Last Tuesday I critiqued one of President Obama’s comments in my post “Which is the decade of profligacy?” Mr. Jonathan Chait, Senior Editor of The New Republic, wrote a response which he labeled “the beatdown that was nine years in the making,” and his “smackdown post.” I welcome TNR readers who are new to my blog.

Mr. Chait mistook my intent:

Keith Hennessey is tired of the Obama Administration dragging its predecessor’s name through the mud. Hennessey actually tries to make the argument that Obama’s policies are more profligate than Bush’s.

My intent was instead to correct the logic of and critique the absence of policy solutions from President Obama. I would note that President Bush has remained silent while repeatedly attacked, to allow President Obama the running room he needs to make decisions.

I will respond here to Mr. Chait’s arguments (using his numbering).

1. On the decline in surpluses during the Bush Administration

Argument: Mr. Chait writes, “To cast the Administration as victims of a ‘mistake’ requires a staggering level of chutzpah.”

Response 1: If I created the impression of victimization, I apologize. Yes, the tax cut and the post-9/11 spending increased the budget deficit relative to what it otherwise would have been. So did the wars in Iraq and Afghanistan and the Medicare drug benefit. The Obama Administration suggests, however, that the entire decline in the surplus was the result of policy decisions. That is clearly incorrect. CBO said that 40% of the surplus decline from 2001 to 2002 was the result of forecasting error and a failure to predict the recession. The other 60% was the results of policy choices by President Bush and the Republican Congress, most importantly the tax cut.

Response 2: There was a significant forecasting error that overestimated projected surpluses. Mr. Chait suggests I claimed the Bush Administration was “blindsided.” My argument is a little different. Given that we now know that the January 2001 economic and surplus projections were wrong, it is misleading for Team Obama to use those knowingly incorrect projections to describe the effects of Bush Administration policies.

Response 3: These were not just budget surpluses, they were surplus revenues. When President Bush took office there were budget surpluses largely because taxes far exceeded their historic average. In 2000 taxes were 20.6 percent of GDP, more than two percentage points higher than the historic average. That same year the budget surplus was 2.4 percent of GDP. The budget surpluses existed mostly because the government was taking much more from the private sector than it had historically taken.

Response 4: Three things can be done with a dollar of surplus: return it to the taxpayers, use it to pay down debt, or increase spending on a government program. Team Obama and its allies suggest that if we had not cut taxes and the surpluses had remained in Washington, then all these surplus revenues would have been used to pay down debt. I think it’s far more likely that Congress would have figured out ways to increase government spending (yes, sadly even with Republican Congressional majorities). For me tax cuts vs. debt reduction is a tough call. Tax cuts vs. (an uncertain mix of debt reduction and government spending increases) is a much easier choice.

Response 5: President Bush campaigned on tax relief. He won. He fulfilled his campaign promise and enacted tax relief, in part contributing to smaller surpluses and eventually budget deficits. In doing so, taxes returned to near their historic levels and budget surpluses got smaller as all income taxpayers kept more of the money they earned. Since I focus on spending as the problem, rather than the balance between levels of taxation and deficits, this shift doesn’t concern me as it might some others. I focus on what I think is our primary fiscal challenge: slowing the growth of government spending.

Argument: Mr. Chait writes further, “The Bush Administration furiously and successfully beat back Democrats’ attempts to inculcate caution and modesty about the projected surpluses.”

Response 1: Mr. Chait cites a 2000 convention speech given by President Clinton which effectively proves his point. He also cites his own TNR editorial and a book by Dr. Paul Krugman, neither of whom held any official policy role at the time. It’s important not to confuse the fans and sportscasters with the players on the field. I think other examples of elected Democrats attempting “to inculcate caution and modesty” beyond one sentence in President Clinton’s convention speech would help Mr. Chait make his argument more effectively.

Response 2: Mr. Chait fails to mention that his February 2001 editorial, titled “The Pathetic Party,” was aimed at elected Democrats who agreed with President Bush and supported the tax cuts. 28 House Democrats and 12 Senate Democrats voted for the 2001 tax cuts. If Mr. Chait believes that President Bush’s tax cuts were surplus-destroying bad policy, then his critique applies equally to sitting Democratic Senators Baucus, Carnahan, Feinstein, Johnson, Kohl, Landrieu, Lincoln, Nelson, and many House Democrats as well. (In their defense, they all voted against the much smaller 2003 tax cuts.) Partisan deficit finger-pointing rarely breaks down along clean party lines. Some Democrats support un-offset tax cuts, and (too) many Republicans support un-offset government spending increases.

2. On the cost of the Medicare drug benefit

I wrote that “By the time then-Governor Bush began his Presidential campaign, there was a broad bipartisan Congressional consensus to create a universally subsidized prescription drug benefit in Medicare without offsetting the proposed spending increases.

Argument: Mr. Chait writes, “This is misleading bordering on outright false. When Clinton was president, Congress had to operate under pay-as-you-go budget rules, which meant that any new tax cut or entitlement increase needed to be offset by an entitlement cut or tax hike.”

Response: Mr. Chait is almost correct, but not quite. The PAYGO rules from the 1990s did not require these kind of offsets. They merely established a higher voting threshold in the Senate for any legislation which was not offset. The Clinton-era PAYGO rules could be waived if 60 Senators voted to do so, allowing entitlement spending to be increased (or taxes to be cut) without an offset. On July 13, 2000 the Senate defeated a motion to waive the PAYGO (and other budget) rules on an amendment by Senator Bob Graham (D-FL) to create a universally subsidized Medicare drug benefit. Here is Mr. Graham describing his amendment:

Mr. GRAHAM. Mr. President, what we are about is to authorize that $40 billion of the new surplus which has come into the Federal Government and is projected to come over the next 5 years to be dedicated to the prescription medication benefit. This would allow for a total of $80 billion to be committed to this program.

Thus in 2000 Senate Democrats tried to create a Medicare drug benefit without offsetting the cost. They then tried and failed to waive the Clinton-era PAYGO rules. House Republicans passed a bill that year which created a smaller Medicare drug benefit without offsetting the costs. I therefore stand by my statement that “There was a broad bipartisan Congressional consensus to create a universally subsidized prescription drug benefit in Medicare without offsetting the proposed spending increases.” (Senate Republicans, including my boss Senate Majority Leader Trent Lott, were not a part of that consensus and did not try to create a Medicare drug benefit that year.)

3. On the Bush tax cuts

Argument: Mr. Chait writes, “… Obama’s determination to let [tax cuts for those with incomes over $250,000] expire represents a significant difference with Bush.”

Response: I agree. I never wrote that President Obama was doing exactly what President Bush did on tax cuts, and flagged the difference in my post.

Argument: Mr. Chait writes, “It’s true that Obama is keeping in place the tax cuts that benefit people who make under $250,000. But to equate that decision with enacting the tax cuts in the first place is absurd. Both public opinion and the political system have a huge bias toward the status quo. Once the Bush tax cuts were in place, anybody opposing them became a tax hiker.”

Response: This misses my point. I was not trying to equate extending tax cuts with initially enacting them. While they have the same policy effect, I agree that they are politically different.

I was trying to focus on the offset hypocrisy inherent in the President’s argument, not the policy or political aspects of the deficit-increasing policy. Since all the tax cuts are scheduled to expire on December 31st of this year, to “keep in place” that tax relief President Obama must propose legislation to extend the subset of the Bush tax cuts that he favors. President Obama is not proposing to offset that legislation with entitlement spending cuts or other tax increases.

President Obama signed into law what he calls tax cuts in the 2009 stimulus. He proposes to extend some of the Bush-era tax cuts. He is signaling that he will sign a new un-offset jobs bill containing tax cuts. In each case, he is not insisting that the deficit increases resulting from such tax cuts be offset. If he were worried about the need for short-term fiscal stimulus, he could insist on offsets that take effect later in time. And still he attacks his predecessor for enacting tax cuts without offsetting the resulting deficit increases. It seems Team Obama’s rule is “PAYGO for thee but not for me.”

Argument: Mr. Chait explains that I know how politically difficult it would be for President Obama to allow taxes to increase on the middle class.

Response: True. No dispute.

Argument: Mr. Chait writes, “Since Bush did cut taxes, restoring those rates in the face of unwavering GOP opposition would be a near-impossible task for Obama.”

Response: Reconciliation can be used to raise taxes with only a simple majority in the Senate, so if Mr. Chait is correct that doing so would be nearly impossible, it is because Congressional Democrats would choose not to do so. Republicans have no formal procedural leverage to block such a bill, even with 41 Senators.

I am happy that it is unpopular to raise taxes. If you believe that future deficits are a problem, then you are obliged to try to do something unpopular: raise taxes or slow the growth of entitlement spending. I prefer the latter. I want President Obama to choose one or both.

4. On the future deficits that President Obama faces

Argument: Mr. Chait writes, “Hennessey doesn’t deny the undeniable reality that this is entirely because Obama inherited a collapsed economy and a structural deficit caused by Bush-era policy changes.”

Response 1: Mr. Chait appears to accept the work of the liberal Center on Budget & Policy Priorities as defining the undeniable reality. While I respect the authors of that particular paper, I do not.

Response 2: I argue that President Obama’s policies will increase future budget deficits. The Obama Administration argues otherwise. This debate focuses on the current policy baseline question I discussed yesterday. Mr. Chait is correct that President Obama inherited an economy in severe recession and a large projected 2009 budget deficit. And yet in January of 2009, CBO projected that budget deficits would decline under current law to about 1 percent of GDP by the end of the decade, and debt held by the public would decline to about 42 percent of GDP. The future deficits we now face are much larger. These deficits are in part a result of the situation when President Obama took office, in part a result of his team misdiagnosing the macroeconomic situation and the policies needed to address it in their first year, and in part a result of policy choices the President is making.

Response 3: Even if I were to grant Team Obama’s characterization of what they inherited, they have the power to propose solutions. With enormous supermajorities in the House and Senate and a reconciliation process, they have the power to enact policies to improve the outcome, even if Republicans don’t play ball. They have so far not done so. I believe that at some point, failing to even propose policy solutions to a problem you argue you inherited makes the problem yours. Inaction is a choice which accrues responsibility over time.


I disagree with Mr. Chait’s characterization of the Bush Administration’s economic policy record and its results. Like two drunks at a bar, we could argue until closing time about whose team is better. This is, however, the wrong debate.

I presume the Obama Administration is highlighting the contrast with its predecessors in part to excuse the deficits in their proposed budget and in part to draw a contrast during a midterm election year. That’s a normal part of the inside-the-Beltway game as it is played by some on both sides of the aisle. I suspect this kind of behavior may contribute to the frustration of many who live outside the Beltway.

It would be far more productive (and maybe even more politically popular) if the Administration focused its attention on prescribing solutions to our policy problems. What is the appropriate short-term balance between budget deficits and fiscal stimulus? How does the President propose we accelerate GDP and job growth? What is an acceptable level of budget deficit in the medium and long run, and how does he propose we get there? Should we raise taxes, slow the growth of entitlement spending, or both?

These are enormous policy questions. The solutions to any one of these questions can, should, and will be fiercely debated. That is a far more productive debate than trying to apportion responsibility for the challenges America faces. To begin that debate, the President needs to propose solutions. He has not yet done so.