Week of July 12, 2006

July 12, 2006
Washington, DC
Vol. 41, No. 14b

To: Our Readers


  1. President Bush’s approval ratings have begun to recover, reaching or exceeding 40 percent in most polls, yet several key election races are beginning to look bad. Some Republicans feel that the party is not nearly nervous enough about 2006.
  2. The hostility toward the Republican Party by the conservative base remains as intense as we have ever seen. The complaints range from spending to immigration, with diminished support for the Iraq war. There is continuing debate among the previously faithful party activists over whether it might not be a good idea for the GOP to lose one or both houses of Congress. This mood accounts for continuing possibility of a stay-at-home vote that could bring Democratic wins far above our current forecasts.
  3. Polls that show greater confidence in Democrats than Republicans in handling the economy have generated great concern at the White House. The new emphasis there to control federal spending is reflected in the role by OMB Director Rob Portman in getting the modified lime-item veto bill through the House. But stronger medicine might be needed, such as the balanced budget constitutional amendment being pushed by Sen. Lindsey Graham (R-S.C). We find only a minority of Republicans in Congress take the earmark issue seriously. Their problem is that they see earmarks as only a small percentage of federal issues, not as a moral issue that is at the root of congressional scandals. The upcoming HHS appropriations bill contains 1,700 earmarks.
  4. Sen. John McCain (R-Ariz.) is increasingly regarded as the front-runner for the Republicans’ 2008 presidential nomination. That is conceded by Senate colleagues who have no great affection for McCain. A $5,000-a-ticket event in downtown Washington, D.C., for McCain’s PAC two weeks ago was jammed, bringing out prominent lobbyists who have not endorsed McCain but wanted to get their ticket punched by showing for his fundraiser.
  5. Former New York Mayor Rudy Giuliani (R) has told two people that he intends to run for President in ’08. He continues to lead most national polls of Republicans, slightly ahead of even Sen. McCain, but there remains skepticism how long that will last if his socially liberal views persist. At the least, however, Giuliani would be a major player in a race for the Republican nomination.
  6. The assault from the left on Sen. Joseph Lieberman (D-Conn.) reflects a shift in the Democratic Party’s ideological balance of power. This is also seen in the fact that major opposition to Sen. Hillary Clinton (D-N.Y.) comes from her left. This situation constitutes the major obstacle for Democrats to take advantage of the Republican malaise.

CIA Leak Case

My column this week revealed my role in the federal investigation by Special Prosecutor Patrick Fitzgerald of the Valerie Plame case and carried with it some conclusions for the entire affair.

  1. I wrote the column after Fitzgerald’s statement to my attorneys that, after two and a half years, he had concluded investigations of matters concerning me in the case. That suggests that his remaining concern is his prosecution of former vice presidential Chief-of-Staff Scooter Libby, in which I am not involved.
  2. Apart from revealing that I testified to the grand jury, the column’s major revelation was that Fitzgerald has known almost from the start of the investigation—independent of me—the identity of my sources. That also indicates that it was determined there was no violation of the Intelligence Identities Protection Act.
  3. I still feel constrained from identifying my primary source, until such time as he identifies himself. The fact that Fitzgerald has seen no need to reveal that source indicates that he does not consider any law was broken and that there is no need to bring his name into the law enforcement process.
  4. A conclusion can be reached that my sources did not commit a crime in revealing Plame’s role in instituting the mission to Niger of her husband, former Ambassador Joseph Wilson. That is a letdown for the enemies of President Bush who have tried to magnify this story.

Bush Administration

Deficit: The White House Office of Management and Budget had originally forecast a deficit of $423 billion for fiscal 2006 — instead, increased tax revenues have pushed the estimate down to about $296 billion.

  1. Accusations that the administration is employing the famous UPOD business principle — “under-promise, over-deliver” — are not entirely unjustified, considering that the non-partisan Congressional Budget Office had originally forecast a deficit of just $350 billion. Still, both were wrong by a very large margin (15.4 percent for the CBO and 30 percent for the White House), and the positive reversal of fortune clearly had nothing to do with fiscal discipline in the Congress.

  2. The real culprit here for the errors is the practice of static scoring of tax revenues, which is still employed by the government despite experience. Both the White House and the CBO score the loss of tax revenue from tax-cuts as though they did not affect the behavior of business owners, shareholders and other investors — a sure recipe for missing the mark.

  3. Setting aside the obvious fact that most of the Bush deficits are 9/11-related, the principles of supply-side economics are vindicated both by the success of the 2003 tax cuts in maintaining and even raising tax revenues, and the failure of the 2001 across-the board income tax cuts to do the same. Large cuts in the top marginal tax rates have the greatest effect on economic growth, and the growth is augmented when cuts are closest to the investment side of the economy.

  4. The lesson is that tax cuts that focus on investment — such as the 2003 dividend and capital-gains tax cuts — really do affect investor behavior. More money pours into capital markets when investors realize a greater after-tax return. Corporations are, therefore, freer to expand business and profits. Moreover, investors are less hesitant to realize smaller gains when those gains are taxed at a lower rate — the top rate now being 15 percent. This results in a greater number of transactions, meaning more tax revenue that would not have been collected under a high-tax regime. This explains why the tax-rate cuts’ overall effect on tax revenues, depending on who is doing the measuring, has been negligible or even positive.

  5. CBO’s estimate for the fiscal 2007 deficit is $337 billion. In January 2004, President Bush made the rather weak promise of halving the budget deficit by 2009. It is not exactly clear when that promise can be considered fulfilled — the fiscal 2004 budget deficit ended up being $413 billion, but the projection had been $477 billion. Either way, he is already within striking distance. The problem in the long- and even medium-run is that as entitlements become more expensive with an aging population, a balanced budget becomes less possible.

Mexico Election: Andres Manuel Lopez Obrador the leftist candidate who lost the July 2 elections by less than one percent of the vote (just over a quarter million votes), continues to allege a massive conspiracy of fraud, despite the unambiguous bill of health given to the election proceedings by foreign observers. Based on the weak nature of the evidence that Obrador has made public at this point, it appears that Felipe Calderon of the center-right National Action Party (PAN) will soon become Mexico’s second president in the post-one-party era.

One could say that Calderon, a Harvard graduate, is unlike any leader Mexico has had since its revolution. Indeed, he may have less in common with his immediate predecessors from the Party of Institutional Revolution (PRI) than he does with pre-revolutionary presidents. Among the comparisons available are the young Porfirio Diaz (who later made himself dictator), and Francisco Madero, a graduate of UC Berkeley who overthrew Diaz in 1911 and sought to curb radicalism through gradual reforms. He was ousted and murdered by leftist revolutionaries.

It cannot be overstated for an American audience that despite the stereotype of Mexicans as pious Catholics, religious conservatives are almost unheard-of in the halls of power in Mexico. Calderon, a social-conservative who reportedly attends daily mass, has been propelled to the presidency in a nation where official atheism and freemasonry have been enforced among government officials (and at times among the population) for decades. Calderon is not just the Sam Brownback of Mexico — he is far more outside the norm for a politician.

Although this could represent a huge cultural phenomenon for Mexicans, that aspect is less consequential for their northern neighbors. Americans will see Calderon follow the same policies as his predecessor, Vicente Fox, on issues of free trade, immigration, and the economy. Importantly, that includes the long-awaited reorganization of Pemex, Mexico’s terribly run state-owned oil company. This, more than anything else, could affect the lives of Americans by putting downward pressure on record-high oil prices.


Immigration: President Bush’s advisors appear to believe that the immigration hard line may alienate the Hispanic vote with disastrous consequences. Then again, immigration is not the top issue for most Hispanic voters. The problem is that Hispanic voters can be offended and turned off by anti-immigrant rhetoric, even if they are not themselves immigrants, because at times it borders on racism. It also gives Democrats ammunition to stoke fears among Hispanic voters.

Although President Bush talks about passing immigration reform, and senators still act as though they might pass a bill that provides legal status to illegal aliens, the project looks no more likely than it has at any time in the last two months. Bush, Sen. John McCain (R-Ariz.), and others have failed to make the case that “comprehensive” reform is necessary.

Most voters who care about the immigration issue do not see a problem with the immigration system except for the fact that so many people enter the country illegally every day. This is why Speaker Dennis Hastert (R-Ill.) will not let a bill pass. The most promising possibility at this point — still, by no means likely — is that the House could pass a bill containing most of the enforcement provisions in the Senate bill.

As long as Senate proponents of legalization toe their hard line that nothing can be done about the border without “comprehensive” reform, nothing will happen.

Stem-Cell Vote: Next week, the Senate will take up three bills on bioethics, each requiring 60 votes to pass. The first is the Castle-DeGette bill funding embryonic stem-cell research on frozen embryos. This will pass the Senate with roughly 68 to 70 votes, unless President Bush prevails upon Republicans to take one for the team, so he can avoid making this his first veto. Given Bush’s track record — he has apparently never swayed a single member’s vote — we doubt that this will happen. Bush will be forced to veto the bill, and the House will sustain his veto.

The second bill will fund research into alternative methods of obtaining pluripotent stem-cells without killing human embryos, sponsored by Pennsylvania Senators Rick Santorum (R) and Arlen Specter (R). This will probably pass as well, but many conservatives find it problematic because it leaves the definition of “embryo” up to the language in each year’s Health and Human Services appropriations bill. If Democrats retake either house of Congress this year — still a strong possibility — then this bill could be viewed in retrospect as a mistake. It will probably pass as well, because it will fund adult stem-cell research.

The third bill represents something not often attempted by pro-lifers — forward thinking legislation. It would ban the farming of human fetuses for their cells and parts, and it is expected to pass overwhelmingly. At this point, the biotech industry has not reached the point where fetus-farming is possible, and so its well-moneyed lobby is unlikely to put up a fight. But in the future, fetus-farming will probably be attempted.

By banning it now, Congress can at least force proponents of an amoral view of science to pass their own repeal bill in 20 or 30 years. To put this into perspective: If Congress had banned human cloning in 1980, it would have sailed through without controversy, and it would probably still be illegal today, for lack of the 60 votes needed for repeal of the ban.

Senate 2006

Montana: Sen. Conrad Burns (R-Mont.) trails Democratic primary victor Jon Tester (D) 50 to 43, according to the latest poll. He is in greater danger than any other Republican except Sen. Santorum. Burns has recovered somewhat from the attacks on him related to the Jack Abramoff lobbying scandal — although that could still change for the worse.

Tester, a state senator with a highly unfashionable buzz-haircut, lacks money, but he will have plenty of support. The state Democratic Party has set up an unprecedented field operation in Montana with several staffers, all in hopes of cementing Democratic dominance in what is actually a very conservative state. In recent elections, Democrats have taken over the state legislature and the governor’s mansion, and Sen. Max Baucus (D) had the opportunity to show his strength with a crushing victory in 2002 over hapless state Sen. Mike Taylor (R). Leaning Democratic Takeover.

Washington: Sen. Maria Cantwell (D-Wash.) has taken much grief for her support of the Iraq War, but there will be one less voice criticizing her now. She has hired one of her primary opponents, Mark Wilson (D), to work on her campaign.

The buy-out of the opposition has only highlighted the criticism, however, and Cantwell’s other primary opponent, Hong Tran (D), is speaking about it as much as possible. This works, ultimately, to the benefit of the Republican candidate, former SafeCo CEO Mike McGavick (R), who appears to trail Cantwell by three to six points. A Green Party candidate, Aaron Dixon, is also in the race. Leaning Democratic Retention.

House 2006

Georgia-4: Rep. Cynthia McKinney (D-Ga.) was a no-show at two debates this month, and earlier she was at the center of a high-profile incident in which she hit a police officer. Say her name, and staffers on Capitol Hill either wince or laugh.

But McKinney will win her primary election anyway. McKinney is known as a careless racial demagogue and an ineffective congresswoman who narrowly avoided being indicted for her incident with the Capitol Police. Just about everyone on the Hill finds her intolerable — most of all House Minority Leader Nancy Pelosi (D-Calif.).

(After the 2002 election, former Rep. Cass Ballenger (R-N.C.), known for making outrageous and careless statements, famously told a reporter that McKinney was “a bitch,” and stated that although he was not a segregationist, he could understand why someone might become one after working with McKinney.)

None of that matters, however. This district turns so heavily on the McKinney-friendly South of DeKalb County that only a Herculean effort — and a relentless push to get the district’s outnumbered Republican voters to cross over into the Democratic primary — can unseat her. This happened in 2002, but the victorious Denise Majette (D), after one undistinguished term in Congress, entered a Senate race she was sure to lose in 2004. This let McKinney back in. Facing a crowded field with white and black candidates, she surpassed all expectations in 2004 and won a majority on the first ballot, without a runoff. There was a GOP Senate primary that year that drew much attention and kept the Republican minority from banishing her yet again.

With a contentious lieutenant governor battle on the GOP ballot this year — involving the high-profile activist Ralph Reed (who is trailing in a close race) — we would not be surprised if McKinney does it again without a runoff. Certainly, no one else can get a majority, and the stronger of her two opponents, county commissioner Hank Johnson (D), is already almost out of cash, and would have nothing left to spend in a runoff anyway.

Republicans would like to keep McKinney around for at least one reason: They can make the argument that the Democratic Party is so out of touch that it can re-nominate someone like McKinney, and in the same year, perhaps deny renomination to a reasonable person like Lieberman. Leaning McKinney.

Ohio-18: Until now, Rep. Bob Ney (R-Ohio) appeared to have kept his potential legal problems from affecting his standing in his southern Ohio district. Those days may be over, as a new GOP poll has him polling just four points ahead of his rival, political novice Zack Space (D). On the other hand, although more recent polls have had him winning easily, the same Republican poll, by Public Opinion Strategies, had Ney behind Space in January.

The Capitol Hill newspaper Roll Call notes that Ney can pay his legal fees out of his campaign fund. This could be one extra motive for his promise to stay in the race even if he is indicted. Leaning Republican Retention.

Texas: Judicial chaos reigns in the Lone Star State, as two court cases have cast uncertainty upon the House race picture. Everything is suddenly up in the air here, and Republicans are in at least some danger of losing two seats they should not lose.

Not only is Rep. Henry Bonilla‘s (R) West Texas district subject to a re-draw, but former Rep. Tom DeLay (R) may be kept on the ballot, even though he dropped out of his race and moved to Virginia. Both are the result of court decisions, and both will probably be resolved soon in federal court.

The Firth Circuit Court of Appeals will decide how to proceed with the Supreme Court’s redistricting case that affects Bonilla. Ultimately, this is a plus for Republicans if they can draw a substantial Hispanic population into GOP districts and then work seriously to cultivate their votes. The Texas GOP has been better than any other state party in the nation at winning over Hispanic base voters, and based on the good data that is available (not the questionable data cited in the Supreme Court case), Bonilla clearly won a majority of Hispanics in his current district in 2004.
The legislature may be tasked with the re-draw. In that case, Texas Republicans must draw district lines that do not destroy Bonilla, and also do not push his neighbor, moderate Rep. Henry Cuellar (D), into his district. It is not clear whether the redistricting would apply this year, or in a future special election, perhaps next March, or to the 2008 election.

The same circuit court will consider the DeLay case — he wants off the ballot, but he is now signaling a willingness to run the race everyone had originally expected against former Rep. Nick Lampson (D).

A note: In the Bonilla case, it could happen that several Texas districts are altered at least slightly — one cannot easily change just one district without affecting others. If voters are shifted across the map from one district to the next, and the chain reaction reaches across from San Antonio to Houston, DeLay’s district could be changed. It went 64 percent for President Bush, but could be made even more Republican to keep it under GOP control.

More immediately, a re-draw could force a new primary, in which other GOP candidates would run, obviating the need for DeLay to run — unless the court decides to apply the new districts to a later election.