Stephen’s Posterous

Karl Rove, former senior adviser and deputy chief of staff to President George W. Bush, says that the elections on November 3, should scare Democrats.

President Obama was said to have redrawn the electoral map by winning Virginia last year with 53% of the vote. However, on November 3, Republican Bob McDonnell flipped the state back to the GOP.

Mr. Obama carried New Jersey easily last year with 57% of the vote, but on November 3, Republican Chris Christie ousted Democratic Gov. Jon Corzine.

Mr. Obama carried Pennsylvania last year by 10 points, but on November 3, Republican Judge Joan Orie Melvin was elected to the state's Supreme Court. The trend is that suburban and independent voters moved into the GOP column.

A 5-point swing in 2010 could bring a big wave of change. Democrats currently have 60 votes in the Senate, and Republicans 40. With a 5-point swing away from Democrats last fall, the party would have started this year with 54 seats and the Republicans 46.

A 5-point shift in 2006 would have left the GOP in control of the House. In 2008, a five-point shift would have produced a Democratic loss of six House seats rather than a gain of 21.

The bad news for Democrats is that the legislation that helped lead to the collapse of support for their party on election day may inflict more pain on those foolish enough to support it as the health-care bill House Speaker Nancy Pelosi wants to vote on this week could sink an entire fleet of Democratic boats in 2010.

The bill is more expensive than advertised. The Congressional Budget Office (CBO) pegs its cost at $1.055 trillion over 10 years, not the $894 billion Mrs. Pelosi claims.

In the House bill there is a $2 billion tax on those who already have health insurance, $20 billion in taxes on medical devices, $8 billion in taxes on anyone who buys over-the-counter drugs with money from their health-savings accounts, and $140 billion in higher taxes on drugs.

Mrs. Pelosi's bill will drive up premiums. A family of four with an income of $78,000 would pay $13,800 for insurance a year by 2016, according to CBO.

The CBO estimates the public option will have higher premiums than private plans, even though it will get a $2 billion, interest-free start-up loan from the government. The bill dumps $34 billion onto already strained state budgets by pushing more of the working poor off private insurance and into Medicaid.

The election results for November 3, were the first sign that voters are revolting against runaway spending and government expansion.

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Karl Rove says that President Obama's problem is that his Magic Kingdom Health Care World is colliding with reality.

There is a big cost to any large government expansion and the ways to cover the cost of Mr. Obama's plan are limited, unpopular, and sure to anger Americans once they are fully understood.

Negotiations over the real health care bill can now begin according to Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush.

Democrats face a central problem for any governing party on how to pass a major piece of legislation when there are a lot of varying ideas about what should be in the bill.

Members of Congress will take a hard stand on a particular portion of a controversial bill. This allows them to show a little independence and make a plausible claim to have influenced the outcome.

The problem for Mr. Obama is that the Baucus bill is being sold on the strength of accounting tricks that make it appear that it won't add to the deficit.

If fiscally conservative Democrats sign on to the bill now after publicly saying they are doing so because it doesn't add to the deficit, they may end up bailing once the tricks are revealed to the public.

Mr. Rove says that one trick is that the bill imposes tax hikes and benefit cuts right away, including $121 billion of Medicare reductions between 2011 and 2015. New spending doesn't start until five years out and isn't fully operational until 2017. The bill uses 10 years worth of tax hikes and benefit cuts to fund a few years worth of benefits.

Mr. Rove points out that the Congressional Budget Office (CBO) released a report last week claiming the bill won't add to the deficit, but this assumes that employers who dump employee coverage under the Baucus bill will then increase worker paychecks by an amount equal to what they had spent on health care.

This replaces a nontaxable event with a taxable one magically producing $83 billion in revenues. Without this, the Baucus bill adds billions of dollars to the federal deficit in the first decade.

Under questioning at a Senate hearing Tuesday, CBO Director Douglas Elmendorf admitted that the $500 billion in tax hikes in the Baucus bill would be passed onto consumers, increasing insurance premiums.

Democrats who support any final bill are at risk. They will be held responsible for the mess when premiums rise, taxes balloon, deficits soar, mandates expand, and government power grows.

Mr. Rove says that the President who never stopped campaigning hasn't made the sale to Americans because he's forgotten a central rule of campaigning: Your arguments have to be clear and credible if voters are to believe them.

Mr. Obama's attempt to sell health care is neither. He still may win passage of a bill, but he's lost the public's enthusiastic backing.

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Karl Rove, the former senior adviser and deputy chief of staff to President George W. Bush, writes in his weekly column in The Wall Street Journal that President Obama is now using fear to sell his health care plan.

On the campaign trail last year, Barack Obama promised to end the politics of fear and cynicism, but now he is now trying to sell his health-care proposals on fear.

At his news conference the week of July 20, Mr. Obama said "Reform is about every American who has ever feared that they may lose their coverage, or lose their job...If we do not reform health care, your premiums and out-of-pocket costs will continue to skyrocket. If we do not act, 14,000 Americans will continue to lose their health insurance every single day. These are the consequences of inaction."

Responding to a White House proposal to create an independent panel to recommend Medicare cuts, the Congressional Budget Office (CBO) said on July 25, 2009, that the probability is high that no savings would be realized in the next decade, while entitlement spending would rise $1.042 trillion. The CBO did say there might be $2 billion in savings in the second decade of the program.

White House Budget Director Peter Orszag reponded to the CBO with a blog posting on the White House’s Web site saying that the point of the proposal was never to generate savings over the next decade. But yet, the White House rolled out the proposal hoping to give cover to Blue Dog Democrats in Congress complaining about the cost of overhauling health care.

Mr. Rove says that the House version of ObamaCare adds to the deficit even though the new taxes to pay for part of it begin two years before the program itself kicks in. That head start puts ObamaCare in the black through 2013, but net new spending after that overwhelms future revenue to add to the deficit each year.

Keith Hennessey, who was a National Economic Council director for George W. Bush, estimates the annual deficits in Mr. Obama’s plan will grow to $64 billion a year by 2019. This assumes that Mr. Obama gets all the tax increases and Medicare cuts he wants.

On July 26, 2009, the CBO reported it would "probably generate substantial increases in federal budget deficits during the decade beyond the current 10-year budget window." The CBO does not believe that Mr. Obama’s proposal bends health-care spending down, as the president has repeatedly claimed it would. The CBO says it escalates above today’s rate.

By 2029, Mr. Hennessey estimates that new taxes will bring in $143 billion a year, while net new health spending will have increased by $348 billion a year.

Mr. Rove says that nine out of 10 Americans would likely get worse health care if ObamaCare goes through. Of those who do not have insurance, approximately one-fifth are illegal aliens, nearly three-fifths make $50,000 or more a year and can afford insurance, and just under a third are probably eligible for Medicaid or other government programs already.

Mr. Rove says that for the slice of the uninsured that is left, about 2% of all American citizens, Team Obama would dismantle the world’s greatest health-care system. That’s a losing proposition, which is why Mr. Obama is increasingly resorting to fear and misleading claims. It’s all the candidate of hope has left.

According to a new Wall Street Journal/NBC News poll, support for President Barack Obama's health-care effort has declined over the past five weeks, particularly among those who already have insurance.

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Karl Rove, a former senior adviser and deputy chief of staff to President George W. Bush, writes in his weekly editorial article in The Wall Street Journal that the polls are turning against President Barack Obama’s health-care plan as well as his political agenda.

Mr. Rove extracts some statistics that shows that those who strongly disapprove of the president’s approach on health care now outnumber those who strongly approve by 33% to 25%. And 49% of independents disapprove of the president’s approach, up from 30% in April 2009.

Those who strongly disapprove now outnumber those who strongly approve of his handling of the economy by 35% to 29%, and of deficits, 38% to 19%, and of unemployment, 31% to 26%.

The Gallup showed Mr. Obama’s personal approval was 55%, down from more than 60% a few weeks ago and lower than the 56% George W. Bush had at this point in his first term. Mr. Rove says that the polls are crumbling because of a flood of bad news about Mr. Obama’s health-care proposals.

A July 17, 2009, study by the Lewin Group projects that if the House bill becomes law, 83.4 million people will lose private insurance as employers drop their plans.

Democratic governors from Colorado, Tennessee, New Mexico and Washington joined GOP colleagues at the National Governors Association summer meeting to challenge the Obama administration on plans to shift millions of families into Medicaid.

Congressional Budget Office (CBO) Director Douglas Elmendorf said in a July 17, 2009, letter that the House’s health-care bill would result in a “net increase in the federal budget deficit of $239 billion” over 10 years. Mr. Rove says that this is a low-ball estimate because it assumes that Congress will increase taxes by $583 billion over the next decade.

Ways and Means Committee Chairman Charlie Rangel says he’ll pay for the Obama health proposal by raising taxes on Americans making $280,000 a year or $350,000 for couples.

Mr. Rove ends by writing:

Democratic leaders, including the president, are now backing away from a vote on health care before August. But that’s not likely to decrease voter angst. Americans for Prosperity and others are already organizing voters to attend public meetings with members of Congress this summer. My guess is that members of Congress are about to hear a lot from their voters on the government takeover of health care, new energy taxes, the failed stimulus, record deficits, and growing joblessness.

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From Ari Fleischer, former press secretary for President George W. Bush

If you thought Bernard Madoff's Ponzi scheme was bad, wait until you hear about the inverted pyramid scheme the federal government is working on. While Mr. Madoff preyed on people who trusted him with their money, the federal government has everyone's money, and the implications of its actions are worse.

Picture an upside-down pyramid with its narrow tip at the bottom and its base on top. The only way the pyramid can stand is by spinning fast enough or by having a wide enough tip so it won't fall down.

The federal version of this spinning top is the tax code; the government collects its money almost entirely from the people at the narrow tip and then gives it to the people at the wider side. So long as the pyramid spins, the system can work. If it slows down enough, it falls.

It's also what's called redistribution of income, and it is getting out of hand.

A very small number of taxpayers, the 10% of the country that makes more than $92,400 a year, pay 72.4% of the nation's income taxes. They're the tip of the triangle that's supporting virtually everyone and everything. Their burden keeps getting heavier.

As a result of the 2001 tax cuts enacted by a bipartisan Congress and signed by President George W. Bush, the share of taxes paid by the top 10% increased to 72.8% in 2005 from 67.8% in 2001, according to the latest data from the Congressional Budget Office (CBO).

Contrary to the myth that Mr. Bush cut taxes only for the wealthy, the 2001 tax cut reduced taxes for every income-tax payer in the country. He reduced the bottom tax rate to 10% from 15% and increased the refundable child tax credit to $1,000 from $500 per child, both cuts that President Barack Obama says we should keep.

In so doing, millions of lower income taxpayers were removed from the tax rolls, shifting the remaining burden to those at the top, even after their taxes were cut.

According to the CBO, those who made less than $44,300 in 2001, 60% of the country, paid a paltry 3.3% of all income taxes. By 2005, almost all of them were excused from paying any income tax. They paid less than 1% of the income tax burden. Their share shrank even when taking into account the payroll tax.

In 2001, the bottom 60% paid 16.3% of all taxes; by 2005 their share was down to 14.3%. All the while, this large group of voters made 25.8% of the nation's income.

When you make almost 26% of the income and you pay only 0.6% of the income tax, that's a good deal, courtesy of those who do pay income taxes. For the bottom 40%, the redistribution deal is even better.

In 2001, these 43 million Americans, who earn less than $30,500, made 13.5% of the nation's income but paid no income tax. Instead, they received checks from their taxpaying neighbors worth $16.3 billion. By 2005, those checks totaled $33.3 billion.

Today, Mr. Obama and many congressional Democrats want the "wealthy" to pay even more so there is more money for them to redistribute. The president says he wants the wealthy to pay their "fair share." Who can argue with that? But he never defines what that means.

Is it fair for 10% to pay 70% of the income tax? Does he believe they should pay 75%, or 95%, or does fairness mean they should pay it all? It's clever politics to speak like that, but it is risky policy.

Mr. Obama is adding to this trend with his "Make Work Pay" tax cut that means almost 50% of the country will no longer pay any income taxes, up from a little over 40% today. A certain amount of income redistribution in a capitalistic society is healthy, but this goes too far.

The economic and moral problem is that when 50% of the country gets benefits without paying for them and an increasingly smaller number of taxpayers foot the bill, the spinning triangle will no longer be able to support itself.

Eventually, it will spin so slowly that it falls down, especially when the economy is contracting and the number of wealthy taxpayers is in sharp decline.

In addition to exempting almost 50% of the country from income taxes, today nearly every other social cause is given a loophole or a preference in the tax code. Want to buy a hybrid vehicle? You get a tax break. Do you own a solar water heater? You get a credit. Want to give to charity? You get a deduction. Own a house?

There's another tax deduction for you. How about college savings, certain medical costs, and retirement savings? Yes, yes, and of course yes. Did you move, pay alimony, or "provide housing to a Midwestern displaced individual"? More deductions, credits and exemptions there too, if you qualify.

Everyone now has a sacred cow in the tax code. For my money, the most sacred thing of all is our country and its growth, but the sacred cows have turned into a pack of wolves. On both the spending and the tax side, the wolves are devouring our children's future.

Senate Budget Chairman Kent Conrad (D., N.D.) wants to cut hundreds of billions of dollars from the president's budget, but that's small potatoes given the size of the deficit. The debt problem is so big and hopeless, Congress's normal nips and tucks won't work. Something more fundamental needs to happen.

It's time to create an Economic Growth Code whose purpose is to fix and grow the economy, not redistribute massive amounts of wealth. A new tax code that creates growth and reforms our entitlement system is the only way to dig our way out of the hole we're in.

Under an Economic Growth Code, everyone in American would pay income taxes, everyone. Such a system would be designed to foster broad-based growth for all, in contrast to the loophole-ridden system we have today. Not only is the current code flawed from top to bottom, it is used by politicians to divide the public along class lines and fails to promote prosperity.

Growth is the key to keeping the pyramid spinning, and to keep spinning the pyramid's tip needs to be broadened. Otherwise a country that was raised to believe that national bankruptcy happened elsewhere may have to think again. Given the state of the economy and trillion-dollar deficits projected as far as the eye can see, we need to return to an era of more conservative, fiscal discipline.

Congress should start by refusing to go along with Mr. Obama's promise to cut taxes for 95% of the country. With the government running an almost $2 trillion deficit, no one should have their taxes cut, no one. Given the size of the deficit, fiscal responsibility demands nothing less.

Republicans in Congress need to develop their own version of an Economic Growth Code, an alternative tax code that directly targets the current mess and helps us to grow our way out of it. Republicans should not doodle in the margins; they should use their minority status to launch the next big movement in policy and politics. Nothing creates revenue like growth and that's where Republicans should make their mark.

I favor the abolition of all Social Security, Medicare and estate taxes. In their place, we should create a simple income tax system that has no deductions or credits at all. The result would be a progressive, multitiered income tax in which everyone pays.

The bottom 50% won't be excused from paying the cost of government and top earners will no longer have the loopholes they're used to. The middle-class, whose wages have stagnated, will benefit from economic growth. Social Security and Medicare will be funded from income taxes, ending the myth that these programs are supported through government trust funds and payroll taxes.

The tax base will broaden dramatically, allowing rates to fall and helping to foster what's most important, economic growth.

I'd also create a mechanism so tax rates go up or down for everyone, no more dividing the country by lowering taxes for some or raising them only for others. A revenue system whose purpose is to pay the government's bills should apply fairly to one and all. If Congress wants to raise or cut taxes, it should do so for everyone.

Another benefit is that such a system will create an environment in which spending programs receive the scrutiny they deserve. It's funny what happens when everyone pays the bills; Americans may want less spending so they can pay fewer bills.

Ari Fleischer is President of Ari Fleischer Communications.

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Based on the costs of fiscal stimulus and the bank bailout, the US’ federal government debt to GDP ratio is heading much higher. While other factors are important, that suggests the credit quality of currently top-rated US Treasury debt may trend down. That’s not a complete disaster, but it means Treasuries won’t really be a safe-haven investment either.

Assuming deficit projections by the Congressional Budget Office for the 2009 and 2010 fiscal years are right, and adding in the cost of the stimulus plan, the bank rescue plan and borrowing costs, US public debt would rise from 41% of GDP in September 2008 to about 70% of GDP in September 2011.

After 2011, the US debt-to-GDP ratio is expected to decline again. The CBO projects deficits of less than 2% of GDP after 2012, and the capital injected into the banking system under the government’s bailout plans should start to produce some returns for taxpayers around that time.

There are considerable downside risks. The CBO projections are based on optimistic assumptions: that growth averages 4% annually between 2011-14, that the Bush tax cuts and Alternative Minimum Tax relief all expire in December 2010 and that discretionary spending only increases in line with inflation after 2010.

The falling debt scenario also assumes that none of the expenditures under the stimulus plan migrate into annual spending after 2010. Should the recession deepen, or persist beyond the end of 2010, higher budget deficits could become entrenched. Finally, the projection assumes US interest rates remain low. With Treasury bond maturities now averaging only 48 months, higher interest rates would rapidly feed into higher borrowing costs and budget deficits.

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From Karl Rove, former Senior Advisor to President George W. Bush

Congressional Republicans lack President Barack Obama's bully pulpit and do not have the majorities that House Speaker Nancy Pelosi and Senate Democratic leader Harry Reid enjoy. But they are playing their hand extraordinarily well.

Over the past month, House Republicans have used the stimulus bill to redefine their party, present ideas on how to revive the economy, and force congressional Democrats and the president to take ownership of the spending programs soon to be signed into law.

The first smart move House Republicans made was to raise objections to specific parts of the House stimulus bill. Pointing out that there is money in the bill for condoms, livestock insurance, refurbishing the National Mall, and other outlandish things revealed that it is a massive spending spree, not an economic stimulus.

House Republicans had the wisdom to continue to talk to the Obama White House. This made them look gracious, even as the president edged toward a "my way or the highway" attitude.

They also wisely put ideas on the table, such as cutting the bottom two income tax rates and small-business taxes while extending unemployment insurance and other safety-net provisions. With these proposals, Republicans generated news and made it possible for their members to be for something that made sense to their voters.

It also helped that the same methodology that the White House used to claim that the Democratic stimulus bill would create four million new jobs showed that the Republican approach would create six million new jobs, at half the cost.

The payoff is that support for the stimulus bill is falling. CBS News polling reveals a 12-point drop in support of the bill over the past month. Pew Research and Rasmussen have turned in similar numbers. The more Americans learn about the bill, the less they like it.

What is becoming clear is that the House GOP is becoming energized by empowering its "Young Guns." Leader John Boehner has been good. But he wouldn't be as effective if he didn't have the help of Reps. Eric Cantor, the No. 2 House Republican, and Mike Pence, the House GOP conference chairman. Reps. Paul Ryan and Dave Camp, the top Republicans on the Budget and the Ways and Means committees, are impressive and add depth to the leadership team.

Over in the Senate, Republicans have likewise followed a "better ideas" strategy. Mitch McConnell pushed to make aid to states loans, not grants, and to cut income taxes for the middle class. Other Republican senators came in with ideas to fix housing, put money in the hands of taxpayers, and cut fat from the stimulus.

They also asked the Congressional Budget Office if the Democratic Senate bill was actually stimulative. The nonpartisan CBO found it would have a "negligible" impact on jobs by 2011 and hurt economic growth and prosperity over the next decade.

Mr. Obama will get his bill. But it won't be one focused on job creation and stimulus. The bill he signs will create a raft of new programs and be the biggest peacetime spending increase in American history, which will give us larger deficits and create pressure to raise taxes. It will also hinder the president's other goals, such as expanding government health care.

But if Republicans predict economic doom, they will overplay their hand. The Democratic stimulus will slow recovery, but not stop it. Recessions don't last forever and, if history is a guide, sometime late this year or early next the economy will rebound on its own. When that happens, Democrats will argue that their untargeted, permanent spending actually revived the economy.

Americans are skeptical of the notion that increasing the size and cost of government will lead to an increase in jobs and economic growth. A recent CBS News poll, for example, shows that 62% of Americans think "reducing taxes" will "do more to get the U.S. out of the current recession" -- nearly three times the 22% who prefer "increasing government spending."

A recent NBC News/Wall Street Journal poll found that 60% of Americans are worried that government will "spend too much" to boost the economy. Only 33% worry it will spend "too little."

The debate here is about means, not ends. Americans and both parties want a revived economy. Republicans want focused proposals that create jobs and growth, while the White House seems ready to accept what House and Senate appropriators have drawn up.

Mr. Obama, for all his talents, has already re-energized the GOP and sparked a spending debate that will last for years. The president won this legislative battle, but at a high price -- fiscally and politically.

Mr. Rove is the former senior adviser and deputy chief of staff to President George W. Bush. 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. Visit Mr. Rove on the web at Rove.com.

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