My Bipartisan Stimulus

Let's cut taxes, as I want, and spend more, as Obama would like.

RUSH LIMBAUGH

There's a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they're left alone. What can make the recession worse is the wrong kind of government intervention.

I believe the wrong kind is precisely what President Barack Obama has proposed. I don't believe his is a "stimulus plan" at all -- I don't think it stimulates anything but the Democratic Party. This "porkulus" bill is designed to repair the Democratic Party's power losses from the 1990s forward, and to cement the party's majority power for decades.

Keynesian economists believe government spending on "shovel-ready" infrastructure projects -- schools, roads, bridges -- is the best way to stimulate our staggering economy. Supply-side economists make an equally persuasive case that tax cuts are the surest and quickest way to create permanent jobs and cause an economy to rebound. That happened under JFK, Ronald Reagan and George W. Bush. We know that when tax rates are cut in a recession, it brings an economy back.

Recent polling indicates that the American people are in favor of both approaches.

Notwithstanding the media blitz in support of the Obama stimulus plan, most Americans, according to a new Rasmussen poll, are skeptical. Rasmussen finds that 59% fear that Congress and the president will increase government spending too much. Only 17% worry they will cut taxes too much. Since the American people are not certain that the Obama stimulus plan is the way to go, it seems to me there's an opportunity for genuine compromise. At the same time, we can garner evidence on how to deal with future recessions, so every occurrence will no longer become a matter of partisan debate.

Congress is currently haggling over how to spend $900 billion generated by American taxpayers in the private sector. (It's important to remember that it's the people's money, not Washington's.) In a Jan. 23 meeting between President Obama and Republican leaders, Rep. Eric Cantor (R., Va.) proposed a moderate tax cut plan. President Obama responded, "I won. I'm going to trump you on that."

Yes, elections have consequences. But where's the bipartisanship, Mr. Obama? This does not have to be a divisive issue. My proposal is a genuine compromise.

Fifty-three percent of American voters voted for Barack Obama; 46% voted for John McCain, and 1% voted for wackos. Give that 1% to President Obama. Let's say the vote was 54% to 46%. As a way to bring the country together and at the same time determine the most effective way to deal with recessions, under the Obama-Limbaugh Stimulus Plan of 2009: 54% of the $900 billion -- $486 billion -- will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46% -- $414 billion -- will be directed toward tax cuts, as determined by me.

Then we compare. We see which stimulus actually works. This is bipartisanship! It would satisfy the American people's wishes, as polls currently note; and it would also serve as a measurable test as to which approach best stimulates job growth.

I say, cut the U.S. corporate tax rate -- at 35%, among the highest of all industrialized nations -- in half. Suspend the capital gains tax for a year to incentivize new investment, after which it would be reimposed at 10%. Then get out of the way! Once Wall Street starts ticking up 500 points a day, the rest of the private sector will follow. There's no reason to tell the American people their future is bleak. There's no reason, as the administration is doing, to depress their hopes. There's no reason to insist that recovery can't happen quickly, because it can.

In this new era of responsibility, let's use both Keynesians and supply-siders to responsibly determine which theory best stimulates our economy -- and if elements of both work, so much the better. The American people are made up of Republicans, Democrats, independents and moderates, but our economy doesn't know the difference. This is about jobs now.

The economic crisis is an opportunity to unify people, if we set aside the politics. The leader of the Democrats and the leader of the Republicans (me, according to Mr. Obama) can get it done. This will have the overwhelming support of the American people. Let's stop the acrimony. Let's start solving our problems, together. Why wait one more day?

Mr. Limbaugh is a nationally syndicated radio talk-show host.

How About a Payroll Tax Stimulus?

For a similar amount of money, we could give workers $1,500.

LAWRENCE B. LINDSEY

Congress and the Obama administration seem near to deciding the details of an economic stimulus package. Unlike the efforts of President Ronald Reagan and President George W. Bush, who also inherited declining stock markets and shrinking economies, this package is heavily weighted toward direct government spending, transfers to state and local governments, and tax changes that have virtually no effect on marginal tax rates.

AP

Christina Romer, chairman of the Council of Economic Advisers

Today the Reagan tax cuts are widely viewed as successful. Opinions on the longer-term effects of the Bush tax cuts are more diverse, but the short-term effects of the 2001 and 2003 cuts are generally credited as having been well-timed.

And what of the plan being put forward now? As crafted, it is unlikely to produce the desired results. For a similar amount of money, the government could essentially cut the payroll tax in half, taking three points off the rate for both the employer and the employee. This would put $1,500 into the pocket of a typical worker making $50,000, with a similar amount going to his or her employer. It would provide a powerful stimulus to the spending stream, as well as a significant, six percentage point reduction in the tax burden of employment for people making less than $100,000. The effects would be immediate.

By contrast, the stimulus now under consideration would suffer from the usual problems of government spending. The Congressional Budget Office and the Joint Committee on Taxation have calculated that only $170 billion, or about one-fifth of the $816 billion package will be spent in fiscal 2009. An additional $356 billion will be spent in 2010. That leaves $290 billion to be spent when even the most pessimistic forecasters think the economy will be in recovery mode.

Some of the longer-term investment projects proposed are quite worthy; some are not. Either way, they are not stimulus. The administration and the Democratic congressional leadership claim that the infrastructure projects, mainly carried out by state and local governments, are "shovel ready." In fact, the legislation gives states a full year to merely sign a contract to begin spending half the money, and another year to sign a contract to spend the second half. As anyone who has ever dealt with a contractor knows, the money tends to be spent months or years after the contract is signed.

The criticisms generated by the Congressional Budget Office analysis have been brushed aside by President Obama. As he correctly pointed out in a recent meeting with bipartisan congressional leaders, he won the election. His party has large majorities in both houses of Congress, and elections do and should have consequences.

Administration economists Christina Romer (chairman of the Council of Economic Advisers) and Jared Bernstein (Vice President Joe Biden's chief economic adviser) recently released a document that will allow us to benchmark those consequences. "The Job Impact of the American Recovery and Reinvestment Plan," issued on Jan. 9, lays out the course of the economy they expect if the administration's stimulus proposals are adopted, compared with what they expect if no stimulus is implemented.

Without a stimulus plan, the report predicts the unemployment rate will peak in the middle of 2010 at about 9%. With their plan, it estimates unemployment will peak at about 8% in the third quarter of this year. Longer term, they expect the unemployment rate to drop to roughly 5.5% by the end of 2012 with the recovery plan, compared with 6% without a plan.

This document provides a great service. We may know as early as the end of this year whether the spending approach now being undertaken is being successful, or whether it might be wiser to change course and focus on supply-side approaches that combine reductions in marginal rates and improved incentives with improved cash flow for the household and business sectors.

If, for example, the unemployment rate appears to be peaking at around 8% and shows some modest signs of declining by year's end, then the administration should take comfort that it took the right approach. But if the unemployment rate is over 8%, and more important, still appears to be climbing, then it might be advisable for the administration to propose tax cuts and less spending in its budget next year.

One other metric in the report should also be watched -- the composition of employment. Mr. Obama has stressed that he believes that his plan is essential to the revival of the private sector. This makes sense; merely expanding government would simply increase the burden on the private sector, but a larger private sector could easily cover the added costs of a larger government.

The administration's "Job Impact" report estimates that nearly 3.7 million jobs will have been either created or saved by the end of 2010. Of these, only 244,000 will be in government. Since the unemployment rate is estimated to be 1.5 percentage points lower at the end of 2010 as a result of the plan, this gives us a rough estimate of total jobs saved by the plan at 2.2 million. This means that the administration projects that the number of private-sector jobs will grow by about 1.25 million and the number of government jobs will grow by about a quarter million between now and 2010.

This ratio of roughly 5-to-1 of private sector versus government jobs roughly mirrors the current makeup of the job market. Thus, a second test of the stimulus package's effectiveness is that the mix of private-sector to public-sector jobs at the end of 2010 should be roughly what it is today. That would suggest to this administration and future policy makers that a stimulus bill oriented toward public-sector spending is an effective way of expanding the private economy, an essential ingredient toward sustainability of the higher level of spending.

Making the safe assumption that the stimulus bill is enacted, America will get a fair test of the spending approach to economic stimulus. The analysis of administration economists Ms. Romer and Mr. Bernstein provides a good framework for evaluating its success. Let's hope it succeeds. If it does not, next January we will find ourselves another year older and much deeper in debt.

Mr. Lindsey, a former Federal Reserve governor and assistant to President George W. Bush for economic policy, is president and CEO of the Lindsey Group.

The Obama White House May Be a Crowded Mess

There will be four people in my old office.

KARL ROVE

On the campaign trail, Barack Obama criticized Washington for being "obsessed with the perpetual campaign." As president he is the first occupant of the Oval Office to give his director of political affairs -- who coordinates the president's involvement with his party and other campaign related activities -- an office in the West Wing.

Many Americans may assume that the president's entire staff is in the West Wing. It's not. The West Wing is actually a very small place, so the vast number of people who work "at the White House" actually have offices across the street at the Eisenhower Executive Office Building (EEOB).

Under Mr. Obama, the political director won't be in the EEOB, where other presidents have placed him. He'll occupy a West Wing office usually given to the head of presidential personnel. That's a sign of the importance of politics for Team Obama.

This is one of many of Mr. Obama's changes to the management structure of the White House that will likely undermine his stated aims and create a more centralized and possibly incoherent policy process.

Another first to have a West Wing office is the incoming secretary of Health and Human Services, Tom Daschle. Once sworn in, he will be the first domestic cabinet secretary to have a desk in the most coveted office space in government -- to use in his other job as director of the White House Office of Health Reform.

This dual role centralizes policy-making inside the White House because it allows Mr. Daschle to displace the Domestic Policy Council and the National Economic Council on developing health-care policy.

About Karl Rove

Karl Rove served as Senior Advisor to President George W. Bush from 2000–2007 and Deputy Chief of Staff from 2004–2007. At the White House he oversaw the Offices of Strategic Initiatives, Political Affairs, Public Liaison, and Intergovernmental Affairs and was Deputy Chief of Staff for Policy, coordinating the White House policy making process.

Before Karl became known as "The Architect" of President Bush's 2000 and 2004 campaigns, he was president of Karl Rove + Company, an Austin-based public affairs firm that worked for Republican candidates, nonpartisan causes, and nonprofit groups. His clients included over 75 Republican U.S. Senate, Congressional and gubernatorial candidates in 24 states, as well as the Moderate Party of Sweden.

Karl writes a weekly op-ed for The Wall Street Journal, is a Newsweek columnist and is now writing a book to be published by Simon & Schuster. Email the author at Karl@Rove.com or visit him on the web at Rove.com.

Tapping Carol Browner as climate czar also centralizes decision making. Her role will displace the leadership of the Council on Environmental Quality and diminish the influence of the Environmental Protection Agency.

Aides say Mr. Obama believes the cabinet structure is "outdated." His appointment of czars to oversee technology, automotive and environmental policies underscores this belief because each new czar weakens cabinet and agency involvement in policy decisions. The White House has always had overlapping lines of authority, which creates a certain amount of conflict while everyone figures out who really has clout. But Mr. Obama has added to the confusion by making declarations that multiple people in his cabinet or on his staff have more authority and responsibility than their predecessors. In addition to creating a protracted power struggle within the West Wing, Mr. Obama's management decisions may lead to more intrusive, larger government policies gaining traction. Why? Because left-leaning aides will be unimpeded by the White House's budget director or cabinet secretaries as they push new policies.

It is rumored that as many as 160 people will be in the West Wing under Mr. Obama. Under President George W. Bush there were about 60. My old, modest-seized office has been carved into four cubicles. This reduces the space for ad hoc meetings in personal offices, where so much West Wing work once took place.

The space crunch comes because Mr. Obama has moved several positions that once had offices in the EEOB into the West Wing. These include public liaison, intergovernmental affairs and political affairs. This reflects the importance he places on these offices' marketing efforts.

Space is also short because the ranks of senior staff have been increased. There is a chief of staff, of course, but also two deputy chiefs, and three senior advisers. Some senior aides now have chiefs of staff of their own. That is new.

All of this matters because management structure affects decision-making and determines the range and quality of voices the president hears. That impacts policy outcomes.

Mr. Obama's changes could overload Chief of Staff Rahm Emanuel. As power that was once diffused to cabinet officers is centralized in the White House, Mr. Emanuel will have to make more decisions and referee more turf wars than his predecessors. This will test his skills and likely inject chaos into the policy process as he prioritizes the decisions he can reasonably make.

Mr. Obama's tendency to work late into the night will also pose problems. Politico.com reports that the White House staff is "preparing for a return to long nights, heavy weekend shifts." Requiring a senior staff that meets at 7:30 a.m. to work until 11 p.m. or 12 a.m. will quickly cause burnout and diminish the quality of advice and oversight.

Mr. Obama and his team are confident that they can keep the pace of a campaign going in the West Wing, which no one before them has done. That intoxicating idea will fade. The question is how they will deal with the challenges created by their organization of the West Wing's policy-making apparatus.

Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush.

Fan and Fred's Lunch Tab

A quarter-trillion dollars, and rising.

It seems a lifetime ago, but it's only been six months since the Congressional Budget Office put a $25 billion price tag on the legislation to bail out Fannie Mae and Freddie Mac. At the time, then CBO Director Peter Orszag told Congress that there was a "probably better than 50%" chance that the government would never have to spend a dime to shore up the two government-sponsored mortgage giants.

AP

Barney Frank.

So much for that. In the past few days Fannie and Freddie have requested a combined $51 billion from the Treasury to compensate for losses in their loan portfolios. This comes on top of the $13.8 billion that Freddie needed in November.

The latest requests take the tab to $70 billion or so -- but that's not the end of the story by a long shot. Earlier this month, CBO released its biannual budget outlook. And largely ignored underneath the $1.2 trillion deficit estimate for fiscal 2009 was the little matter of a $238 billion charge for rescuing Fan and Fred. To put that in perspective, $238 billion is more than the entire federal budget deficit in fiscal 2007.

The CBO's $238 billion estimate represents its guess of the long-term cost of paying for the guarantees that Fannie and Freddie write on their mortgage-backed securities. Nor is that just a post-bubble hangover. The last $38 billion of that is for losses on new business this year. And for all anyone knows, that number, like the earlier estimates, is wildly optimistic.

For starters, that $238 billion doesn't include $18 billion that the CBO expected the Treasury to lend the wonder twins this year. But in any case we're already well beyond $18 billion on that score: As of this week they've already requested $70 billion since the fiscal year began -- and we still have eight months to go. So you can add $70 billion to the $238 billion, which gets us to $308 billion -- and even that might be conservative. Rajiv Setia, an analyst at Barclays, figures the duo will need $120 billion from Treasury this year alone, which would mean another $50 billion on top of the $70 billion already requested.

Back when the bailout was being debated last July, Senator Jon Tester (D., Mont.) worried that the Fan and Fred bailout could cost $1 trillion. Given that the two companies combined have more than $5 trillion in debt and mortgage backed securities outstanding, Mr. Tester's guess isn't looking worse than anyone else's.

At that same time, Senator Kent Conrad (D., N.D.) said that the CBO's $25 billion estimate would be "very helpful to those who want to advance this legislation." And no doubt it was. A spokeswoman for Fannie promoter Barney Frank said then, "we especially like that there is less than a 50% chance that it will be used." The CBO had figured that there was a 5% chance that losses would reach the $100 billion cap on the credit line created by the July law. Now CBO's best guess is more than double that.

The bigger picture here is that politicians like Mr. Frank have been telling us for years that Fannie and Freddie's federal subsidy was a free lunch. We are now slowly, and painfully, learning the price of Mr. Frank's famous desire to "roll the dice" with Fan and Fred. Keep that in mind the next time you hear a politician propose a taxpayer guarantee. The only sure thing is that the taxpayers will pay.

Obama Made a Rash Decision on Gitmo

The president will soon realize that governing involves hard choices.

JOHN YOO

During his first week as commander in chief, President Barack Obama ordered the closure of Guantanamo Bay and terminated the CIA's special authority to interrogate terrorists.

AP

While these actions will certainly please his base -- gone are the cries of an "imperial presidency" -- they will also seriously handicap our intelligence agencies from preventing future terrorist attacks. In issuing these executive orders, Mr. Obama is returning America to the failed law enforcement approach to fighting terrorism that prevailed before Sept. 11, 2001. He's also drying up the most valuable sources of intelligence on al Qaeda, which, according to CIA Director Michael Hayden, has come largely out of the tough interrogation of high-level operatives during the early years of the war.

The question Mr. Obama should have asked right after the inaugural parade was: What will happen after we capture the next Khalid Sheikh Mohammed or Abu Zubaydah? Instead, he took action without a meeting of his full national security staff, and without a legal review of all the policy options available to meet the threats facing our country.

What such a review would have made clear is that the civilian law-enforcement system cannot prevent terrorist attacks. What is needed are the tools to gain vital intelligence, which is why, under President George W. Bush, the CIA could hold and interrogate high-value al Qaeda leaders. On the advice of his intelligence advisers, the president could have authorized coercive interrogation methods like those used by Israel and Great Britain in their antiterrorism campaigns. (He could even authorize waterboarding, which he did three times in the years after 9/11.)

Mr. Obama has also ordered that all military commission trials be stayed and that the case of Ali Saleh al-Marri, the only al Qaeda operative now held on U.S. soil, be reviewed. This seems a prelude to closing the military commissions down entirely and transferring the detainees' cases to U.S. civilian courts for prosecution under ordinary criminal law. Military commission trials have been used in most American wars, and their rules and procedures are designed around the need to protect intelligence sources and methods from revelation in open court.

It's also likely Mr. Obama will declare terrorists to be prisoners of war under the Geneva Conventions. The Bush administration classified terrorists -- well supported by legal and historical precedent -- like pirates, illegal combatants who do not fight on behalf of a nation and refuse to obey the laws of war.

The CIA must now conduct interrogations according to the rules of the Army Field Manual, which prohibits coercive techniques, threats and promises, and the good-cop bad-cop routines used in police stations throughout America. Mr. Obama has also ordered that al Qaeda leaders are to be protected from "outrages on personal dignity" and "humiliating and degrading treatment" in accord with the Geneva Conventions. His new order amounts to requiring -- on penalty of prosecution -- that CIA interrogators be polite. Coercive measures are unwisely banned with no exceptions, regardless of the danger confronting the country.

Eliminating the Bush system will mean that we will get no more information from captured al Qaeda terrorists. Every prisoner will have the right to a lawyer (which they will surely demand), the right to remain silent, and the right to a speedy trial.

The first thing any lawyer will do is tell his clients to shut up. The KSMs or Abu Zubaydahs of the future will respond to no verbal questioning or trickery -- which is precisely why the Bush administration felt compelled to use more coercive measures in the first place. Our soldiers and agents in the field will have to run more risks as they must secure physical evidence at the point of capture and maintain a chain of custody that will stand up to the standards of a civilian court.

Relying on the civilian justice system not only robs us of the most effective intelligence tool to avert future attacks, it provides an opportunity for our enemies to obtain intelligence on us. If terrorists are now to be treated as ordinary criminals, their defense lawyers will insist that the government produce in open court all U.S. intelligence on their client along with the methods used by the CIA and NSA to get it. A defendant's constitutional right to demand the government's files often forces prosecutors to offer plea bargains to spies rather than risk disclosure of intelligence secrets.

Zacarias Moussaoui, the only member of the 9/11 cell arrested before the attack, turned his trial into a circus by making such demands. He was convicted after four years of pretrial wrangling only because he chose to plead guilty. Expect more of this, but with far more valuable intelligence at stake.

It is naïve to say, as Mr. Obama did in his inaugural speech, that we can "reject as false the choice between our safety and our ideals." That high-flying rhetoric means that we must give al Qaeda -- a hardened enemy committed to our destruction -- the same rights as garden-variety criminals at the cost of losing critical intelligence about real, future threats.

Government policy choices are all about trade-offs, which cannot simply be wished away by rhetoric. Mr. Obama seems to have respected these realities in his hesitation to end the NSA's electronic surveillance programs, or to stop the use of predator drones to target individual al Qaeda leaders.

But in his decisions taken so precipitously just two days after the inauguration, Mr. Obama may have opened the door to further terrorist acts on U.S. soil by shattering some of the nation's most critical defenses.

Mr. Yoo is a law professor at the University of California, Berkeley and a visiting professor at Chapman Law School. He was an official in the Justice Department from 2001-03 and is a visiting scholar at the American Enterprise Institute.