Karl Rove speaks at AEI

I saw Karl Rove speak this morning at the American Enterprise Institute. The speech had been scheduled long before it was announced that George W. Bush would address the nation tonight on immigration, and Rove's prepared remarks were all about the economy. Here's a link to the video.

Rove started off by observing that when George W. Bush entered office the economy was in trouble, trouble that was compounded by economic losses of $100 billion and job losses of 1 million caused by the September 11 attacks. He argued that the Bush tax cuts strengthened the economy and produced new jobs—more jobs than Europe and Japan put together. He noted that high-income taxpayers have been paying a higher percentage of total taxes and that revenues have been coming in far above forecasts–$274 billion above in 2005, $137 billion above in the first half of fiscal 2006. Real disposable income is up 14 percent since 2001. When asked by a Senate Budget Committee staffer why median household income had declined in 2001–04, he pointed to changes in household compositions, with more households headed by part-time and young workers.

Rove also credited free-trade agreements—14 bilateral agreements have been signed during this administration—with strengthening the economy and argued that nondefense discretionary spending has been cut for 2006. He said that 39 veto threats had resulted in spending being held down to the level the administration wanted. When challenged on this by Jeanne Cummings of the Wall Street Journal, who said that Bush had accepted spending above his mark on some bills, naming the highway/transportation bill, Rove said that Congress met the mark for the money actually laid out by the government (he said he didn't know the precise terminology here) and that on other issues the veto threats were effective.

Other highlights from Rove's talk:

Entitlements. Rove pointed out that the fiscal 2009 budget will see, for the first time in 25 years, a decrease in the surplus of Social Security revenue (FICA tax receipts) over Social Security expenditures (benefits). He admitted that Social Security personal retirement accounts would not solve the fiscal problems of the systems but said they would solve the fiscal problems of individuals, because they would increase their returns over what the system currently promises. "Why not the Pozen reform?" he asked, pointing to the proposal of Social Security Commission member Robert Pozen that would link high earners' benefits not to increases in wages but to increases in the cost of living and then have a sliding scale so that low earners' benefits would continue to be linked to increases in wages. This would solve 75 percent of the long-term fiscal problem, Rove said.

Healthcare finance. "Health savings accounts may be a game-changer," he said. This parallels the argument I have made that health savings accounts might have the potential to change the health insurance sector in a way similar to that in which Section 401(k), a little noticed part of the 1978 tax bill, changed the private pension sector. He pointed out that 30 to 40 percent of those who sign up for health savings accounts insurance policies were previously uninsured. He also called for medical liability reform and improvements in health information technology.

The 2006 elections. Rove insists, with his usual cheeriness, that he is "sanguine" about the elections. He admits that this is a "sour time," primarily because of the war in Iraq that "looms over" everything, but says that voters will continue to want a strong defense, victory in the war on terrorism and in Iraq, and an economic policy that is pro-growth and pro-free trade, with fiscal restraint. They will oppose Democratic obstructionism on judicial nominations and the Patriot Act, he says. "The American people are a center-right country, and they will vote for a center-right party and center-right candidates."

Immigration. In what presumably was a preview of tonight's televised speech, Rove admitted that we need to get better control of the borders and argued that we can't discuss the border without a temporary-guest-worker program. He pointed at improvements in border enforcement: He said the government has been apprehending and returning 4,200 illegal immigrants per day this year, 1,000 more per day than in 2005, and that the "catch and release" system for immigrants from countries other than Mexico (OTM) has been changed. We used to release them rather than deport them to their home countries. Now, having reached agreements with home countries, we can send them back. Of 2,100 OTMs as of April 10, 1,300 have been sent home, and 830 had to be released—700 of them Salvadorans, pursuant to an old court order prohibiting their deportation home on the grounds they'd be subject to political persecution. He says the goal is to end the catch-and-release program this year.

I have known Karl Rove since the 1989–90 electoral cycle in Texas. He seems as enthusiastic, optimistic, and energetic as ever. He seems unaffected by the legal jeopardy he has been in and displays a command not only of politics but of public policy that is extraordinary.