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