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OVERNIGHT MONEY: China's VP Xi in Washington for round of high-level meetings
TUESDAY'S BIG STORY:
Washington welcomes Xi: Chinese Vice President Xi Jinping, who is expected to take over leadership of China in March 2013, will begin a long day of meetings on Tuesday with President Obama, Vice President Biden and most of the president's Cabinet, including Secretary of State Hillary Clinton and Defense Secretary Leon Panetta.
No major policy decisions are expected during the week-long visit — a reciprocal trip following Biden's tour of China in August — although discussion of key issues will continue regarding a broad range of economic and trade issues as U.S. and Chinese officials work improve their sometimes tense relationship.
As Xi arrived in Washington on Monday, Sen. Sherrod Brown (D-Ohio) sent a letter over the weekend to the White House calling for stronger enforcement of trade laws with China.
"The White House must take seriously its commitment to protecting American manufacturers and American jobs by standing up to China’s unfair and flagrantly illegal trade practices," Brown wrote.
In the letter, Brown asks the administration to take up a variety of trade issues, including currency, rare-earth materials, state-owned enterprises, indigenous innovation, intellectual property theft, labor rights, export credit agencies and the evasion and circumvention of antidumping and countervailing duties.
“China is one of the United States’ largest trading partners — and one of the biggest violators of international trade laws," he wrote.
He acknowledged that this and previous administrations haven't been willing to push China harder on accelerating their currency.
"More must be done as China has taken numerous actions that nullify and impair its WTO commitments," he wrote.
Congressional lawmakers who are bearing down on the Obama administration to get tough on China's currency, intellectual property and indigenous innovation issues they say give one of the world's fastest growing economies an unfair international trade advantage.
On Friday, Daniel Russel, senior director for Asian affairs and the White House's top expert on China, said "there are elements of competition and elements of cooperation in the relationship."
"We are building up areas of cooperation, we're dealing consistently and directly with our differences, and we're managing problems," he said.
"As the president has articulated frequently, we welcome the rise of China at the same time that we insist that China adhere to accepted rules and norms of regional and global economic and security behavior."
WHAT ELSE TO WATCH FOR
It's only just begun: The chaos of budget week doesn't miss a beat, with a series of hearings on Tuesday as Obama administration officials detail the fiscal 2013 budget request that hit Capitol Hill on Monday with a loud thud.
On Tuesday, Jeffrey Zients, acting director and deputy director for management for the Office of Management and Budget, testifies at the Senate Budget Committee while Treasury Secretary Timothy Geithner sits down with the Senate Finance Committee.
The Senate Armed Services Committee hears from Defense Secretary Leon Panetta and Chairman of the Joint Chiefs of Staff Gen. Martin Dempsey.
Expect Zients to get shelled by Budget ranking member Jeff Sessions (R-Ala.) on the deficit and projected reductions at the hearing. Sessions joined other Republicans on Monday in calling President Obama's budget a gimmick-laden proposal that fails to lay out a plan for the nation's fiscal health.
Geithner is expected to face questions about tax proposals in the budget, which outlines both changes to the current code and principles for a tax code overhaul later. The White House promises to release a long-awaited corporate tax code plan by the end of February, possibly as early as this week.
Panetta will be blasted by Sen. John McCain (R-Ariz.) and others for the fact that automatic cuts to defense spending triggered by the supercommittee are replaced by tax increases in the Obama budget. Members of both parties on the panel are upset about its call for base closures in 2013.
The officials also will likely be asked about economic forecasts in the Obama budget. Rosier economic numbers tend to drive up revenue totals in a budget while driving down safety net spending.
The Obama budget projects 3 percent growth in gross domestic product in 2013, compared with 1 percent growth forecast by the Congressional Budget Office. Council of Economic Advisers Chairman Alan Krueger said Monday that the Obama figures assume adoption of a stimulus package and that tax increases on the middle class are avoided.
He also said that the unemployment forecast for 2012, put at 8.9 percent in the budget, is completely “stale” and would be revised downward if the budget were written today. The assumptions in the budget were set in stone in November.
Screeching halt: House Rules is scheduled on Tuesday to consider the major Republican transportation bill, which has drawn fire from both the left and right and is seen as no slam dunk to make its way through the House. (And don't even get us started on the Senate). It's not likely the bill will get a ticket to ride too far beyond the House, even if it passes.
Speaking of the Senate: Sens. Jon Tester (D-Mont.) and David Vitter (R-La.) are scheduled to hold a news conference on efforts to reauthorize the National Flood Insurance Program (NFIP). The legislation extends NFIP for five years and includes a provision vigorously opposed by State Farm insurance but supported by others in the industry. The NFIP extension was included because the GOP believes it reduces the deficit by $5 billion.
The House payroll tax cut bill late last year included a five-year NFIP reauthorization.
BREAKING NEWS
Sorry, we need to break up: House Republicans did some decoupling on Monday — the eve of Valentine's Day — saying they would offer a measure to extend the current payroll tax cut for the rest of the year without demanding an offset, separating the proposal from a Medicare "doc fix" and unemployment benefits — an idea they were pooh-poohing just last week.
Extending the tax break without an offset would add some $100 billion to the deficit, at a time that Republicans are slamming President Obama's latest budget for its lack of fiscal discipline.
Republicans and Democrats on Capitol Hill had been hashing out how to pay for not only the payroll tax break, but also emergency unemployment benefits and the Medicare doc fix. Those last two items would cost around roughly $60 billion, and Democrats and Republicans have been exchanging offers on how to offset those costs.
House GOP leaders said Monday that they were forced into their move by Democrats, who were stonewalling the negotiations over pay-fors.
"This is not our first choice," the top three House Republicans said in a statement.
For their part, Democrats didn't exactly leap to embrace the GOP proposal, though they did call it a sign that their party still held the upper hand on payroll tax negotiations following the Republican cave of last year.
"This is a major step forward in these negotiations," Sen. Charles Schumer (D-N.Y.) said in a statement. "The House Republicans know how much the public wants this tax cut extended, and they’re looking to get out of the defensive crouch they’ve been in these last two months."
BUDGET WRAP
Are we there yet?: President Obama started off the new budget season — he sent Congress a $3.8 trillion budget proposal Monday — with strong words, saying that while the budget he put forward included “some difficult cuts,” it aims to help the economic recovery accelerate.
Republicans weren't exactly singing its praises.
Senate Republicans called the document unserious, disturbing and an insult to the American people.
"This budget makes a mockery of the American people," said Sen. Bob Corker (R-Tenn.) of the $3.8 trillion package unveiled by the White House. "If a governor of our state presented a budget like this, they would literally be run out of our state."
The assessment wasn't any friendlier on the House side, either, as lawmakers argued that the budget blueprint fails to rein in spending, cut the deficit or protect healthcare programs for seniors.
Senate Budget Committee ranking member Jeff Sessions (R-Ala.) and House Budget Chairman Paul Ryan (R-Wis.) said the $3.8 trillion proposal is rife with gimmicks designed to show savings that don't exist while failing to create a long-term budget plan to shore up the nation's balance sheet.
Still, despite the criticism, the White House insists that budget doesn't take a pass on exploding entitlement spending.
“I don’t think we take a pass,” acting budget director Jeff Zients told reporters.
National Economic Council Director Gene Sperling said that Obama “is putting out entitlement changes I’ve never seen before in a presidential budget.”
Meanwhile, the former chairmen of the president's deficit commission gave the budget mixed reviews.
Former Sen. Alan Simpson (R-Wyo.) and former White House chief of staff Erskine Bowles said they are “pleased that the President's latest budget continues to focus on deficit reduction and are also encouraged to see real, specific policies for limiting tax expenditures, slowing health care cost growth, and reducing spending throughout the government.
They said, however, that it would not achieve the same level of deficit reduction that the Bowles-Simpson plan released in 2010 would have.
It was hard to find much positive in the reaction, but leading congressional Democrats did say the plan strikes a delicate balance between immediate nurturing and eventual belt-tightening.
In addition, they argued that the severe economic downturn that took hold just before Obama was sworn into office must still be considered in weighing the president's proposals.
Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Monday the "economic two-step" hit by the president's budget is just the right prescription for America right now. It provides immediate help for the developing economic recovery while laying the seeds for serious fiscal restraint down the road.
Within the proposal, the budget includes a new change to the way investment dividends are taxed.
The budget would raise $206 billion in new revenue over 10 years by treating dividend income for those making more than $250,000 a year as “ordinary” income.
Currently dividend income is taxed at the capital gains tax rate of 15 percent. The budget proposed restoring the 39.6 percent top rate for individuals.
Retailers said they support a proposal to cut corporate taxes as part of White House's fiscal 2013 budget released Monday, a move they say will create jobs.
The National Retail Federation say cuts in business taxes will have a ripple effect through the economy, leading to lower prices, increased demand, more jobs and stronger economic recovery. A detailed plan is expected sometime this week.
The president also aimed his no-nonsense rhetoric at Wall Street as he geared up for another battle with Republicans over financial reform as he offered tough critiques of Wall Street in his fiscal 2013 proposal while demanding robust budgets for watchdog agencies.
The president showed no signs of backing down in the face of 18 months of GOP and business community criticism of the Dodd-Frank financial reform law. Rather, there are indications he is doubling down, even as the price tag of the government's massive bailout of that sector grew.
Don't forget about the Post Office — it got a nice mention in the request, too.
The plan includes an outline for postal service reform that could cost $37 billion while allowing the end of Saturday mail.
“The administration recognizes the enormous value of the U.S. Postal Service (USPS) to the Nation’s commerce and communications, as well as the urgent need for reform to ensure its future viability,” the budget states.
The administration is proposing changing the way the Postal Service pays its health benefits and refunding some previous payments.
ECONOMIC INDICATORS
Business Inventories: The Department of Commerce report includes sales and inventory statistics from all three stages of the manufacturing process — manufacturing, wholesale and retail.
Retail Sales: The Department of Commerce releases its measure of the total receipts of retail stores. The changes in retail sales are widely followed as the most timely indicator of broad consumer spending patterns. Consumer spending accounts for about 70 percent of all economic activity.
International Trade: While the overall trade balance is closely watching, exports and imports of goods and services are worth watching, as well. Export data in particular are important to watch for indications that a strengthening competitive position at home or strengthening economies overseas are boosting U.S. growth. Imports date can provide an indication of domestic demand, but there is a lag in the report that makes it difficult to assess.
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