen Golinski, a federal attorney. “I don’t think most people understand how difficult life can be when the law doesn’t treat you the same as everyone else.”

Suzanne Artis, who lives in Connecticut with her same-sex spouse, said the ruling “feels a little unfinished.”

“The result was great, but I’m looking forward to closure ? complete closure.”

Some conservative leaders who oppose the court’s ruling said Thursday that Obama may be treading on shaky legal ground by redefining marriage in states that have made it clear they do not support gay marriage.

“We would support a narrower interpretation that would only apply to the state of domicile,” said Peter Sprigg, senior fellow at the Family Research Council, which filed a friend-of-the-court brief in support of DOMA.

“If we now say the same-sex couples will be recognized as married even where states don’t allow it, you would have inconsistent benefits,” he said. “You would have to file two tax returns, federal and state, according to different laws.”

Sprigg acknowledged that a legal challenge if the federal government extends benefits to states that don’t recognize gay marriage could be tricky:

“The challenge would be to figure out who suffers harm from that recognition,” he said.

Josh Hicks contributed to this report.

Student loan rate likely to double on Monday, but lawmakers hope to reverse hike

Lawmakers acknowledge that the rate on a low-interest federal loan for millions of college students in financial need is likely to double on Monday because of a congressional stalemate over how to stop that from happening.

But Democratic senators said Thursday that the rate hike on new subsidized Stafford loans ? to 6.8 percent from the current 3.4 percent ? will be temporary and reversible.

Sen. Debbie Stabenow (D-Mich.) said the Democratic-led Senate is expected to vote July 10 on whether to take up a bill that would fix the rate for such loans at 3.4 percent for a year, retroactive to Monday.

“We’re going to keep at it until we get this done,” Stabenow said, adding that “the White House is completely in support of what we are doing.”

Whether the bill that Stabenow and 34 other Democrats are sponsoring will succeed is unclear. The Senate has been in a logjam on student loans for weeks ahead of the rate-doubling deadline that was set a year ago.

On June 6, a motion to proceed to a similar Democratic bill, which proposed a two-year extension of the 3.4 percent rate, drew 51 votes of support, well short of the 60 required to overcome a Republican filibuster. That day, a motion to proceed to a Republican bill establishing market-based rates on various types of student and parent loans died on a vote of 40 to 57.

On May 23, the Republican-led House approved a bill largely on party lines that would tie interest rates to the government’s cost of borrowing. The House bill was forecast to produce an interest rate of less than 5 percent on Stafford loans for the coming academic year. The rate on individual Stafford loans under the House bill would vary from year to year with the rise and fall of the yield of the 10-year Treasury note but would be capped at 8.5 percent.

The Obama administration threatened a veto of the House bill, saying that its variable-rate system would produce too much uncertainty for students and parents.

Rep. John Kline (R-Minn.), chairman of the House Education and the Workforce Committee, said Saturday in the weekly Republican radio address that the House has done its part to solve the problem.

“We’re in this predicament because politicians put themselves in charge of setting interest rates, guaranteeing exactly this type of down-to-the-wire uncertainty for students and their families,” Kline said. “What we need is a long-term solution that gets Washington out of the business of setting rates altogether.”

Kline said in an interview that he is optimistic about prospects for a deal, citing a bipartisan plan for market-based rates that emerged this week with support from Sens. Joe Manchin (D-W.Va.), Lamar Alexander (R-Tenn.) and others. “There’s a lot of room here for a possible agreement,” Kline said.

President Obama also has offered a market-based approach. Under his budget, made public in April, all federal education loans would be pegged each year to the yield on the 10-year Treasury note. Unlike the House bill, the Obama plan would lock the interest rate once a given student or parent takes out a loan. But the Obama plan drew criticism from some student advocates because it had no rate cap.

Last year, when Congress faced a similar issue, it froze the subsidized Stafford rate for a year at the urging of Obama and Republican presidential candidate Mitt Romney. But student loan policy has drawn less attention this year now that the presidential election is over.