Indonesia Is a Model Muslim Democracy

Last week's election caps a decade of success.

PAUL WOLFOWITZ

It's rare when any political leader wins a 60% mandate in a free and fair election, which is why commentary on last week's Indonesian election has focused on the personal success of President Susilo Bambang Yudhoyono.

However, Indonesia's success in building democratic institutions in just 10 years is equally remarkable. It is yet another demonstration of the appeal of free institutions, in this case to people with East Asian value systems and in a country with the largest Muslim population in the world.

Ten years ago it wasn't hard to find skeptics about the democratic experiment in Indonesia. The financial collapse that brought about President Suharto's resignation in 1998 pushed more than a quarter of the country's population below the official poverty line. East Timor's violent separation from Indonesia severely damaged the country's international reputation and threatened the breakup of the entire country.

Radical Islamist movements were also gaining strength and causing bloody clashes with Christians in Eastern Indonesia. Then came the Sept. 11, 2001, terrorist attacks on America and an al Qaeda threat in Indonesia, including a bombing in Bali in October 2002.

Against that background, it seems hard to believe how well Indonesia is doing today. Per capita incomes are more than double what they were when I arrived there as U.S. ambassador 25 years ago. Since 2000, Indonesia's economy has grown at an average of more than 4% a year. Last year the rate was 6%.

The country has made strides in other areas as well. The war in Aceh has ended. Secessionist sentiment elsewhere in the country has largely disappeared, thanks in part to a transition to democracy. And the Indonesian police have recorded substantial successes against terrorism.

Above all, Indonesia's political process has displayed a remarkable degree of maturity. Three consecutive free and fair presidential elections is one mark of that. Voters have also shown an impressive degree of common sense. For example, when President Yudhoyono was criticized because his wife often appears in public without a head covering, or jilbab, voters shrugged off the criticism.

No single explanation can account for the progress of such a complex country over the course of the last decade. Mr. Yudhoyono's leadership deserves a great deal of credit, as does the country's tradition of tolerance and respect for women. Indonesia's first two democratically elected presidents were Abdurrahman Wahid, a devout Muslim leader and proponent of religious tolerance, and Megawati Sukarnoputri, a passionate spokeswoman for democracy. Neither presidency was very successful, but the values each embodied were influential.

So too were a variety of civil society groups that thrived despite restrictions from the Suharto regime. Indonesia's press was financially independent and competitive, so the country had the basis for a free media as soon as censorship restrictions were lifted. Many of the country's leaders were also educated in democratic countries. Mr. Yudhoyono is a graduate of the U.S. Army's Command and Staff College.

But we can't be complacent about Indonesia's future. The problems facing the country are enormous, poverty first among them. Corruption remains a deterrent to foreign investment. Islamic fundamentalism poses a threat. The authorities have shown a disturbing passivity in the face of attacks on churches and mosques of certain minority sects. Many Indonesians are fearful that government restrictions on pornography and proselytizing will be used by extremists to restrict free expression.

On the positive side, recent elections showed that there has been a decline in the influence of overtly Islamist parties.

The U.S. has an enormous stake in Indonesia. It provides stability for the whole of Southeast Asia, a region of more than half a billion people. It is an example for other aspiring democracies. And if it continues to make progress on religious tolerance, it can point the way for other majority Muslim countries.

Indonesians have achieved this success largely on their own. But having chosen a path of freedom, democracy, and religious tolerance, they would like to see that recognized. Secretary of State Hillary Clinton did that on her visit in February. When Mr. Obama visits in November he will receive a hero's welcome. He should use that to speak forcefully on behalf of the great majority of Indonesians who believe in tolerance and equality for all the country's citizens.

Mr. Wolfowitz, a visiting scholar at the American Enterprise Institute, has served as deputy U.S. secretary of defense and U.S. ambassador to Indonesia.

Signs of Capitalist Life

Regulators exercised restraint this week, while investors showed a willingness to exercise their own judgments about risks.

That lethargic patient known as the American capital market showed signs of life this week. Washington's decision to put away the defibrillator paddles and let nature take its course at CIT Group means that, finally, Beltway physicians have done no more harm. More good news came from Credit Suisse, which sold mortgage-backed securities with no government guarantees and no opinions from the credit-ratings agencies.

That's right, someone has managed to finance mortgages without putting taxpayers at risk. Just as encouraging, it turns out that investors really can analyze bonds not rated by the government-anointed geniuses at Standard & Poor's, Moody's and Fitch. We'll get to the caveats in a moment, but first let's savor that Washington is willing to consider a new course of treatment that includes the freedom to fail, while Wall Street is showing that markets can solve the problem of opaque securities.

Regarding CIT, if that lender is too big too fail, then everyone is. On the Forbes list of the world's 2000 largest public companies, CIT settles in at 1,195, just behind a German construction company called Bilfinger Berger. Taxpayers should salute FDIC Chairman Sheila Bair, who has refused to buy the argument from Treasury that America faced another systemic threat in CIT.

As for Credit Suisse's government-free offering of mortgage-backed securities, the underlying loans had only recently been liberated from political control. CS bought the mortgages for just under $1 billion from a unit of AIG before bundling them and selling slices to institutional investors.

Our guess is that without a credit rating as an excuse to avoid due diligence, investors demanded oceans of data on the underlying loans. This is as it should be, and banks are now working on ways to give investors the individual-borrower data that the likes of Moody's never verified. Technology will be a part of the solution, allowing issuers to tag and investors to extract any information they seek on household assets, FICO scores or debt-to-income ratios. What will not help markets to recover is for regulations at the SEC and Federal Reserve to continue to favor the same credit-ratings agencies that were calling Lehman Brothers "investment grade" just before it hurtled into bankruptcy.

Which brings us to the caveats. The Credit Suisse deal looks like a green shoot, but it's important to remember how small $1 billion is in a market still dominated by taxpayer-backed financing. Even as Fannie Mae and Freddie Mac have become eligible for up to $200 billion each in taxpayer bailouts, their market share and that of the Federal Housing Administration has only increased. The nearby table shows that government-free mortgage securities now comprise a tiny slice of the market. Fan and Fred, now operating as explicit wards of the state with a mandate to keep Americans in their homes, will likely be the most expensive of all the federal bailout recipients, or at least contenders for the title against Chrysler and GM.

As for reforming the government policy that resulted in AAA-rated but highly risky investments, progress is slow. Apparently unaware of the credit meltdown, SEC Commissioner Luis Aguilar still refers to the use of government-selected credit-rating agencies as an "important safeguard" in the management of mutual funds.

Still, this was a good week for America's markets, if not for Congress (see above). Regulators exercised admirable restraint, while investors showed a willingness to take risks and exercise their own judgments about these risks.

The Grassley Test

An Iowa Republican may decide the fate of ObamaCare.

By KIMBERLEY A. STRASSEL

Forget Max Baucus, Henry Waxman and Rahm Emanuel. If there's one guy who may hold the whole health-care world in his hands, it's Sen. Chuck Grassley. That ought to have President Barack Obama worried.

The Iowan has for months served as GOP point man on ObamaCare. He has an unusually tight relationship with his Democratic counterpart, Finance Committee Chairman Max Baucus. And he vowed early on that if there was a deal to be found, he'd find it.

Associated Press

Iowa Senator Charles Grassley

That determination gave Republicans heartburn. Conservatives saw Mr. Obama's sweeping health ambitions, and saw no good coming from the Grassley-Baucus powwow. Fresh in their minds was Mr. Grassley's past work to expand the State Children's Health Insurance Program, which the left marked as its first big step toward greater government health care.

Mr. Baucus knows that most major sustainable legislative achievements -- from the Reagan tax cuts to welfare reform -- have had bipartisan support. Getting Mr. Grassley's imprimatur meant getting moderate Republicans, maybe even a sizable chunk of the GOP. It meant shoring up nervous Dems. It meant a health reform that might last.

It also meant listening to Mr. Grassley. Committed as he's been to getting legislation, the Iowan has been clear on what he considers nonnegotiable. The White House and liberal Democrats have cavalierly ignored these parameters, vexing him greatly in the process. There are growing signs the Republican may exit the table. He won't have walked away; he'll have been shoved.

Mr. Grassley took President Obama at his word that the goal of this exercise was to lower costs and insure more Americans. But from the start he rejected the idea that this could be accomplished by government squeezing out the private market. At a White House health-care event in March, the Republican publicly warned that a government-run health insurance program -- the public option -- was an "unfair competitor" and a no-go.

In the spirit of compromise, he instead gravitated toward North Dakota Democrat Kent Conrad's proposal to set up a nonprofit cooperative to compete with private insurers. Savvy to stealth Democratic attempts to turn it into a de facto public option, he nonetheless issued ground rules about seeding it with government money and putting taxpayers on the hook if it fails. He wants no part of a "health-care Fannie Mae."

Along the way, Mr. Grassley delineated one other big requirement: Any bill had to be paid for from within the existing health-care system. No deficit spending. No Obama income tax hikes. An up-and-coming Tweeter, he reiterated his point Sunday, in response to House Ways and Means Chairman Charlie Rangel's proposed tax increases. "Chr Rangel wealthy 1pc make 27pc of total income pay 40pc of income tax U hv 5pc health care surtax How hi taxes go to satisfy u?Let's talk." Twitter shorthand aside, this is pretty clear.

Left to their camaraderie, Messrs. Baucus and Grassley might hammer this out. But Senate liberals, who never wanted compromise, are forcing Mr. Baucus to choose between their bread and Mr. Grassley's butter. The downward spiral began when Majority Leader Harry Reid, channeling the president, put the kibosh on Baucus-Grassley plans to pay for reform by taxing existing health benefits. The only quick and dirty way to fill the resulting $320 billion hole is with an income tax hike, which presumably loses Mr. Grassley. New York Sen. Chuck Schumer, senior member of the leadership and Finance Committee, is meanwhile making it his personal mission to develop precisely the sort of co-op that Mr. Grassley will detest.

The White House has unwisely needled the key Republican. Mr. Grassley takes his bipartisanship seriously and likes to note that he and Mr. Baucus craft proposals jointly, starting with a blank sheet of paper. On a recent Sunday talk show Obama adviser David Axelrod nonetheless feted a rival Senate bill, to which Chris Dodd had belatedly tacked a few minor Republican amendments, as bipartisan. The comment drew an unusually sharp Grassley rebuke that "Republicans are not going to be hoodwinked." Mr. Axelrod's ensuing boast that the White House is prepared to do this with Democratic votes alone has further tempted the Iowan to let them try.

The administration's rigid demand that Congress vote on bills before the August recess has now brought the issue to a breaking point. Mr. Grassley has condemned the artificial deadline, but Mr. Baucus is under pressure to produce. Should the Democrat put out a bill or schedule a hearing before settling with his counterpart, Mr. Grassley is likely to stop trying.

In anticipation, the White House has stepped up its Republican wooing (this week summoning Maine's Susan Collins, Alaska's Lisa Murkowski, Tennessee's Bob Corker and Georgia's Saxby Chambliss). Yet what Mr. Grassley can give, he can arguably take away. The sight of the Republican most committed to getting a deal being dissed by the White House and a maniacal Senate leadership will dissuade further GOP compromise. Combined with the Congressional Budget Office's terrifying analyses of how much this will cost, and its pronouncement yesterday that none of the existing Democratic bills will cut federal health costs, a Grassley defection could even cost Mr. Obama Democrats.

Mr. Grassley goes his own way, and he may yet irk Republicans. But so far he's serving as a good litmus test of how committed the Democratic majority is to working with the other side.

Obama Needs to 'Reset' His Presidency

The president we have is very different from the man who campaigned for the office in 2008.

TED VAN DYK

Time out, Mr. President.

As we approach the August congressional recess, it's clear that our economic distress is deeper than we thought, and thus your health-care and energy initiatives are in danger of stalling out. You could use a reset button for domestic policy.

Let's take it from the top.

Your presidential campaign was superb. You restored hope to millions -- including me -- who had been demoralized by the political polarization that characterized the presidencies of Bill Clinton and George W. Bush. You talked about reaching across party and ideological lines to get the public's business done. Your biography was appealing, and for those of us who entered politics motivated by the civil-rights struggle, your candidacy represented an important culmination.

David Klein

You displayed an intellect and sense of cool that made us think you would weigh decisions carefully and view advisers' proposals with skepticism.

The first warning signals for me came with your acceptance speech at the Democratic National Convention. In it, you stressed domestic initiatives that clearly were nonstarters in the already shrinking economy.

I had greater concern when you staffed your administration and White House with a large number of Clinton administration retreads who had learned their trade in the never-ending-campaign culture of the Clinton years. Some appeared to represent what you had pledged to eradicate in the capital.

Many of the missteps that have followed flowed, in part, from your reliance on these Clinton holdovers. Your chief of staff, Rahm Emanuel, defined your early strategy by stating that the financial and economic crises presented an "opportunity" to jam through unrelated legislation. To many of us, the remark was cynical and wrong-headed.

The crises did not represent an opportunity. They presented an obligation to do one thing: Return our financial system and our economy to good health.

Since January, your advisers have compared your situation to those of Presidents Franklin D. Roosevelt and Lyndon Johnson after their landslide victories in 1932 and 1964. In fact, your situation is quite different. Most centrally, FDR's and LBJ's victories and congressional majorities were far larger than yours. Thus their mandates were stronger.

FDR's first months in office were devoted entirely to financial and economic recovery. His big domestic initiative, Social Security, was not enacted until 1935. LBJ pushed an ambitious Great Society agenda into law in 1965. But the U.S. economy was growing robustly in 1965. Johnson referred to it as "an endless cornucopia" which would generate tax revenues to pay for the Great Society. When he learned in mid-1967 that the projected federal budget deficit was $28 billion -- almost twice the amount projected six months earlier -- he went to Congress to push for tax increases in order to prevent Vietnam War and Great Society spending from creating unacceptable deficits.

Your staff recently has compared your strategy in pushing health-care and energy initiatives to the way Johnson pushed his Great Society legislation. That's not a fair comparison. Johnson's initiatives were framed in the White House by his administration. But at every stage, congressional leaders of both political parties and financial, business, labor and other private-sector leaders were consulted. Johnson wanted to assure that his legislation was substantively sound and could get consensus support in the Congress and the country.

Your strategy, by contrast, has been to advocate forcefully for health-care and energy reform but to leave the details to Democratic congressional committee chairs. You did the same thing with your initial $787 billion stimulus package. Now, you're stuck with a plan that provides little stimulus until 2010. A president should never cede control of his main agenda to others.

This tactic has already had negative consequences. Frightened by the prospective costs of your health-care and energy plans -- not to mention the bailouts of the financial and auto industries -- independent voters who supported you in 2008 are falling away. FDR and LBJ, only two years after their 1932 and 1964 victories, saw their parties lose congressional seats even though their personal popularity remained stable. The party out of power traditionally gains seats in off-year elections, and 2010 is unlikely to be an exception.

What adjustments should be made?

- Cut back both your proposals and expectations. You made promises about jobs that would be "created and saved" by the stimulus package. Those promises have not held up. You continue to engage in hyperbole by claiming that your health-care and energy plans will save tax dollars. Congressional Budget Office analysis indicates otherwise.

It's time to re-examine these initiatives. Could your health plan be scaled back to catastrophic coverage for all -- badly needed by most families, but quite affordable if deductibles are set at the right levels? Should the Rube Goldbergian cap-and-trade proposals be replaced with a simple carbon tax, with proceeds to be allocated to alternative-fuels development?

The evolving health and cap-and-trade bills are loaded with costly provisions designed to gain support from congressional leaders and special-interest constituencies. In short, they have become an expensive mess. This legislation will not clear Congress by the August recess, as you have requested, and could be stalled for the remainder of 2009. Settle for incremental change: Do not press Democratic legislators to vote for something they fear will destroy them in 2010.

- Talk less and pick your spots.You are outdoing even Johnson and Mr. Clinton with your daily speeches in the capital and around the country.

Applause and adulation are gratifying. But the more you talk, the less weight your words will hold. Let voters see you at your desk, conferring with serious people about serious matters. When you do choose to talk, people will understand that it's important and they should listen.

- Conform your 2009 politics to your 2008 statements. During your campaign, you called for bipartisanship and bridge-building. You promised to reduce the influence of single-issue and single-interest groups in the policy process. Yet, in your public statements, you keep using President Bush as a scapegoat.

You have ceded content of your principal proposals to Democratic congressional leaders who in large part have yielded to special-interest constituencies and excluded Republican leaders from policy formulation. This certainly was the case with the stimulus plan. It has been the case with health and energy legislation, with the notable exception of Sen. Max Baucus's attempt in the Senate Finance Committee to develop genuinely bipartisan legislation.

You have an enormous reservoir of goodwill among Americans of all persuasions. They want you to succeed. Level with them and trim your proposals to what is practical in the current environment.

You had things right in 2008. Take a timeout. Get back to yourself. Make a fresh start.

Mr. Van Dyk was Vice President Hubert Humphrey's assistant in the Johnson White House and active in national Democratic politics over 40 years. He is the author of "Heroes, Hacks and Fools," (University of Washington Press, 2008).

Europe's Week Ahead: Telecom Operators

China Poses Little Risk For The Dollar

Investors Weigh Earnings

Stocks held steady Friday morning amid profit reports from a trio of blue-chip companies that all beat Wall Street's expectations, the latest installment in an earnings season that has been pleasantly surprising overall.

Major indexes were little changed. The Dow Jones Industrial Average slipped 11 points, or 0.1%, at 8723.15, its losses capped by a 3.2% rise in IBM after it reported a second-quarter profit that rose 12% from a year ago.

Market Data Center >

Other Dow stocks were mixed after reporting declines in their bottom lines that were nevertheless not as dire as analysts' feared. General Electric fell 4.8% after reporting a 47% drop in quarterly profit. Bank of America was down 0.2% after saying that its second-quarter income fell 5.5% due to higher merger charges and continued credit woes.

The market has risen in every full trading session so far this week – a streak that seems to have given way to a bout of fatigue in Friday's early action. However, traders are also settling expiring options bets, which may lead to increased volatility as the closing bell nears.

Other indexes were modestly lower. The technology-focused Nasdaq Composite Index was off 0.3%, hurt by a 3.5% decline in Internet-search giant Google, which reported profits late Thursday that topped forecasts. However, the company's revenue growth was meager due to the overall fall in spending on online advertising.

The S&P 500 slipped 0.3%, led by declines of around 1% each in its industrial and utilities categories. However, the financial sector was flat, helped in part by a 1% rise in Citigroup. The banking giant reported second-quarter revenue of $29.97 billion and a profit of 49 cents per share on a gain from the sale of Smith Barney.

Among stocks to watch, Mattel climbed 4.5% after topping analyst forecasts.

The economic calendar for the U.S. on Friday is thin. Housing starts increased 3.6% in June to a seasonally adjusted 582,000 annual rate compared to the prior month, the Commerce Department said Friday.

In Europe, shares advanced, putting markets on track for a fifth straight session of gains as major U.S. companies continued to beat earnings expectations.

Asia stocks rose, but gains were tentative ahead of the weekend.

Suicide Bombers Blamed for Deadly Jakarta Blasts

TOM WRIGHT

JAKARTA, Indonesia -- Suicide bombers set off explosions at two hotels here Friday morning that killed eight people and wounded 53, police said, in Indonesia's worst terrorist attack in four years.

National Police Chief Gen. Bambang Hendarso Danuri said the bodies of two suicide bombers were found near the J.W. Marriott and Ritz-Carlton in the city's central business district. At least one of the eight killed was a foreigner, but he said four bodies have yet to be identified. Eighteen of the people injured were foreigners, he said. A U.S. official said at least eight Americans were wounded in the blasts, the Associated Press reported.

Local Indonesian television has broadcast closed circuit video footage of the moment a bomb ripped through the Marriott hotel. Video courtesy of Reuters.

Timeline – Indonesian Bombings

Oct. 12, 2002: Bombs at two nightspots in Kuta, a major tourist district in Bali, kill 202.
Aug. 5, 2003: A suicide bombing at the entrance of the J.W. Marriott Hotel in Jakarta kills 12.
Sept. 9, 2004: A suicide bomb at the gate of the Australian Embassy in Jakarta leaves 10 dead.
Oct. 1, 2005: Bombs detonated at three Bali restaurants kill 20.
July 17, 2009: Bombings at Jakarta's J.W. Marriott and Ritz-Carlton hotels kill at least eight.

In a televised speech Friday, Mr. Yudhoyono said it was still unclear who was responsible, but that intelligence officials were aware of plans for violent efforts to oppose the election results. "It is known that there is a plan to conduct violence and general actions against the law in connection with the election result," Mr. Yudhoyono said in a speech carried live on local television. He didn't elaborate but added that some unnamed parties hope to destabilize Indonesia in a similar way to Iran, where protesters in recent weeks took to the streets to condemn election results there.

Jemaah Islamiyah, a local Muslim terrorist network linked to al Qaeda, carried out an earlier Bali nightclub bombing in 2002 that killed 202 people, as well as the first attack on the Marriott and a 2004 bombing of the Australian Embassy in Jakarta. The group has been largely broken up after scores of arrests. In November, authorities executed three members of Jemaah Islamiyah for carrying out the Bali bombings.

The U.S. government, meanwhile, has hailed Indonesia's counterterrorism campaign as one of the leading successes in the global campaign against al Qaeda and its affiliates. The U.S. and Australia have trained a special police antiterrorism unit called Detachment 88, which is credited with severely disrupting Jemaah Islamiyah's operations across the Indonesian archipelago. The terrorist organization's former leader, Hambali, was captured in Thailand in 2004 and is currently being held in Guantanamo Bay.

The Obama administration has also cited Indonesia as a model for the Islamic world because of its successful transition from an authoritarian government under the late dictator, Suharto, to an open, democratic political system. Only a small number of Indonesia's 240 million people adhere to a strict version of Islam, and support for terrorist attacks is low.

Ansyaad Mbai, head of the counterterrorism desk at Indonesia's Coordinating Ministry for Political and Security Affairs, said it was too early to officially say who carried out the attacks before the police conduct an investigation. But he pointed out that Islamist terrorists still have the capacity to mount attacks.

View Full Image

Reuters

Police stand guard in front of the Ritz Carlton in Jakarta after nearly simultaneous explosions at the Ritz-Carlton and the Marriott on Friday.

Just three days ago, police uncovered explosive materials in a house in Central Java, while searching for Noordin Mohammad Top, a Malaysian master bomb maker who is wanted in connection with a number of recent attacks, including the earlier Marriott attack, and the strikes on Bali nightclubs and the Australian Embassy, Mr. Mbai said. "Noordin Top is still free and he has the capacity to make bombs," he said.

Investors seemed to be taking the attacks in stride. Jakarta's benchmark stock index opened down more than 2% but finished only 0.6% lower Friday. In currency markets, the Indonesian rupiah fell against the U.S. dollar but was propped up in part by Indonesia's central bank. Other Asian markets were unaffected.

"Unless this event is the beginning of an increased frequency of these attacks, then I think the impact will quickly fade and we'll go back to thinking about Indonesia the same way we were thinking about it the instant before this hit the headlines, which was very positive," said Tim Condon, an economist at ING in Singapore.

Still, Friday's attacks shattered the sense that Jakarta was becoming too secure for terrorists to hit. Despite the high-profile bombing of the Marriott in 2003, the area around the hotel -- which includes foreign embassies -- has remained extremely popular among well-to-do Indonesians and foreign business travelers, and there was a perception that security had been increased to such a degree that a repeat attack was unlikely if not impossible.

The attacks also may stretch the capabilities of Detachment 88, the antiterror squad, which has hundreds of officers in Papua province after an attack last weekend outside a mine run by Freeport-McMoRan Copper & Gold Inc. that left three security guards and police dead. The police have blamed that attack on Papuan separatists. The head of Detachment 88, who is in Papua, declined to comment on the hotel attacks.

The bombings in Jakarta are the latest in a series of attacks on luxury foreign-branded hotels in South and Southeast Asia. In June, nine people were killed in an attack on the Pearl Continental hotel in Peshawar in northwestern Pakistan. Last September, at least 54 people were killed when a suicide bomber blew up an explosive-laden truck outside a Marriott-branded hotel in Islamabad, Pakistan.

The most brazen and deadly attack was carried out in Mumbai last November, when 10 young men arrived by boat from Karachi and laid siege to three of the Indian city's landmark hotels: the Taj Mahal Palace & Tower, and a complex housing the Oberoi and Trident hotels. The attacks left more than 170 dead, including nine attackers.

Thursday, July 16, 2009

A Reckless Congress

Democrats want to ram through one of the greatest raids on private income and business in American history.

Say this about the 1,018-page health-care bill that House Democrats unveiled this week and that President Obama heartily endorsed: It finally reveals at least some of the price of the reckless ambitions of our current government. With huge majorities and a President in a rush to outrun the declining popularity of his agenda, Democrats are bidding to impose an unrepealable European-style welfare state in a matter of weeks.

Mr. Obama's February budget provided the outline, but the House bill now fills in the details. To wit, tax increases that would take U.S. rates higher even than most of Europe. Yet even those increases aren't nearly enough to finance the $1 trillion in new spending, which itself is surely a low-ball estimate. Meanwhile, the bill would create a new government health entitlement that will kill private insurance and lead to a government-run system.

Hyperbole? That's what people said when we warned about this last fall in "A Liberal Supermajority," but even we underestimated the ideological willfulness of today's national Democrats. Consider only a few of the details:

A huge new income surtax. The bill's main financing comes from another tax increase on top of the increase already scheduled for 2011 under Mr. Obama's budget. The surtax starts at one percentage point for adjusted gross income above $350,000 in 2011, rising to two points in 2013; a 1.5 point surtax at incomes above $500,000, rising to three in 2013; and a whopping 5.4 percentage points in 2011 and beyond on incomes above $1 million.

This would raise the top marginal federal tax rate back to roughly 47% or 48%, if you include the Medicare tax and the phase-out of certain deductions and exemptions. With the current top rate at 35%, this would be the largest rate increase outside the Great Depression or world wars.

The average U.S. top combined state-federal marginal tax rate would hit about 52%. This would be higher than in all but three (Denmark, Sweden, Belgium) of the 30 countries measured by the OECD. According to the nearby table compiled by the Heritage Foundation, taxpayers in at least five U.S. states would pay higher marginal rates even than Sweden. South Korea, which Democrats worry is stealing American jobs, would be able to grab even more as its highest rate is a far more competitive 38.5%.

House Democrats say they deserve credit for being honest about the tax increases needed to fund their ambitions. But then they also claim that this surtax would raise $544 billion in new revenue over 10 years. America's millionaires aren't that stupid; far fewer of them will pay these rates for very long, if at all. They will find ways to shelter income, either by investing differently or simply working less. Small businesses that pay at the individual rate will shift to pay the 35% corporate rate. When the revenue doesn't materialize, Democrats will move to soak the middle class with a European-style value-added tax.

Phony numbers. Democrats will have to come up with something, because even the surtax puts their bill at least $300 billion short of honest financing. The public insurance "option" doesn't even begin until 2013 and the costs are heavily weighted toward the later years, but the tax hikes start in 2011. So under Congress's 10-year budget window, the House bill is able to pay for seven years of spending with nine years of taxes. Andy Laperriere of the ISI Group estimates the bill would add $95 billion to the deficit in 2019 alone.

Then there's yesterday's testimony, from Congressional Budget Office (CBO) Director Doug Elmendorf, that ObamaCare's cost "savings" are an illusion. Mr. Obama claims government can cover more people and pay less to do it. But Mr. Elmendorf told the Senate Finance Committee that "In the legislation that has been reported we don't see the sort of fundamental changes that would be necessary to reduce the trajectory of federal spending by a significant amount. And on the contrary, the legislation significantly expands the federal responsibility for health-care costs."

Further on the public plan: "It raises the amount of activity that is growing at this unsustainable rate."

No matter, Speaker Nancy Pelosi is whisking the bill through House committees even before CBO has had a chance to score it in detail. As Wisconsin Republican Paul Ryan put it to us, "We will not have read it, and we will not have a score of it, but we will have passed it out of committee."

A new payroll tax. Unemployment is at 9.5% and rising, but Democrats will nonetheless impose a new eight percentage point payroll tax on employers who don't provide health insurance for employees. This is on top of the current 15% payroll tax, and in addition to a new 2.5-percentage point tax on individuals who don't buy health insurance. This means that any employer with more than $400,000 in payroll would have to pay at least 25% above the salary to hire someone. Result: Many fewer new jobs, with a higher structural jobless rate, much as Europe has experienced as its welfare states have expanded.

Other new taxes, including an as yet undetermined levy on private health plans. This tax, which Democrats say could raise $100 billion or so, would make it even harder for private plans to compete with the government plan, which would already benefit from government subsidies and lower capital costs. For good measure, the House bill also gets the ball rolling on tax increases on foreign-source corporate income.

We could go on, and we will in coming days. But the most remarkable quality of this health-care exercise is its reckless disregard for economic and fiscal reality. With the economy still far from a healthy recovery, and the federal fisc already nearly $2 trillion in deficit, Democrats want to ram through one of the greatest raids on private income and business in American history. The world is looking on, agog, and wondering why the United States seems intent on jumping off this cliff.

Barbara Boxer Plays the Race Card Against a Black Businessman

Another Day - Another Czar 2

Was Obama's Russia Trip a Success?

There are still no signs of a more cooperative Kremlin

Cathy Young

While the mainstream media have hailed the advances in U.S.-Russian relations supposedly achieved on Barack Obama's trip to Moscow, some conservative commentary has depicted Obama as a pushover if not a dupe for the Kremlin. The cheerleading and the alarmism are both unwarranted. The visit was no great success, but Obama probably did as well as any president could have—and some aspects of his Russia strategy can only be judged by their long-term results.

Were there significant steps forward in Moscow last week? Doubtful. The "promising arms reduction agenda" praised by former New York Times Moscow bureau chief Philip Taubman is mostly a nostalgic recreation of a Cold War-era ritual dance, largely meaningless today when war between nuclear superpowers is of far less concern than nukes in the hands of terrorists or rogue states such as North Korea or Iran. Nuclear disarmament is a fetish for American liberals because it's about getting rid of big bad missiles, and for the Russian political elites because it's one area where they can feel equal to the Americans.

On North Korea and Iran, there is still no sign of the Kremlin being more cooperative—and it is far from clear that even genuine Russian cooperation would accomplish much. The one tangible agreement, allowing U.S. military supply routes to Afghanistan through Russian air space, is modestly beneficial to the United States; of course, it also helps Russia, which does not want a radical Islamic state across its borders.

If reports of success are farfetched, so are claims that Obama has made dangerous concessions to get a Potemkin triumph. New York Post columnist Lt. Col. Ralph Peters is concerned that, in the "Joint Understanding" on arms control signed by Obama and Russian President Dmitry Medvedev, the U.S. agrees to cut not only nuclear weapons but warhead delivery systems (bombers, submarines, and intercontinental ballistic missiles) which are also used for conventional firepower. Russia, Lt. Col. Peters warns, wants to downgrade America's conventional military strength. Sure it does. But the U.S. position, which he never mentions, remains that delivery devices converted to conventional use should be excluded from the limit set by the treaty.

Is Obama trading away missile defense installations in Eastern Europe, as Washington Post columnist Charles Krauthammer and others charge? The "Joint Understanding" does state that the treaty talks will include "the interrelationship of strategic offensive and strategic defensive arms." Yet Obama also said in his press conference with Medvedev that the planned missile defense site in Poland and the Czech Republic should not be part of this linkage, since it is "designed to deal with an entirely different threat." High-level officials confirm that the administration is not giving up the Eastern European site, though a review of its effectiveness is pending.

Nor is it true that Obama has given Russia carte blanche in Georgia, Ukraine, and other former Soviet domains. At the Moscow press conference, he singled out Georgian sovereignty as a topic of "frank discussion" with Medvedev and stressed the need to avoid "renewed military conflict." Russian commentator Andrei Piontkovsky, no Obama fan, writes on the independent Russian site Grani.ru that Obama "has done what he could" to avert a new war in Georgia, both by his behavior in Moscow and by having Vice President Biden travel to Georgia and Ukraine later this month.

Despite Obama's outward coziness with the Kremlin junta, his message struck many right notes. His speech at Moscow's New Economic School was apology-free, with no contrition for such alleged injuries as NATO expansion or missile defense. Instead, Obama reiterated America's commitment to freedom as a universal value and spoke of free speech, the rule of law, and competitive elections. While paying tribute to Russia's place as a great power, he delivered a scathing indictment of Putin-era Kremlin ideology—from the belief that "a strong Russia or a strong America can only assert themselves in opposition to one another" to the idea of "spheres of influence."

Of course, cooperation with authoritarian regimes has it pitfalls. Thus, the civil society section of the new U.S.-Russia bilateral presidential commission is co-chaired by Kremlin ideological enforcer Vladislav Surkov (think Bernie Madoff on a business ethics panel). Yet one could look at the upside: the U.S. co-chair is White House special assistant Michael McFaul, a strong critic of Russian authoritarianism who worked with Russia's democracy movement in the 1990s—and could be a vital liaison for Russian opposition leaders and human rights activists.

Obama's meeting with those activists, who mostly gave him high marks, was an important step. More intriguing, though, was his conspicuous effort to treat Medvedev, not his mentor and senior partner Prime Minister Vladimir Putin, as Russia's true leader. (According to Russian journalist Yevgenia Albats, the Kremlin tried to delay the announcement of the "Joint Understanding" until after Obama's breakfast with Putin; the U.S. refused.) Even Obama's slightly ludicrous praise for Medvedev's commitment to achieving the rule of law could be attempted positive reinforcement.

The signal to Russia seems to be that if Medvedev asserts himself and chooses reform, he will have American support. Given the murkiness of Kremlin politics, this tactic has its risks: the U.S. could be investing political capital in someone who could be either a puppet or - even as his own man—another dubious ally. Still, as long as Obama's team proceeds with caution, it is a genuine if small chance to encourage change.

The administration's Russia policy deserves careful but fair scrutiny. Uncritical praise for symbolic "advances" is not helpful. Neither is criticism based on stereotypes of Obama as a foreign policy weakling.

Cathy Young is a contributing editor at Reason magazine. This article originally appeared at RealClearPolitics.

THE LIBERTARIAN

Friday, July 17, 2009