Tales from the Trail

We hear the White House is not wildly pleased with former budget chief Peter Orszag for abandoning the party line on tax policy this week. Now Democrats in Congress are beginning to distance themselves from President Barack Obama’s push to let taxes rise for the wealthiest Americans. We are unlikely to see this resolved before the mid-terms anyway, and there are still several different ways this could pan out. One possible compromise would be a short extension of the tax cuts for the rich and a longer extension for the middle classes, keeping any crucial decisions as far away from the 2012 campaign season as possible.

More today on the potential for a reshuffle in Obama’s inner circle after the November elections, especially if Rahm Emanuel departs for Chicago. Democratic sources tell us Larry Summers, never that happy in his role, might be among those who leave, but that Treasury Secretary Tim Geithner is likely to stay the course.

One administration official who is flagging his own retirement is Defense Secretary Robert Gates. As we report from our Aerospace and Defense Summit in Washington this week, Gates used to be viewed by the defense industry with apprehension, but these days many industry executives see his efficiency drive as both sensible and as the best way to protect the overall defense budget. It seems he will be missed.

Elsewhere, a glimmer of hope on the economy with some data on trade and jobless claims that might see some economists revising up their forecasts for third quarter growth.  And a nice blog from our Summit lifting the lid on the exclusive and secretive “Conquistadores del Cielo” club, an annual gathering of the head honchos of the aviation world, for some informal bonding and maybe a little rodeo in Wyoming.

Here are our top stories from today:

Data shows economic recovery still on track

New claims for unemployment benefits fell more than expected last week to a two-month low, while the trade deficit narrowed sharply in July, hopeful signs for the stuttering economic recovery.  The data helped to calm fears of a sharp slowdown in growth and implied the economy could start working its way out of a soft patch.

A smart move by Republican leader John Boehner today, or a nicely laid trap if you prefer. Boehner echoed yesterday’s call from former White House budget director Peter Orszag, for a two-year extension to the Bush-era tax cuts for all Americans. Boehner appealed for both parties to “do this together” to “show the American people that we understand what is going on in this country.” There was, of course, one big difference between Boehner’s and Orszag’s suggestions – the Republican leader conveniently left out the all-important promise to let  all the tax cuts expire at the end of that two-year period. Not surprisingly, President Barack Obama swiftly rejected the offer, insisting that the country could not afford to extend tax cuts for the rich. “This isn’t to punish folks who are better off — God bless them – it is because we can’t afford the $700 billion price tag,” he said in Ohio. You get the feeling this partisan battle isn’t going to be settled easily or early, and the lingering uncertainty this creates is probably not good news for the economy. Expect the blame game to continue.

Elsewhere today, a lovely special report on the Tea Party and how the upstart is growing up and going back to school, determined to shed its amateur status. If it succeeds, the movement’s influence could well extend beyond November and into the 2012 presidential race, although who that might ultimately benefit is very much an open question. Take a look also at our exclusive report on how the Pentagon’s top watchdog has abandoned efforts to do in-depth audits of defense contracts, leaving billions of dollars of taxpayer money at risk from  overpayments and fraud.

Meanwhile, another blame game continues over the Gulf oil spill, with BP’s own investigation not impressing Democratic congressman and critic Edward Markey. “This report is not BP’s mea culpa,” he said. “Of their own eight key findings, they only explicitly take responsibility for half of one. BP is happy to slice up the blame as long as they get the smallest piece.”

Usually about this time of year we’re all wrapped up reporting about the expected White House budget proposal for the next fiscal year.

But today we’ve got a little different news out of the Office of Management and Budget.

The White House budget director, Peter Orszag, has acknowledged that his ex-girlfriend gave birth to his daughter about six weeks ago, shortly before he became engaged in December to Bianna Golodryga, an ABC News correspondent.

White House Budget Director Peter Orszag would like to know what treatments work for him — a middle-aged white male who exercises. And he thinks healthcare reform efforts should focus in part on getting that kind of information to everyone.

Experts on healthcare, lobbyists and politicians started a final crunch on Tuesday to try and put together a healthcare reform package that will lower costs, help more Americans get insurance, and improve the less-than-optimal care that most patients now get.

Orszag assured Congress that the White House was leaving the details to lawmakers — but dropped hints about what he would like to see. One example — a new agency or framework for comparing medical treatments, including drugs, head-to-head.

The second round of Barack Obama‘s cabinet picks undergo their Capitol Hill hazing today. Who else screwed up on their taxes? Our elected representatives are sure to find out.

Confirmation hearings today: Tom Vilsack for Agriculture Secretary; Lisa Jackson for the Environmental Protection Agency; Peter Orszag at the Office of Management and Budget; and Erik Shinseki at Veterans Affairs.

Keep an eye on Iowa Republican Sen. Chuck Grassley. He’s the one who revealed that Timothy Geithner, who as Treasury Secretary would oversee the IRS, made a hash of his tax returns. Will Grassley make the issue more than simply an embarrassment for the Obama administration’s top money man?