Mitch Daniels' Bunk | Bush Tax Cut Iceberg Is Now America's Titanic Failure

submitted by Gabrielle Jones Price

As an Indiana native watching the union busting actions going on across the Midwest, including here at home, I felt compelled to share some excerpts from the book All The President's Spin | George W. Bush, The Media, and The Truth regarding Mitch Daniels and his stint as director of the Office of Management and Budget (OMB) in the Bush White House.  

The press has been asleep at the wheel for awhile now and I wanted to shine some light on an all-too-often looked over past which resides mostly in links that no one seems to follow.  My intent is to show how ill qualified Mitch is as Indiana Governor as opposed to running a corporate pharmaceutical company.  He has never factored in the social cost of the products he 'marketed' -- especially as a Bush 'yes' man.  You'll gain an understanding of why the economy is still screwed, how we got here...and the fact that where we are headed in this banker-hedge-fund run economy is unprecedented.  Obama can't (and won't) stop it -- in fact, he's worked to accelerate the same agenda.

Please take note of the info on Social Security and the severe loss of the mainstream media's role in holding government accountable since 2001.  In this post-9/11 world, no one can point the finger at a so-called 'liberal' media or 'right-wing' media - it's all the same.  It's corporate media -- and every merger made it bigger -- with fewer owners and more money with a vested interest in shaping legislation or simply ignoring it by making non-issues their business.  Any political pundit, talking head or TV personality that does not fall on the side of the unions -- or history -- should be made to show us their SAG union card.  The hypocrisy has become dangerous to shaping the American public's opinion in sway of corporate government -- and while busy cheerleading for it -- it's robbing 90% them and the country blind to sell it to the highest international bidder.  America has become a commodity with a 'for sale' sign on it.  My state has never had a governor in Mitch Daniels - it has a marketer.  Hoosiers need to show him his pink slip and mainstream media needs a lesson on how to do its damn job as a watchdog for the people. Unfortunately, the media is just as unbalanced as the current budget in what has become a 'buy now - pay later' America.

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Excerpts from All The President's Spin | George W. Bush, The Media, and The Truth by Ben Fritz, Bryan Keefer and Brendan Nyhan; founders of the watchdog site Spinsanity.com which I am sad to report, said goodbye in 2005.  There is still great deal of information archived there for any political journalist -- so please use it.

The Bush Spin Machine

The Bush White House featured the most sophisticated communications apparatus in American political history.  The idea that all politicians spin - fails to do justice to this machine, which repeatedly shattered expecations and crushed its rivals since Bush took office in 2001.

The team was initially led by Karen Hughes, a former reporter who worked for Bush in the Texas governor's office.  Hughes was known for her relentless message discipline (reporters called her "Nurse Ratched" after the character in the book One Flew Over the Cuckoo's Nest), and during her fifteen months in the White House, she exerted near-total control over the administration's communications and media strategy. (source)

One insider report on her influence comes from convservative journalist David Frum, who worked as a speechwriter under Hughes.  Frum recounts how Hughes insisted that Bush use softer, female-friendly language, such as "employers" instead of "business," "moms and dads" in place of "parents," and "tax relief" rather than "tax cuts."  She also disliked verbs, Frum wrote, because they "conveyed action, not feeling" and "[a]bove all things, she hated the word "but," a word that suggested harsh choices, conflict, even confrontation." (source)Hughes, the prototypical PR operative, systematically shaped the language of the administration down to the smallest level of detail to enhance Bush's appeal.

After Hughes' departure from the White House (she continued to consult the administration from her home in Texas), Dan Bartlett, a long-serving Bush loyalist, assumed responsibility for the White House communications.  Both he and Hughes had worked closely with Karl Rove, a former political consultant who served as the chief White House liason to conservative groups and directed the Office of Strategic Initiatives, which conducts long-term political planning.

The daily voice of the administration was originally Ari Fleischer, who served as White House press secretary until May of 2003.  Dubbed the "flack out of hell" for his previous work on Capitol Hill, Fleischer was undoubtedly the most stubborn and combative press secretary in modern history.  His particular talent for answering questions only when he could repeat his talking points helped ensure that Bush's message got into the press day after day.  When Fleischer resigned, he was succeeded by his deputy Scott McClellan, an understated Texan who proved to be nearly as unyeilding in his spin as his predecessor, though far less effective.

The talented production team responsible for staging Bush's appearances for television has included Scott Sforsza, a former producer for ABC News; Bob DeServi, who worked as a cameraman for NBC; and Greg Jenkins, an ex-Fox News producer. (source)  In her book Ten Minutes from Normal, Hughes describes Sforsza's hire as crucial, saying it was "perhaps the best decision of all" in setting up the White House communications office.  She writes, "My own days in television had reminded me of the truth of the adage 'a picture is worth a thousand words,' and that has proven true time and again as Scott creates powerful backdrops to showcase the President and his policies."  The trio's combined expertise in television news had been a powerful asset for the White House.

The administration had also staffed key executive branch agencies with an all-star team of political operatives who synchronized their daily message with the White House.  Chief of Staff Andrew Card emphasized this coordination.  "I make sure our communications team is not just a team in the White House," he said.  "It is a communications team for the executive branch of government." (source)  The lineup included Victoria Clarke, press secretary for the 1992 campaign of George H. W. Bush, at the Department of Defense; Mindy Tucker, the press secretary for the 2000 Bush-Cheney campaign, at the Department of Justice; and Barbara Comstock, the former head of research at the Republican National Committee, as Tucker's successor at Justice.  The administration also placed public relations professionals in charge of shaping international perceptions of the United States after the September 11, 2001 terrorist attacks, including Charlotte Beers, a top advertising executive who served as Undersecretary for Public Diplomacy and Public Affairs a the Department of State from October 2001 to March 2003.

This focus on the PR skills of appointees extended beyond communications operatives.  In 2001, Mitch Daniels, a former political operative and pharmaceutical executive, was appointed director of the Office of Management and Budget, a position he held from January 2001 through June 2003.  His selections was a surprise because Daniels lacked the expertise in the details of the federal budget.  He explained his rather different set of credentials to the Wall Street Journal in August 2001: "To the extent I bring anything . . . to this job, maybe it's an ability to think about how a product, whether it's Prozac or a president's proposal, is marketed." (source)

Similarly, when John Snow was chosen to replace Paul O'Neill as Treasury Secretary, administration officials told the Washington Post that he was picked primarily for what the paper described as his "ability to communicate Bush's policy clearly on television and Capitol Hill," a skill that O'Neill lacked. (source)

The head of the Office of Management and Budget and the Secretary of the Treasury are two of the most important policy officials in United States government.  In the Bush White House, however, their primary role was advocating for the President's agenda.

The Chicago Fable

During the 2000 campaign, Bush had promised that he would not spend the portion of the federal budget surplus attributable to Social Security, let alone run overall budget deficits.  Once in office, he continued to claim that his tax cut -- the centerpiece of his campaign platform -- would not push the federal budget back into the red.  The dramatic reversal in the budget situation beginning in late 2001 therefore posed a major political problem for the administration.  Not only had the federal budget sunk into the deficit astonishingly quickly, but red ink appeared likely to persist for years to come as a result of Bush's tax cut, a steep decline in tax revenues, and increased government spending, particularly on defense and homeland security.

By August 2001, the President and his aides began listing recession and war as exceptions to his promise that would justify dipping into the Social Security surplus, with economic advisor Lawrence Lindsey claiming that Bush always had the two exceptions in mind. (source)

After the September 11 attacks, which sent tax revenues into a tailspin at the same time that the government was forced to increase defense and homeland security spending, Bush quickly changed his story and began claiming that he had listed three exceptions rather than two -- war, recession, and national emergency (the "trifecta").  And instead of using some surplus Social Security funds, Bush claimed that his exceptions justified spending the entire Social Security surplus and running the federal budget deficits. (source) [Yes...you read that correctly.]

In an October 3, 2001 appearance with business leaders in New York only a few weeks after the attacks, Bush first stated that he listed the exceptions in Chicago during the campaign.  He repeated this claim thirteen more times over the next nine months and made several other more oblique references to it. (Complete list in Appendix C in the book.)  Though the details varied, the basic premise of the alleged Chicago appearance was that Bush had made a public statement to an audience or a reporter.  As he put it on April 26th, 2002: "I want to remind you what I told the American people, that if I'm the President -- when I was campaigning, if I were to become the President, we would have deficits only in the case of war, a recession or a national emergency.  In this case, we got all three." 

The press's attention was understandably focused elsewhere when Bush first told the story in October 2001, and his next mention of it was in January 2002 was elliptical.  As a result, the claim did not receive much attention, though the Associated Press and New York Times both misdated Bush's alleged statement to 2001 the second time he made it. 4  Beginning in late February 2002, however, Bush began to repeat the story incessantly, and yet the press still paid little attention.  Even after the President began the story during and April 26, 2002 press conference by saying, "I want to remind you what I told the American people," the media hardly batted an eye.

The "trifecta" was finally exposed by The New Republic in late April 2002, more than seven months after Bush first told the story. (source)  Despite the repeated inquiries from TNR and subsequent requests from NBC's Meet The Press and the Washington Post, the White House press office failed to substantiate Bush's claims. (source)  The rest of the press corps seemed not to notice or care.  So Bush kept repeating the tale, and most reporters continued to ignore it.

Between May 1 and June 24, 2002, he told the story another eight times -- and generated very little attention from the national press. (based on a Nexis paid DB search for all available news sources for 5/1/2002 through 6/24/2002, conducted 4/18/2004) In fact, the Los Angeles Times credulously recounted Bush's story in mid-July 2002, weeks after it had been exposed.  "In several speeches in recent months," reporter Edwin Chen wrote, "Bush has assiduously sought to inoculate himself against political fallout for presiding over the nation's return to an era of red ink," recounting "an interview that he said he gave to a reporter in Chicago during the 2000 presidential campaign" in which Bush said "he would not deficit spend unless the nation found itself at war, in a national emergency and in a recession." (source) Where had Chen been?

No evidence has ever emerged to prove that Bush made such a statement.  The Washington Post eventually discovered that Vice President Al Gore had proposed exceptions back in 1998.  Economic advisor Lawrence Lindsey affirmed at the time that Bush would support the idea as well, but the candidate was never quoted to that effect in Chicago or anywhere else. (source)

When Bush finally stopped repeating the story, reportedly at the request of advisors who feared it was beginning to harm his reputation for honesty, it quickly disappeared from the media. (source)  Despite the magnitude of the deception, the news pages of the New York Times had apparently never reported that the trifecta story was false, nor have CNN news reporters.  Unfortunately, this was par for the course in the post-9/11 debate over the economy: the White House spun while the press slept.

Hiding The Crimson Tide

The Bush White House spent most of the period between September 11, 2001, and early 2003 trying to minimize economics issues while pressing its advantage on foreign policy and homeland security.  At first, few were inclined to blame the administration for the state of the economy or the federal budget.  The decline in both the short- and long-term federal budget outlooks soon began to present a more acute problem, however, especially since Bush had promised that his tax cut wouldn't send the country into the red.  As a result, the White House devoted extensive effort to blaming the fiscal decline on the recession and the war on terror, fuzzing up the details and stonewalling when challenged about its assertions.  Despite occasional setbacks, this strategy kept deficits from achieving critical mass as a campaign issue all the way through the November 2002 elections.

The Deficit Merry-Go-Round

The public face of the deficit-spinning effort was Mitch Daniels, director of the White House Office of Management and Budget.  After Bush's introduction of the trifecta in October 2001, the next major administration statement about the deficits was a November 28, 2001 speech by Daniels announcing that the government was in the red and likely to stay there for at least two years.  According to the OMB director, three factors led to "a dramatic shift in both our near- and long-term fiscal prospects" : the recession, spending on the military and homeland security, and reduced estimates of economic growth.  What Daniels left out, however, was the tax cut, which had a moderate short-term impact in 2001-2003 but a major effect on the decline of ten-year finanical projections.  When asked by a journalist about the ommission, Daniels switched to a political arguement, stating "one can only say thank goodness for tax cuts" and refusing to admit that the legislation had a negative impact on the budget situation.

The way Daniels parried this question highlights the Bush administration's determination not to concede ground to its critics or the media, even at the price of engaging in overt intellectual dishonesty.  The benefits of the strategy are clear: Refusing to acknowledge obvious but politically harmful facts makes it more difficult for the media to present them as truth, reducing reporters to "on the one hand / on the other hand" stories.  The Associated Press report on Daniels' speech, for example, framed the impact of the tax cut on long-term budget projections as a matter of partisan dispute, saying Daniels "blamed his prediction on the recession and the war against terrorism," but "Democrats said the real culprit" was Bush's tax cut.

Another White House strategy to avoid blame for the fiscal situation was to ignore long-term projections and focus instead on short-term estimates for which the tax cut was less of a factor.  When asked on CNN about the effect of deficits on interest rates in January 2002, for example, Bush economic advisor Lawrence Lindsay pointed to the projected short-term change in the deficit attributable to the tax cut, not its much larger long-term effects.  "Remember," he said, "the tax cuts this year amounted to only 15 percent of the change in the deficit." (source)  Rather than dealing with the long-term effects of the tax cut, which according to the Center on Budget and Policy Priorities (CBPP) represented 41 percent of the decline in the projected ten-year surplus between January 2001 and January 2002, Lindsay simply used a different time frame. (source)

Bush's first post-9/11 budget, released in February 2002, took these tactics to new extremes.  Labeled a "wartime budget" by Daniels, the White House obscured the cost of the President's tax cut and the multi-trillion-dollar decline in the surplus through opaque, highly engineered language.  For example, it stated that "In the 1997 budget, rising deficit were forecast totaling $1.4 trillion over a ten year horizon.  By the 2002 budget, steadily rising surpluses were projected over a ten year period, totaling $5.6 trillion.  Due to the events of last year, the latest projections are in between these wildly divergent estimates." (source)  The euphemistic phrase "events of last year" brought to mind the September 11 attacks and subsequent war on terrorism, but the formulation was still technically accurate: the 2001 tax cut, a much bigger part of the decline in the long-term surplus, also took place in the same year.

The budget document also claimed that "if we make the right choices by stimulating growth and controlling spending, deficits will be small and temporary." (source)  But the devil was in the details.  CBPP demonstrated the budget understated the true costs of a number of Bush's tax cut proposals and projected unrealistically low levels of government spending, obscuring hundreds of billions of dollars in likely costs. (source)  The White House could only arrive at its numbers by ignoring inconvenient facts.

When presenting the administration's proposals to the Senate Budget Committee on February 5, 2002, Daniels bent the truth beyond recognition once again, claiming that the recession was "the reason that our long-term best guesses as to total surpluses have changed."  However, a CBPP analysis of Congressional Budget Office data available at the time found that the tax cut was the single largest factor in the decline. (source)

In July 2002, the administration announced higher deficit estimates.  It promised a return to a balanced budget in 2005, however, claiming in its mid-session budget review that "This period in deficit should be brief, because economic fundamentals have stayed strong." (source)  Yet its projection was riddled with more of Bush's deceptive budget tricks, including the omission of the costs of a number of proposals the President himself supported. (source)  Once again, with more reasonable assumptions, continued deficits appeared likely.

In an illustration of the lengths to which the White House would go to avoid discussing the cost of the tax cut, the White House Office of Management and Budget tried to cover up an obvious factual error in a July 2002 press release announcing the new projections.  The document incorrectly claimed that two-thirds of the reduction in the ten-year surplus was due to recession, with the "costs of security and war" contributing 19 percent and the tax cut "less than 15 percent." (source)  those percentages were short-term figures, however, not ten-year projections as OMB stated.  A CBPP analysis of OMB's data at the time showed that the tax cut constituted 38 percent of the reduction in the surplus over the ten-year period. (source)

The administration was clearly aware of this error.  Council of Economic Advisors chair Glenn Hubbard conceded during the July 17 Joint Economic Committee hearing that 40 percent sounded "about right" for the ten-year impact of the tax cut on budget projections.  However, the White House offered no public correction until July 26, when OMB simply posted a new version of the release on its website with the offending bullet point deleted -- and no disclosure that it had been removed.  After Paul Krugman wrote a New York Times column about the matter, Trent Duffy, an OMB spokesperson, sent a letter to the Times claiming the "error" had been "retracted weeks ago when noticed." (source | source)  When we reached him by phone, Duffy admitted that this retraction was only provided to reporters who noticed the mistake and contacted the budget office.  (OMB eventually added the correction notice to the online version of the release.)

The gambits to deflect blame grew more and more brazen as the red ink continued to flow.  In late August 2002, CBO released new figures showing a $5.3 trillion dollar decline in the project ten-year surplus since January 2001, which prompted Daniels to state that "the recession, weakened the stock market and the war caused the deficit," while omitting the effects of the tax cut.  In an analysis of CBO data released a week after Daniels' statement, CBPP found that the tax cut represented 31 percent of the total decline in the ten-year surplus. (OMB Press Release not found... | source)  Once again, the Bush administration was ignoring a politically inconvenient truth.

Bush himself strained credulity even further in defending the tax cut, improbably claiming that it had actually reduced the deficit relative to what it would have been otherwise.  After a Cabinet meeting on November 13, 2002, the President said, "Make no mistake about it, the tax relief package that we passed -- that should be permanent by the way -- has helped the economy, and that the deficit would have been bigger without the tax relief package." (source)

This would mean that the tax cut paid for itself and generated additional revenue on top of that.  Few mainstream economists think this is plausible.  Experts disagree about the extent of the revenue losses attributable to tax cuts, but they are nearly unanimous in their belief that they do not pay for themselves.  Every projection, including the one from the White House's Office of Management and Budget, showed that the tax cut increased the deficit in both the short and long term.  Even Duffy, the OMB spokesperson, did not defend Bush's contention, telling the Washington Post that the tax cut had produced growth that "certainly softened the recession's impact on revenues" but "by how much and to what degree, it's impossible to know." (source)  Yet the Washington Post was the only major outlet to address the radical claim in any detail at the time (though the New York Times and CNN briefly cast doubt on it). (source | source)  Most of the media simply gave the administration a pass. 

Remarkably, Bush's own economists would later undercut his suggestion that tax cuts increased revenue.  "Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run)," they wrote in the 2003 Economic Report of the President, "it's unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity." (source)  Even the administration's own economic advisers didn't buy this spin.

The Missing Interest Rate Link

In another bid to deflect political fallout, the administration began to imply that there is no connection between deficits and interest rates, a second claim that blatantly contradicted the consensus among economists.  OMB first entered the debate on the issue in July 2002 by arguing that "there is no historical correlation between fiscal net position and interest rates," an assertion Daniels repeated during a July 12 briefing. (source)

This claim was accurate, but substantively misleading.  As the Economist put it, "the formal econometric evidence is inconclusive: plenty of studies find a statistical link between interest rates and deficits; plenty find none."  The reason is that "It is hard to disentangle the effect of changes in today's budget deficit from other factors affecting interest rates." (source)  As with the debate over the revenue-generating effects of tax cuts, however, nearly every major economist agreed on the theoretical link between deficits and interest rates: the disagreement concerns the strength of the relationship.  When economists William Gale and Peter Orszag considered studies that took expectations of future deficits or surpluses into account, they concluded that most found a significant relationship with interest rates. (source)  Nonetheless, administration officials tried to suggest that there was no link whatsoever.

Glenn Hubbard, chairman of the CEA at the time, contradicted his own economics textbook, calling the idea that deficits lead to higher interest rates "nonsense" and saying, "As an economist, I don't buy that there's a link between swings in the budget deficit of the size we see in the Unites States and interest rates.  There's just no evidence." (source | source)  During a press briefing in February 2003, Daniels caustically added, "Well, the idea that there is some connection between deficits and interest rates is an article of faith for some people, but I say faith because their is no evidence, zero, and at least at the levels that we are now experiencing, historically very moderate." (source)

The administration itself later undermined these claims.  The 2003 Economic Report of the President stated the deficits do cause interest rates to rise (though not by very much): "Some calculations...imply that the interest rates rise by about 3 basis points for every $200 billion in additional government debt."  Later, Hubbard's successor Gregory Mankiw would repeatedly endorse this view, saying in a September 15, 2003 speech, for instance, "Of course, the expansionary effects of the tax cuts will be offset to some degree by the effects of the budget deficits that arise from lower revenues.  Deficits can raise interest rates and crowd out of investment, although I should note that the magnitude of this effect is much debated in the economics literature." (source)  In 2004, Bush himself admitted that "Fiscal policy can determine pressure on interest rates" during a speech in New Hampshire. (source)  Once again, without admitting error, the Bush administration was acting as if its previous deceptive statements did not exist.

More Budget Bunk

In early 2003, Bush rolled out another budget that used the same mix of tactics, attempting to minimize the deficits and disguise the severity of the financial situation.  His message introducting the budget explicitly ignored the role of his tax cut in the fiscal deterioration, blaming recession and war.  The budget later cited defense and homeland security spending increases as "explicit policy decisions [that] also contributed" to the deficit." (source)  The 2001 tax cut was conspicuously (but unsurprisingly) absent from the list.

After the budget's release, Daniels returned to Capitol Hill to testify and put on the most ridiculous display of his tenure, refusing to admit the role of the tax cut in the country's fiscal deterioration.  When Senator Kent Conrad, D-ND, asked Daniels about the deficit during a Senate Budget Committee hearing on February 5, 2003, the OMB director simply denied the role of the 2001 legislation, claiming that "it simply is not true that any policy, let alone the tax cuts, is responsible for the deficit we're facing today."  Conrad incredulously asked, "The tax cuts  have no part of the deficits going forward?"  Daniels denied he meant this, but when Conrad said, "I am talking about the ten years of this budget window.  The tax cuts have played a major role in the return to deficits and burgeoning debt," Daniels' reply was "Well, sir, your comment moves me to use a four letter word: bunk," to which he later added, "The only deficit we know about is the deficit we're experiencing right now, perhaps the deficit for next year.  Let's be a little humble about what we can and cannot see going forward." (source)  [G - This is the 'buy now - pay later' mindset. The public sector jobs and services are paying for this now.  And he's dead wrong about what we can and cannot see - but his job isn't research. Like every politician - their job is BS'ing.]

The exchange represented a major reversal for Daniels.  In 2001, he admitted that long-term projections were uncertain but claimed that long-term surplus projections were "just as likely to prove low over those ten years as high" when pushing the administration's tax cut. (source)  When the projected surplus practically disappeared by February 2002, the administration announced it would only provide five-year estimates of future budgets, which Daniels defended vigorously. (source)   And by February 2003, he had been reduced to claiming that "The only deficit we know about is the deficit we're experiencing right now," a stunningly disingenuous refusal to consider obvious facts about projected fiscal imbalances. (source)

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For a more in-depth look at how we went back to this 'flat-earth' thinking - please grab a copy of this great book and know that the enemy of the state is not your neighbor, the 'other party', or the red herring known as al-Qaeda, but the banking cabal. There are many more 'inconvenient truths' omitted by the current administration and state governments who have overspent surpluses and have taken a page from this Bush playbook. There are no surpluses, the dollar is failing, oil costs are rising -- if the public does not act accordingly and quickly for their own best interests, we're headed off the edge of the flat earth economy they created. By ignoring the facts and blaming others for selfish short-term 'buy now' gains -- the long-term 'pay later' reality has arrived. Great Depression 2.0. Time for America to deal with this reality before it deals with us...harshly.

I'll be sharing more on how to prepare for this in future posts. It's not the end of the world. Just the beginning of a new, and I believe a simpler, healthier one.

"Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone." - John Maynard Keynes

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