

Erie County Clerk Kathleen C. Hochul speaks at the UAW Hall May 24 in Williamsville, N.Y., after winning the race in the 26th Congressional District. (Harry Scull Jr/AP)

That, at least, is the main message out of New York's 26th district, where Democrat Kathy Hochul turned a special election in territory Republicans have held since 1960 into a referendum on the Ryan budget -- and won. The Republican theory, that voters would come to appreciate the specifics of the legislation once they recognized the courageous leadership the GOP had shown in endorsing it, failed. That's bad new for the House GOP, where all but four Republicans voted for the budget, and it puts Senate Republicans in a tough spot, as they're going to be asked to vote on the Ryan budget in the coming days. But the immediate policy question is what it means for the two Republicans sitting in the room with Joe Biden.

The White House's deficit talks didn't begin particularly auspiciously, with Republicans sending two rather than the requested four, members, and Democrats sending negotiators like Max Baucus and Daniel Inouye, who seemed to have little interest in a deal. But they've made more progress than most expected, and both sides now think a deal including more than $1 trillion in cuts is likely.

Republicans now need that deal more than ever. And, in particular, they need a deal on Medicare, because they need something that takes the Ryan plan off the table while putting both parties on the hook for Medicare cuts. That's their best, and perhaps their only, chance to defuse the issue in the 2012 campaign. But a Medicare deal is hard to reach on its own terms and almost impossible so long as Republicans are also saying tax increases are off the table. Democrats aren't going to bail Republicans out and accept painful cuts to Medicare so long as Republicans aren't budging on taxes.

That means that as Republicans get more desperate to cut a deal, they might get more interested in revenues, particularly revenues that come from capping or closing tax breaks rather than raising rates. Which'd be ironic. The one thing the Ryan plan refused to do was raise taxes. But there's at least a slim possibility that in showing the draconian measures you'd have to take if you didn't raise taxes and then testing them in an election, it conducted the political experiment needed to force the GOP to accept new revenues as part of a deal.

Five in the morning

1) A Democrat running against Ryancare won what should've been a safe GOP House seat, report Aaron Blake and Paul Kane: "Erie County Clerk Kathy Hochul won a House special election in western New York on Tuesday night, a Democratic triumph in a conservative district that many regarded a referendum on House Republicans’ efforts to reform Medicare. With 90 percent of precincts reporting, Hochul had 48 percent of the vote. State Assemblywoman Jane Corwin (R) had 42 percent, with independent candidate Jack Davis running a distant third with 9 percent. Democrats contended that the race in New York’s 26th Congressional District -- which the GOP had held since the 1960s -- became competitive through their efforts tying Corwin to the House Republican budget plan that included a provision to turn Medicare into a voucher program."

2) Republicans want to hold a clean debt-limit vote in order to defeat it, reports Russell Berman: "House Republicans will hold a symbolic vote next week to pressure Democrats into accepting deep spending cuts in exchange for lifting the $14.3 trillion debt limit. The move, announced Tuesday in a closed-door conference meeting, is designed to show President Obama and Senate Democrats that Congress will not unconditionally grant the government more borrowing authority...'My personal feeling is I think it sends a terrible message to the international community,' Senate Majority Leader Harry Reid (D-Nev.) said. 'I can’t think of a way that is much more irresponsible than bringing up an extension of the debt limit ... just to show it can’t pass. That’s not very good, I don’t think.'"

3) The parties are about $1 trillion apart in debt negotiations, reports David Rogers: "Even after concessions made last month, the White House and Republicans in Congress are more than $1.1 trillion apart over how much to devote to domestic appropriations over the next 10 years, according to a POLITICO analysis of new numbers collected from the administration and the House GOP. Proposed Medicare changes have gotten more attention, dividing the Senate’s Gang of Six last week and provoking a backlash felt by Republicans in a nationally watched special election for a House seat in upstate New York. But as deficit talks resumed Tuesday afternoon, appropriations remained the 800-pound gorilla in the back of the room -- given the immense gap between the two sides and the more immediate impact on government services."

4) The GOP, against most economists, think cuts will help growth, reports Neil Irwin: "As Republican leaders urge a steep and swift reduction in government spending, they are making an unorthodox argument: that these cuts would strengthen economic growth not only in the distant future but almost immediately. That view is at odds with many of the nonpartisan groups that analyze the economy. Research departments of leading banks and agencies such as the Federal Reserve and the Congressional Budget Office warn that deep cuts would come at the cost of weaker growth and fewer new jobs in the months ahead, as less public money is pumped into the economy...The theory has backing in research by Alberto Alesina, a Harvard economist, examining the economic performance of countries that have reduced previously high budget deficits."

5) Americans are more worried about the debt than default, report Lori Montgomery and Peyton Craighill: "The debate over whether to raise the legal limit on government borrowing has riveted Americans, with a large majority worried about the potential consequences regardless of whether Congress votes to allow the national debt to keep increasing. But when pressed to name their biggest concern, nearly half of respondents say they are alarmed by the prospect that the debt could grow beyond its current limit of $14.3 trillion, according to a new Washington Post-Pew Research Center poll. Only 35 percent say they are more worried about the risk of default and economic destabilization if Congress does not raise the debt limit."

Cover song interlude: Of Montreal plays "Fell In Love With a Girl" by the White Stripes.

Got tips, additions, or comments? E-mail me.

Still to come: The GOP, against most economists, thinks cuts will help growth; Vermont's single-payer plan is about to become law; public school students are starting to pay for basics; climate scientists are being ignored in Congress; and Barack Obama and David Cameron play ping pong.

Economy

The Gang of Six has one last shot today, reports Meredith Shiner: "The clock is winding down on the five remaining members of the Gang of Six, who met Tuesday and will meet again Wednesday, in their final attempt to salvage months of work on a bipartisan budget deal. As another group of bipartisan lawmakers met with Vice President Joe Biden in the Capitol, the Gang’s five senators huddled in the Russell Senate Office Building, trying to figure out what’s next. The options left are few but divergent: Call off the talks completely; get Sen. Tom Coburn (R-Okla.) -- who said last week he wanted a break from the group -- back to the table; or try to find a replacement and expand the group in order to resuscitate the negotiations. But the longer the Gang takes to make this choice, the less viable they become as the Biden Group continues to make progress with the president’s blessing."

House Republicans voted to defer derivatives regulation, reports Ben Protess: "A House panel approved a plan on Tuesday to delay several rules for the $600 trillion derivatives market, a leading player in the financial crisis. The bill would freeze crucial regulations stemming from the Dodd-Frank Act until September 2012, more than two years after the law was enacted and 14 months after the rules were scheduled to take effect. After a contentious debate, the Republican-controlled House Financial Services Committee approved the measure in a 30-to-24 vote, entirely along party lines. A version of the bill also passed the House Agriculture Committee this month. The bill’s Republican sponsors contend that regulators are unnecessarily rushing dozens of new derivatives rules to meet July deadlines."

Banks had their best profits since 2007 last quarter, reports Dina ElBoghdady: "The banking industry posted its best quarter of profits since early 2007 in the first three months of this year, but the sector is still far from regaining its footing. The earnings totaled $29 billion in the first quarter, up nearly 67 percent from a year earlier, mostly because the industry no longer needs to set aside as much cash to cover losses on loans, the Federal Deposit Insurance Corp. reported Tuesday. The increase marks the seventh straight quarter of improvement from the levels of a year earlier. Meanwhile, the FDIC has made gains toward rebuilding its depleted cash reserves while the number of troubled banks added to its 'problem list' has leveled off, all signs of improvement as the industry pulls out from the depths of the financial crisis."

Banks could owe foreclosed upon homeowners $17 billion, report Dan Fitzpatrick, Nick Timiraos, and Ruth Simon: "State attorneys general told five of the nation's largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn't reached to address improper foreclosure practices, according to people familiar with the matter. The figure doesn't cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department. State and federal officials haven't proposed a specific comprehensive settlement figure, but Tuesday's discussions represented the first effort to formally quantify potential liability."

It's time for Obama to go big, writes Steven Pearlstein: "The better strategy is for the president to forget about trying to broker deals between congressional leaders who have no instinct for compromise and put forward his own bold program -- not the liberal fantasy he and his party might prefer, but practical, centrist compromises the country will actually accept: A 10-year budget-balancing plan that mixes spending cuts and tax increases. Market-based compensation for federal workers. Cost-saving reforms to Medicare and Social Security. A big push on trade, exports and worker training. An energy tax to reduce carbon emissions, rebated annually to taxpayers...Tougher regulation of Wall Street, and lighter regulation on Main Street. The aim wouldn’t be to get any of it through the current do-nothing Congress, but to create a mandate for the next Congress and the next administration."

The next IMF leader shouldn't be European, writes Simon Johnson: "There is a valid economic case that the next chief should come not from Europe, as tradition dictates, but from one of the emerging markets. India, South Africa, China, Mexico and Brazil all have strong candidates. One reason to make the shift now is that the IMF needs to rebuild its legitimacy in the emerging economies, particularly in Asia. The fund was criticized for causing severe damage in its handling of the 1997-98 Asian financial crisis. Not all the critiques were fair, but Asian leaders correctly feel they received far less favorable deals than Greece, Ireland and Portugal recently got. The IMF initially lent Greece, for example, almost twice what Korea was able to borrow in 1997, relative to each country’s size."

Adorable animals in time lapse interlude: A puppy grows from 8 weeks to one year old in 40 seconds.

Health Care

Vermont's single-payer plan will become law tomorrow, reports Janet Adamy: "Vermont is moving one step closer to a goal of its Democratic governor: a state-run health plan that would insure most of its 625,000 residents. The bill Gov. Peter Shumlin plans to sign on Thursday would create a panel whose goal would be to figure out how to pay for a new system intended to reduce the rate of overall health-cost increases...The state would cover most of the costs, and residents would pay a portion through co-payments charged when they receive medical care. Their 'Green Mountain Care' card would link to an electronic medical record of their treatment history. Vermont's idea is based on the concept of a health system where a public entity funds all care."

Americans don't back Medicaid cuts, reports Phil Galewitz: "Most Americans oppose the House Republicans’ plan to overhaul and slash funding of Medicaid, the state-federal program that covers 56 million low-income people, according to a poll being released today. About 60 percent of Americans want Congress to keep Medicaid in its current form with the federal government guaranteeing coverage and setting minimum benefits for states to follow, according to the survey by the Kaiser Family Foundation. Just over half said they didn't want to see funds cut. (KHN is an editorially-independent program of the foundation.) Opinions varied along party lines, with 79 percent of Democrats and 39 percent of Republicans saying they preferred to keep the Medicaid structure 'as is.'"

Ryancare can't fix Medicare, writes Peter Orszag: "At the heart of the Ryan plan is a shift within Medicare toward consumer-directed health care -- which in turn is predicated on increasing beneficiaries’ 'skin in the game' to make the health system more efficient. While more consumer cost-sharing would help reduce unnecessary care, the plan would not live up to its billing in cutting health costs for America. According to the nonpartisan Congressional Budget Office, it would do the opposite. That’s right: The CBO found that the Ryan Medicare proposal would substantially increase total health-care spending... By 2030, health spending on the typical beneficiary would be more than 40 percent higher under the Ryan plan than under existing Medicare, according to the CBO report."

The FDA's rejection of Avastin isn't rationing, writes Frederick Turner: "Last year the Food and Drug Administration rescinded approval of the drug Avastin for treating breast cancer patients, prompting a firestorm of criticism. The decision was denounced by some politicians as health care rationing, and by breast cancer patients who feared that they would be deprived of a drug that they felt had helped them immensely. But these criticisms ignore the facts: Avastin was rejected simply because it didn’t work as it was supposed to, and the F.D.A. should resist the aggressive campaign by Genentech, the drug’s maker, to get that ruling reconsidered at a hearing in late June...Avastin was not shown to lengthen patients’ overall survival time. So Genentech argued that the drug led not to longer life, but to improved quality of life."

Domestic Policy

Public schools are starting to charge families for basic, reports Stephanie Simon: "Public schools across the country, struggling with cuts in state funding, rising personnel costs and lower tax revenues, are shifting costs to students and their parents by imposing or boosting fees for everything from enrolling in honors English to riding the bus. At high schools in several states, it can cost more than $200 just to walk in the door, thanks to registration fees, technology fees and unspecified 'instructional fees.' Though public schools have long charged for extras such as driver's education and field trips, many are now asking parents to pay for supplies needed to take core classes--from biology-lab safety goggles to algebra workbooks to the printer ink used to run off grammar exercises in language arts. In some schools, each class comes with a price tag, to be paid at registration."

Food companies are fighting proposed rules about marketing to children, reports Lyndsey Layton: "The food and advertising industries are pushing back against an Obama administration proposal that calls for food makers to voluntarily limit the way they market sugary cereals, salty snacks and other foods to children and teens. From yogurt makers to candy manufacturers, they lined up Tuesday to tell regulators that the first-ever proposed guidelines for marketing to children would not stop the childhood obesity problem but would certainly hurt their businesses and abridge their right to free speech. The guidelines, ordered by Congress and written by a team from the Federal Trade Commission, the Food and Drug Administration, the Centers for Disease Control and Prevention, and the Agriculture Department, ignited a debate about the role of marketing in soaring obesity rates among children."

Elite colleges need to do more for poor and middle class students, writes David Leonhardt: "For all of the other ways that top colleges had become diverse, their student bodies remained shockingly affluent. At the University of Michigan, more entering freshmen in 2003 came from families earning at least $200,000 a year than came from the entire bottom half of the income distribution. At some private colleges, the numbers were even more extreme...The truth is that many of the most capable low- and middle-income students attend community colleges or less selective four-year colleges close to their home. Doing so makes them less likely to graduate from college at all, research has shown. Incredibly, only 44 percent of low-income high school seniors with high standardized test scores enroll in a four-year college, according to a Century Foundation report."

Labor is starting to organize outside of workplaces, writes Harold Meyerson: "While some unions still wage more conventional organizing campaigns, the campaign that best captures the desperation of American labor today is that of the SEIU. Perhaps the best-funded and most strategically savvy of American unions, SEIU has embarked on a door-to-door canvass in the minority neighborhoods of 17 major American cities. The goal isn’t to enroll the people behind those doors in a conventional union but, rather, into a mass organization of the unemployed and the underpaid that can turn out votes in 2012 and act as an ongoing pressure group for job creation and worker rights during (presumably) Barack Obama’s second term."

World leaders having fun interlude: Barack Obama and British PM David Cameron make a terrible ping pong doubles team.

Energy

Climate scientists are being ignored in Congress, reports Darren Samuelsohn: "Climate scientists are in a tough spot. They have never been more certain about what they know. Powerful new satellites can hone in on mountainous regions to measure ice melt. Stronger computers model changes in disruptive weather patterns. Scientists are even more comfortable attributing climate change to visible effects around the globe, from retreating Himalayan glaciers to southwestern U.S. droughts and acidifying oceans. Yet scientists are still stuck in the mud trying to get that message out in Washington, where House Republicans made one of their first orders of business passing legislation to zero out research budgets for domestic and international climate efforts and unraveling a key EPA declaration that humans have played a critical role in changing the planet."

House Republicans are accusing Obama of deliberately inflating gas prices, report Patrick Reis and Bob King: "The Obama administration is 'pursuing an agenda to raise the price Americans pay for energy,' House Republicans charged in a report released late Monday -- repeating an accusation they've made before, but this time laying it out in a 43-page document just ahead of what's likely to be a contentious hearing Tuesday morning. Republicans on Darrell Issa's House Oversight committee are pulling out all the stops to skewer EPA chief Lisa Jackson and Interior Deputy Secretary David Hayes at the 9 a.m. hearing on 'pain at the pump' and the policies that promote it. The report includes repeats of GOP allegations that the administration wants high gasoline prices to advance its renewable energy agenda, along with fresh attacks on regulations by EPA, the Fish and Wildlife Service and other agencies."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.