Leadership and Panics

Welcome to the White House, Mr. Obama

The honeymoon doesn't last long.

KARL ROVE

On Tuesday, America can take pride in a special transfer of power as Barack Obama becomes the first African-American to be sworn in as president.

Shortly after the ceremony, the new president's aides will slip away to inspect the offices they now inhabit. They've put much of their lives on hold to take jobs that will last, for most, two or three years. Hours will be long, pressure unrelenting, decisions momentous, and families often neglected. Every American should respect their sacrifices.

What these aides will soon realize is that they aren't history, but passing through it. I learned that from an elderly man who told me "to honor the house" as he emptied my trash bin late my first day at work.

That is what an administration owes the country. But it is not all it owes. There is also the matter of governing. Team Obama is about to learn that it's easier to campaign than to govern.

In fact, they are already learning it. Last February, Congress passed a stimulus bill, adding $152 billion to the deficit. Mr. Obama called it "deficit spending" and criticized the "disdain for pay-as-you-go budgeting" in Washington. Now he forecasts trillion dollar deficits on his watch. Mr. Obama, the candidate, criticized the "careless and incompetent execution" of the Iraq war. But as president-elect, he decided to retain George W. Bush's defense secretary and put a Bush adviser in charge of the National Security Council.

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.

More significantly, Team Obama is stumbling on its biggest priority -- an economic stimulus package. One stutter step came when Mr. Obama said he looked forward to signing a stimulus bill on Jan. 20 and then failed to lay out a proposal by mid-December so Congress could chew it over. That led House Appropriations Chairman David Obey to carp that "We've got to have some signals called by Obama . . . it's hard to negotiate" when Team Obama "hasn't decided what they want."

Mr. Obama also tripped himself up by sending advisers to Capitol Hill on Dec. 18 to say that he wanted a stimulus bill to cost between $670 billion and $770 billion, but that he would accept $850 billion. This invited Congress to roll him and spend more. Now he may see not only his number shredded but the elements of his package as well.

Mr. Obama can recover. But he has to avoid loosing his footing again by allowing Congress to enact its wish list instead of policies that will help the economy. He seems to be mistaking what may be good ideas for economic stimulants. Ensuring "that within five years, all of America's medical records are computerized" is a fine idea, but the Bush administration already set that goal and developed standards and structure to make it happen. Mr. Obama will claim credit for it but it won't quickly create jobs.

And then there's Medicaid. Mr. Obama wants to give about $100 billion to help states expand the program. This will add $100 billion or more a year to the baseline of an entitlement everyone admits is out of control.

Many Obama proposals are spending marketed as stimulus. Much of his "middle-class tax cut" goes to people who have no federal income tax liability. It's really a $500 per worker annual tax credit. Is $20 a week ($40 for couples) in welfare stimulative?

Top Obama adviser David Axelrod's polling and focus groups may suggest that calling new spending "investment" instead of "infrastructure" wins support. But in the end, spending money on the same old junk will do little for the economy.

Mr. Obama is riding high and setting lofty expectations as well. This is evident in the ever increasing number of jobs he promises to save or create. On Nov. 22, it was 2.5 million. On Dec. 20, it was three million. Then it was 3.675 million. And finally this past weekend it was 4.1 million. Mr. Obama may be counting on the fact that it will be impossible to verify how many jobs he really "saved." But the claims seem unrealistic anyway.

Take the "green jobs" he promises. There are 6,856 people who work for companies that make solar cells in America and 2,150 people who work for the biggest wind equipment maker. Mr. Obama says he'll create 459,000 new "green energy" jobs like those. Can he really do that? A lot of people will be keeping score.

Mr. Obama says 244,000 of his new jobs will be in government. Will these new government employees disappear when the economy recovers? Or is Mr. Obama pushing the largest expansion of government since LBJ's Great Society?

For all the pride America can have next Tuesday, these issues are real and not going away. The inauguration is a moment of constitutional significance and important symbolism. Team Obama should enjoy it. As I can attest personally, it won't last long. By the next day, the realities of governing will intrude.

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

Leadership and Panics

Leadership and Panics

TARP II and other reasons people are scared.

Stocks took another header yesterday, nearly 3% on the Dow this time, continuing their decline in the New Year since Congress has returned and as the federal government once again revs up its bailout machinery. Maybe this isn't a coincidence.

AP

With Barack Obama about to take the oath of office, this ought to be a moment for fresh, more consistent economic leadership. Instead, we're getting a new version of the same ad hoc policy and scare-tactics that marked 2008. No clear spokesman or leader has emerged with a strategy to rebuild the financial system, and now Mr. Obama's term may begin without a Treasury Secretary (see here). This is no way to start a recovery -- or a Presidency.

Consider Fed Chairman Ben Bernanke, who used a London speech on Tuesday to pat the Fed on the back as the Horatio at the Bridge of this panic. This would have been appropriate for a Princeton seminar a couple of years from now. Amid the current uncertainty, however, he succeeded mainly in suggesting that the financial system is in even worse shape than we thought, the President-elect's "stimulus" isn't sufficient, and thus more of Mr. Bernanke's policy magic will be needed to save the day.

"With the worsening of the economy's growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance sheet capacities of financial institutions," he declared. "Consequently, more capital injections and guarantees may be necessary to ensure stability and the normalization of credit markets." Message: There's more mayhem to come, but don't worry, the Fed can keep printing money and buying private assets. No wonder the world is scared half to death.

The Fed has been creating new vehicles right and left for nearly 18 months, so the problem isn't a lack of liquidity. The problem is that too few people want to use the liquidity the Fed is creating. They don't want to lend money, or take risks, in part because they never know what Mr. Bernanke and the government might do next.

Then there's the Treasury's request for the second $350 billion in Troubled Asset Relief Program (TARP) cash. This commitment to backstop the financial system ought to be reassuring, especially for financial stocks. Yet in requesting the funds, Obama transition aide Larry Summers indulged in familiar scare rhetoric about "a potential catastrophe."

Congress also seems eager to use TARP II to bail out any and all industries that have powerful enough patrons. The car makers are already in line for a bigger chunk, and Barney Frank's draft bill orders Treasury to line up community banks for a taste -- whether they pose a larger risk to the banking system, or not.

Democrats are also insisting that as much as $100 billion go to prevent more home foreclosures, though this will have little impact on housing prices. The evidence from the last two years is that foreclosure mitigation often merely delays a reckoning because many of these homeowners never could afford the home in the first place. Meanwhile, Mr. Frank, the Dr. Kevorkian of capital injections, wants to impose new management and compensation restrictions on any institution that gets TARP money, whether it is well-managed or not. The bankruptcy "cramdown" now streaking through Congress will also impose more losses that will destroy more bank capital.

Mr. Obama has threatened to veto any Congressional vote of disapproval for TARP II, so Treasury will get its cash. But if the money is squandered on foreclosures and nonfinancial industries, the Obama Administration is setting itself up to need TARP III or TARP IV down the road. Asset values are going to continue to fall until they find a market bottom, and no declaration of Congress can make them stop in mid-descent. There are going to be more bank failures.

We supported TARP as a way to prevent a financial meltdown, providing public capital to help regulators manage problem banks, arrange mergers, and work off bad assets. TARP has since become a cash pool for all and sundry, casting a pall over the entire financial system. Mr. Obama would make more progress against recession if he steered the TARP back to the purpose that Paul Volcker and Eugene Ludwig first proposed on these pages -- as a resolution agency on the model of the Resolution Trust Corp. of the 1990s. Working in tandem with the Federal Deposit Insurance Corp., such an outfit could close problem banks before they collapse, serve as a holding and work-out agency for bad assets, and then sell them back over time into private hands.

A new TARP should also have a leader of recognized stature and independence -- not a 30-something assistant secretary -- who isn't afraid to take the heat and can also reassure the public. Mr. Volcker would be ideal for the job, and for that matter for overseeing the design of a new, sturdier financial system. Down the current road lies more uncertainty, and more market selloffs.

A Geithner Tax Amnesty

A Geithner Tax Amnesty

The 'tax gap' in profile.

Washington is abuzz over Treasury Secretary-designate Timothy Geithner's $34,000 self-employment tax "mistake." The brouhaha has prompted a second delay for Mr. Geithner's confirmation hearing, which was originally scheduled for Friday but will now be put off until after the inauguration.

When he does appear, Senators will want to know how a reputed financial wizard could have overlooked his Self-Employment Tax liability for four years. All the more so because he had signed a document from his employer at the time, the International Monetary Fund, certifying "that I will pay the taxes for which I have received tax allowance payments." Democrats are saying this is no big deal, but if that's true then perhaps they should consider applying their tax absolution a little more broadly.

Some of our readers may recall something called "the tax gap," which is the estimated difference between taxes due under the law and the taxes that the Internal Revenue Service actually collects. In 2007, the IRS estimated that the gap stood at $290 billion a year. And since Democrats took control of Congress, Senators like Max Baucus and Kent Conrad have made a fetish out of closing the gap. Mr. Baucus has browbeaten the IRS over the gap, demanding plans to close it and putting out newsletters decrying it.

In response, the IRS issues regular "fact sheets" to inform taxpayers about such questions as whether your small business is actually a "hobby," and how you can "help yourself by filing past due returns." The IRS also audits taxpayers to check that their deductions are legitimate and that they've included all their 1099 income and so on. The IRS estimates that more than 90% of the gap is the result of honest mistakes or misunderstandings, but it also includes people who didn't report their snow-shoveling income, their eBay sales or even their babysitting money.

But now Mr. Geithner has come along seeking the job of overseeing the IRS, among other duties. And lo, Mr. Geithner is a living embodiment of The Gap.

He's no different from those people -- you know who you are -- who overestimated their charitable contributions or "forgot" about that $500 cash payment they received when it came time to do their taxes. Even after the IRS audited him in 2006, Mr. Geithner paid back taxes only for the two years -- 2003 and 2004 -- for which he had been audited. He did not bother to amend his 2001 and 2002 returns until late last year, when the tax issue came up during the Obama vetting process.

But Mr. Baucus, who once called the tax gap "an affront to all the rest of us who pay our taxes," is not affronted. "This is an honest mistake and it's clear there was no intention not to pay," said the Finance Committee Chairman.

For our part, we are delighted that Mr. Baucus and Democrats are suddenly in such a forgiving tax mood. In addition to being a teaching moment for liberals, perhaps Mr. Geithner's tax snafu can do all of America some good. We'd suggest that Mr. Geithner and Mr. Baucus together set a new standard for the IRS in dealing with people who, like Mr. Geithner, make a boo-boo on their tax returns.

Let's have an amnesty -- with penalties waived, as they were for Mr. Geithner -- for all those Americans who somehow "forgot" to pay their taxes but are now willing to fess up or are audited. If forgiveness is to be the order of the day for the man who may soon be responsible for the IRS, American taxpayers deserve a similar reprieve.

Bush and the Libby Pardon

Bush and the Libby Pardon

• By DANIEL HENNINGER

As the curtain closes on the presidency of George W. Bush, the one loose end dangling is the pardon of I. Lewis "Scooter" Libby. In 2007 Mr. Libby, Vice President Dick Cheney's chief of staff, was convicted for perjury and obstruction of justice.

AP

I. Lewis Libby

Let us be clear about the Bush legacy. After September 11, not a year into Mr. Bush's term, his became a war presidency. George Bush's place in history will turn on what becomes of Iraq and al Qaeda. If Iraq fails, history will mark down the Bush presidency. If by fits and starts Iraq grows into the Middle East's first large, functioning democratic republic, a more likely result, the Bush presidency will be one of the great building blocks of the new century's political order.

In his final press conference Monday, Mr. Bush described the disarray after the airliners slammed into the World Trade Center, the Pentagon and a Pennsylvania field: "People were hauled in front of Congress and members of Congress were asking questions about, 'How come you didn't know this that or the other?'"

The Bush team righted itself and assembled a tough response to the attack: the assault on the terror strongholds of Afghanistan and the Patriot Act. Then, in astonishingly short order, the political unity of 9/11 dissolved. Mr. Bush and his team found themselves embattled by the opposition party, much of the Beltway press corps and a leaking national-security bureaucracy. The goal of the domestic opposition was to thwart the Bush antiterror policy, or take down the people shaping it.

Scooter Libby is the most notable casualty of the domestic war that ran alongside the global war on terror.

In my many years of writing about Washington's politics, I thought that the Plame affair, its long, mad hunt for the leaker, and then the Libby trial, was one of the most fantastic, preposterous events I've ever watched.

A Washington press corps for whom leaks have become the oxygen of life spent three years writing about who leaked Valerie Plame's name to Robert Novak. Of all the serious and genuinely damaging leaks during the Bush presidency, this was the only one the press chased. Why? This one was different. This leaker was thought to be a top Bush aide, perhaps even the vice president. Once named, this aide could be demolished by a prosecution.

That proved true. Scooter Libby was demolished.

Nominally the legal case was about the wheels of a prosecution in motion. Indeed by its end the details of the case against Mr. Libby had burned down to a travesty. But make no mistake. The effort that went into keeping the Plame affair alive was about discrediting the war effort in Iraq and the Bush antiterror program.

To the extent the Libby prosecution distracted the White House staff, consumed its working hours, eroded personal savings on lawyers, and inevitably pitted the president's aides against each other, the strategy worked. The domestic opposition didn't deter George Bush. But like any tireless pack, it hurt him and it hurt his goals.

I often wonder what the Bush presidency would have been like without 9/11. I wonder as well about the unhinged antipathy that grew against this president. For his own part, Mr. Bush clearly decided that his obligation was to exercise the powers of the presidency with as much will and wisdom as he could muster after that murderous attack.

The president's pardon authority is embedded with clarity in our spare Constitution. Alexander Hamilton argued it should reside with "a single man of prudence and good sense."

I think there is a good legal argument for the Libby pardon, but others have done that well, making a credible case that he in fact is innocent. But there is another dimension to this that deserves consideration.

Washington is on thin ice. The American people could not be more disgusted than they are with the tenor and conduct of politics in Washington. The long Libby case was more muck. When the vice president's chief of staff was convicted, financially ruined and professionally destroyed on the basis of a conversation, my first thought was, this is going to make it hard to attract the best people to serve in Washington.

Why wouldn't the spouse of anyone offered a similar job argue that if the system can let a Scooter Libby wash over the falls for this, the price is just too high. "You aren't going to put our family's future at this much risk. We won't serve. We can't."

Yes, a pardon would set the anti-Bush chorus to howling. So? They've done plenty to turn the city into a viper's nest.

George Washington, in his farewell address, warned against the destructive force of party rancor. Something like that is at stake here again. Serious people in our politics, Republicans and Democrats, would understand that a Bush pardon of Scooter Libby is mainly about closing some of the worst wounds of these long war years. And about giving the nation a chance at refinding that lost unity.

These were hard years, and required hard decisions. It's time to let Scooter Libby get back to work. Like the rest of Washington.