Anatomy of a Beltway Smear Campaign

By HANS A. VON SPAKOVSKY

During the past two years, while my nomination to the Federal Election Commission was pending – and before I withdrew last week – friends would call whenever the latest newspaper story or blog post attacking me was planted by political operatives and left-wing advocacy organizations.

They always asked the same question: Why was I putting up with the character assassination that has become the norm in Senate confirmation battles whenever a conservative is nominated for public office?

David Gothard

In 17 years of practicing law I'd never been accused of ethical or professional lapses. Since my arrival in Washington, however, I've been called corrupt and unethical, and labeled as everything from a Klansman to a Nazi (my last name seems to generate that latter pejorative) for my work at the Department of Justice.

All of these charges were levied because I dared to take a different view of the law than the political left in the area of civil rights, voting and election law. Those outside Washington cannot conceive how far advocacy organizations, party activists and congressional staffers are willing to go to personally destroy anyone who doesn't agree with their political agenda.

In 2001, I joined the Justice Department as a career lawyer in the civil rights division. True enough, I had been warned the division was a cauldron of left-wing political activism. In fact, in a 1990s redistricting case, a federal judge criticized the career lawyers of the division for behaving like the in-house counsel of the ACLU. He said that "the considerable influence of ACLU advocacy on the voting rights decisions of the United States Attorney General is an embarrassment."

The reputation of the division was well-deserved. From the very first day on the job it was clear that my new colleagues were offended by my presence. Indeed, I eventually learned from a few friendlier lawyers in the division that it was a miracle I had been hired: The career staff would discard qualified applicants if they saw anything that suggested conservative leanings.

A number of former career lawyers in the division very publicly criticized my nomination to the FEC in 2006. Their criticisms were trumpeted by the media. While the stories always portrayed these critics as "nonpartisan" professionals, nothing could be further from the truth.

The legal work I saw from these and other lawyers in the division was distorted by politics and partisan policy views. They often misrepresented the facts and applicable law in order to manipulate the division's political appointees.

Take, for example, a Mississippi case in which the Justice Department ultimately won a judgment against local officials for blatant and intentional discrimination to deny voters their right to vote. The chief of the voting section, Joseph Rich, deleted the recommendation to file a lawsuit from the original memorandum prepared by the investigating attorney that summarized the case. Why? Because this case involved discrimination by black officials against white voters. According to lawyers involved in the case, Mr. Rich did not believe the Voting Rights Act should be used to protect white voters against racial discrimination.

In a 2003 Texas redistricting controversy, the recommendations of Mr. Rich and his lawyers to object to the Texas plan exactly paralleled the claims of the attorney representing the Democratic plaintiffs in a later lawsuit against the state. The attorney was formerly in the civil rights division of the Justice Department.

I opposed their objections, because they were clearly wrong under the facts and the applicable law. A federal court had already determined that under the Voting Rights Act there were only eight protected majority-minority congressional districts in Texas. Mr. Rich and his colleagues tried to claim that there were 11. But the claims were specious, and were only put forth to help the Democratic Party.

I have been relentlessly attacked over the past two years for my stance in that Texas redistricting controversy, and for the Justice Department's preclearance, under the Voting Rights Act, of a voter ID law from Georgia. But the Supreme Court and other federal courts have made it quite clear that the Justice Department reached the correct legal conclusion in both cases. The opinions of the career lawyers in those cases were rejected for good reason; as I held all along, they were legally wrong.

I explained all of this in great detail in materials I provided to the Senate after my confirmation hearing in June 2007. No matter; the reasoned – and undisputed – legal explanation was ignored by the left, the media and the Democratic Senators trying to stop my confirmation. Yet I am still being called a racist and a "vote suppressor" because I agree with the Supreme Court on the constitutionality of voter ID laws.

The Bush administration filed more voting-rights lawsuits in its first five years than the Clinton administration filed in its last five years. And we did so without having over $4 million in attorneys' fees levied against us for filing frivolous discrimination claims, as occurred during that administration.

I do plead guilty to this: bringing to the attention of superiors at the Justice Department the legal manipulations of ideologues in the Civil Rights Division who passed themselves off as professional civil servants while carrying water for their friends and allies in left-wing organizations like the ACLU. Had I kept silent, I would likely be in a far different position than I am today. But I did not, and those I butted heads with have their revenge.

My own hard feelings will pass. But the political system has been damaged once more by the poisonous tactics of the left, and there is no reason to think that the whole sorry spectacle will not be repeated again and again and again. So long as such tactics are accepted and even encouraged by politicians and the media, it will become harder and harder to find ordinary citizens willing to submit to the character assassination that now passes for our confirmation process.

Europe's Soft Powerlessness

By ANDREW STROEHLEIN
FROM TODAY'S WALL STREET JOURNAL EUROPE

Any dictator concerned about Western condemnation of his actions could learn a lot from Uzbekistan's President Islam Karimov. Tashkent's strongman, with some help from Berlin, has just outmaneuvered the European Union to get the sanctions against his regime lifted.

Three years ago, the EU agreed on an Uzbek arms embargo and visa bans against top regime officials involved in the brutal crackdown on demonstrators in the eastern city of Andijan. No one can be sure how many men, women and children were killed on May 13, 2005, when security forces opened fire on the crowd. The authorities never allowed an independent inquiry. But conservative estimates suggest some 750 people died that day.

In fact, an independent investigation was one of the key conditions the EU had set for lifting the sanctions imposed in response to the mass killings and the torture, forced confessions and show trials that followed. It was an all-too-rare case of the EU taking the international lead on a tough foreign policy issue. The U.S. never even got as far as sanctions.

Sadly, European nerves didn't hold up. In late April, the EU suspended the sanctions for a second six-month period. Set to expire altogether in October, the sanctions are now as good as dead. Of course, the EU didn't get its independent investigation into Andijan, or any of the other demands it made in 2005. Instead, EU foreign ministers justified their action by saying Uzbekistan had made progress in human rights. This was based on the slimmest evidence imaginable.

Tashkent had, they said, abolished the death penalty and adopted international standards against child labor. These were only paper promises, however, and we have yet to see their actual implementation. Let's wait for autumn, when the regime will no doubt begin its annual drive of forced child labor. Tens of thousands of children are taken out of school for months at a time to pick cotton which provides $1 billion a year for the regime but little or nothing -- certainly not education -- for the kids.

EU foreign ministers also praised Tashkent for releasing a handful of human-rights activists even as thousands of prisoners of conscience remain behind bars.

Europe's chief diplomats were also very excited that Tashkent agreed to an EU-Uzbekistan "human rights dialogue -- media democratization seminar." I am one of the 15 people the EU invited to this meeting and I would welcome the opportunity to call for press freedom in Tashkent, something my Uzbek colleagues could never do.

However, I am skeptical the seminar would achieve much. To propose a discussion on media democratization in a country that has never had an independent media, where censorship is all-pervasive and countless journalists are in prison or exile, is the height of ineffectual rhetorical gesture. But it probably won't even happen anyway. Just after the EU suspended the sanctions, Tashkent -- surprise, surprise -- refused to confirm the seminar's date, which they had earlier agreed to. The meeting has now been "postponed" indefinitely.

If any one EU member state deserves credit for this foreign-policy failure it is Germany. From the start, Berlin has worked against sanctions and then pushed to weaken them with a determination and effectiveness that would be the envy of any paid lobbyist Tashkent could ever hope to hire.

Perhaps this sounds an odd political approach for a country whose experience with two dictatorships in the 20th century gives it a greater obligation than most to speak out against authoritarianism. But Germany has been willing to sell out its own and European values for two misguided reasons. The first is that Berlin seems to harbor the unrealistic hope that Uzbek gas could make a real contribution to the diversification of European energy supplies. But the Central Asian country's gas reserves are much lower than Tashkent suggests. What's more, getting them to Europe would be costly, not to mention risky given the country's instability.

That's why even with the proposed Nabucco pipeline -- designed to link Europe to Azerbaijan and hopefully one day to a second pipeline to Central Asia -- no one in the industry has suggested feeding Uzbek gas into this new network. In any case, Uzbekistan's gas exports currently go to Gazprom.

The second is a military base Germany has in the southern Uzbek city of Termez, which it uses for its operations in Afghanistan. Since earlier this year, other NATO members have also been able to use Termez.

But the base's military significance hardly justifies supporting an authoritarian regime. Tashkent's violence against its own people only erodes the kind of regional stability the NATO mission is designed to encourage in the first place.

European foreign policy has been made to look foolish by establishing a principled stand only to surrender those same principles in a couple of short years. The humiliation is compounded by the timing. The suspension of the sanctions comes just weeks ahead of the anniversary of the massacre.

Berlin's maneuvers in support of the Karimov regime have done a huge discredit to the EU. The message this episode sends to other authoritarian rulers, such as in Belarus, Burma or Zimbabwe, is all too clear: You don't need to fulfill the conditions for the lifting of European sanctions. All you need to do is wait it out. The EU will back down soon enough. Soft power, indeed.

You Can't Soak the Rich

By DAVID RANSON

Kurt Hauser is a San Francisco investment economist who, 15 years ago, published fresh and eye-opening data about the federal tax system. His findings imply that there are draconian constraints on the ability of tax-rate increases to generate fresh revenues. I think his discovery deserves to be called Hauser's Law, because it is as central to the economics of taxation as Boyle's Law is to the physics of gases. Yet economists and policy makers are barely aware of it.

Like science, economics advances as verifiable patterns are recognized and codified. But economics is in a far earlier stage of evolution than physics. Unfortunately, it is often poisoned by political wishful thinking, just as medieval science was poisoned by religious doctrine. Taxation is an important example.

The interactions among the myriad participants in a tax system are as impossible to unravel as are those of the molecules in a gas, and the effects of tax policies are speculative and highly contentious. Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

Mr. Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.

The chart nearby, updating the evidence to 2007, confirms Hauser's Law. The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

Although Hauser's Law sounds like a restatement of the Laffer Curve (and Mr. Hauser did cite Arthur Laffer in his original article), it has independent validity. Because Mr. Laffer's curve is a theoretical insight, theoreticians find it easy to quibble with. Test cases, where the economy responds to a tax change, always lend themselves to many alternative explanations. Conventional economists, despite immense publicity, have yet to swallow the Laffer Curve. When it is mentioned at all by critics, it is often as an object of scorn.

Because Mr. Hauser's horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.

What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

The economics of taxation will be moribund until economists accept and explain Hauser's Law. For progress to be made, they will have to face up to it, reconcile it with other facts, and incorporate it within the body of accepted knowledge. And if this requires overturning existing doctrine, then so be it.

Presidential candidates, instead of disputing how much more tax to impose on whom, would be better advised to come up with plans for increasing GDP while ridding the tax system of its wearying complexity. That would be a formula for success.

Mr. Ranson is head of research at H.C. Wainwright & Co. Economics Inc.

The Democrats' Dangerous Trade Games

By C. FRED BERGSTEN

President Bush and the Democratic Congress are locked in fierce conflict over approval of U.S. free trade agreements with Colombia, Panama and South Korea. Presumptive presidential candidates Barack Obama and John McCain hold sharply different views on the merits of free trade and globalization. Whether we're prepared for it or not, a major national debate on these issues is looming for the fall campaign and beyond.

Meanwhile, our venerable House of Representatives, in the context of the Colombia agreement, has recklessly changed the rules for congressional action on trade legislation. By rejecting long-settled procedures that prevented congressional sidetracking of trade deals negotiated by presidents, the House has hamstrung U.S. trade policy and created the gravest threat to the global trading system in decades.

By effectively killing "fast track" procedures that guarantee a yes-or-no vote on trade agreements within 90 days, lawmakers in Washington, led by House Speaker Nancy Pelosi, have destroyed the credibility of the U.S. as a reliable negotiating partner.

Our unique constitutional system – under which Congress is responsible for "foreign commerce" but the president has authority to negotiate with other governments – has required the creation of special procedures to mesh with the parliamentary systems of other countries where executive and legislative branches almost always work together. Without arrangements that assure reasonably prompt congressional action on agreements negotiated by the president, other countries legitimately fear that Congress will simply let deals languish, or insist on further concessions.

The House was in fact doing both with respect to the pending agreements with Colombia and Korea, before the Bush administration forced the issue by submitting implementing legislation on the former. Facing such circumstances, other countries will not take on the domestic battles surrounding their own liberalization, and thus will not engage seriously with the U.S. in either multilateral or bilateral talks.

This is not theory but history. One of President John F. Kennedy's crowning achievements, the Kennedy Round of trade negotiations of the 1960s, was shorn of two of its major components by congressional refusal to even vote on them. That action unbalanced the agreement so severely that a furious European Community, our main trading partner then and now, made clear that it would never again negotiate with the U.S. without firm assurance against the recurrence of such an outcome. The other major trading nations took similar positions.

The result was the "fast track" process, embodied in trade legislation in 1974 and renamed Trade Promotion Authority in 2002. Under those rules, devised largely by Democratic legislators, Congress agreed to vote on trade agreements submitted by the president within a fixed period of time and without amending their terms, provided that Congress authorized the talks in advance and that administration trade officials consulted closely with the Hill throughout the process. This approach has enabled the U.S., under presidents and congressional majorities of both parties, to participate effectively in international trade negotiations.

The House action abruptly and unilaterally terminates this highly successful system. The immediate effect is to scuttle the pending free trade agreements with Panama and Korea, as well as Colombia, and to end any remaining prospect for an early conclusion of the Doha Round in the World Trade Organization.

The much more profound impact, however, is to remove the U.S. from any significant international trade negotiations for the foreseeable future. Current and former chief trade officials of three of the world's largest trading entities have told me that, since the House action, the U.S. has lost all credibility. In other words, the "time out" proposed for trade policy by one of the major presidential candidates – a central goal of the opponents of globalization – has already been called.

The U.S. will suffer severe economic and foreign policy costs if the House action is permitted to stand. Careful studies at our Peterson Institute for International Economics show that the U.S. economy is $1 trillion per year richer as a result of the trade liberalization of the past 60 years, and that we would gain another $500 billion per year if the world could move to totally free trade.

The European Union, and the large and dynamic economies of Asia, will now strike trade compacts among themselves that discriminate against the U.S. rather than do deals with us. Examples will likely include EU-India and EU-Korea, and eventually an Asia-wide trade area. We will lose billions of dollars worth of exports and the associated high-paying jobs – just at a time when improvements in our trade balance, fortified by continuing growth abroad and a highly competitive dollar, are cushioning our slowdown. The multilateral trade system, including the highly effective dispute settlement mechanism in the World Trade Organization, will erode further and weaken our ability to tear down barriers in China, India and other large emerging markets.

Most profound of all will be the impact on U.S. foreign policy. Any new administration, whether Democratic or Republican, will seek to reverse the perception of unilateralism inherited from its predecessor. But effective withdrawal from the international trading system moves us in the opposite direction. The next president will be very badly served by inheriting such a mess on trade.

It would help if Congress and the present administration could pick up the pieces and pass the Colombia agreement, and the pending Korea and Panama agreements as well. But the fundamental problem of U.S. international credibility on trade will remain until a foolproof Trade Promotion Authority, or some equivalent successor, is renewed in perpetuity.

This can probably be done only as part of a "grand bargain" that recognizes the costs as well as the huge benefits of liberalization, and thus includes a substantial expansion of governmental assistance to workers dislocated by trade.

In the absence of such a renewed foundation for an open and active U.S. trade policy, both our economy and our foreign policy will suffer severely.

Mr. Bergsten is the director of the Peterson Institute for International Economics.