Karl Rove at American Enterprise Institute

Monday, May 15, 2006; 1:01 PM



ROVE: Thank you, Chris. Awfully kind of you to have me here today. It's a slightly larger crowd than when I last came here.

As a young man I somehow finagled my way onto the AEI mailing list, and for a decade my mailbox was filled with pamphlets and analyses and reports and books -- lots of books, glorious books, books that trailed me around from apartment to apartment to house, until my wife finally made me go through the awful process of deciding which of my children I would keep and which I would give away. 


Some of the volumes were devoted to obscure topics like trucking dereg and a particular favorite of mine, the Argentine election. But I still have my copy of the essay by Richard John Neuhaus and Michael Novak called "To Empower People." I found "The Moral Basis of Democratic Capitalism" by Irving Kristol, Paul K. Johnson and Michael to be extremely powerful. I was excited -- and that may be a strange word -- by Michael's book "Democracy and Mediating Structures." I still have my copy and occasionally dip into it. 

There are a couple of conservative revolutions available in these publications and in the many that followed. 

I also like the fact that you've served as a home for less well- known figures. Here is a volume written by an inspiring children's author whose husband was thrown out of Yale and eventually found a job in construction -- the Cheneys. 

Our conservative movement is grateful for the intellectual leadership of the American Enterprise Institute, especially under the stewardship of Chris. AEI has become renown for its scholarship, the care and precision of its work, the influence and commitment to important ideas. No think-tank in this city can match what AEI does, and it is an honor to be in the company of so many individuals who embody excellence. 

This morning I will focus my talk on the economy during the Bush presidency. 

You may recall that when Governor Bush was President-elect Bush in December of 2000, he met with business leaders in America -- American business leaders in Austin. They told him, in effect, "Congratulations, you ran a fine campaign, and, oh, by the way, you'll be inheriting a hurting economy." Their prognosis in that day in Austin was grim, but they were right. 

ROVE: Order books were drying up, investment was falling, consumer confidence in purchases were dropping off sharply and markets were tanking.

The stock market began its decline in mid-January 2000, dropping from an all-time high of more than 11,700 in the Dow to below 9,800 in early March 2000, on its way to its first calendar year loss since 1994. 

The bubble also burst in 2000. The Nasdaq, site of some of the largest IPOs in history, peaked on March 10th, 2000. And by December 2000, the time of our meeting in Austin, it had dropped by more than 50 percent.

The economy itself began slowing in the third quarter of 2000 as GDP declined by an annual rate of 0.5 percent. And all of this took place before George W. Bush set foot in the Oval Office. 

The economy posted another decline in GDP growth in the first quarter of 2001: minus 0.5 percent. And March 2001 marked the recession's official start.

Sluggish growth of 1.2 percent followed in the second quarter of 2000. And GDP growth declined again in the third quarter, falling 1.4 percent.

As in past recessions, no one single factor caused the 2001 recession. It resulted from declining stock markets, a surge in energy prices, higher interest rates, and the collapse of the high- tech bubble.

Then, on a bright September morning, came the worst attack on the American homeland in our history. Al Qaida targeted our political and financial centers, and intended to bring our economy to its knees. That didn't happen, but serious damage was done. Airports were shut. Stock markets closed. The hospitality and the insurance industries hit especially hard.

The country suffered an estimated $100 billion in economic losses. And in the three months following 9/11, the American economy shed 1 million jobs.

That fall, a series of corporate scandals began to come to light. Among other things, these scandals led to the largest bankruptcy in U.S. history. Confidence in the markets was understandably shaken. And the Dow Jones dropped to below 7,300, a five-year low.

At the time, the Financial Times said, quote, "Forecasts of a Dow diving to 5,000, 3,000 and even below 1,000 have been receiving attention from investors who once could not believe the Dow would fall below 8,000."

A faltering economy, falling markets, shaken confidence, an economy reeling, that's what America's new president faced.

In times like these, the principles and values of a president come into play.

ROVE: This president believes the government's role is to create an environment where the entrepreneurial spirit flourishes and where small businesses can grow, where people can dream about owning their own home and have it become a reality. 

And he believes that economic growth is created largely on the economy's supply side. The best tax cuts create incentives for people to work and businesses to produce and companies to invest. 

President Bush doesn't believe government creates wealth. He understands that's done by American workers, farmers and entrepreneurs. 

His economic policies, then, are tied to a view of human beings that understands the role of incentives in shaping behavior. There are three important elements of these policies that I'd like to talk about today: the tax system, trade liberalization and budget discipline. 

The president believes when the economy falters, tax cuts will lead to economic prosperity. This reflects a deep faith in individual citizens; in their energy and common sense and capacity to make wise decisions. 

His view of free trade is grounded in the knowledge that American producers and workers can compete and win internationally as long as the rules are fair. 

And an emphasis on a responsible federal budget reflects the president's belief that, while government should actively perform its core functions, it should not impede the efforts of individual citizens and enterprises to create jobs, wealth and economic opportunity. 

Let me deal briefly with each one of these three: taxes, trade and spending. 

In response to the economic challenges the country faced, President Bush provided Americans with the largest tax relief in a generation. With the help of the Republican Congress, he has secured the path to each of five major tax relief bills. He's led a successful effort to cut taxes every year he's been in offices. We've seen taxes cut on income, small businesses, dividends and capital gains. The child credit has been doubled, the marriage penalty has been reduced, and the death tax has been put on the road to extinction. 

Taken together, these tax cuts have strengthened the economy, increased productivity and created new jobs. Just last week, in a major legislative achievement, Congress passed an extension of the capital gains and dividend tax cuts until the end of 2010, and a signing ceremony will take place on Wednesday. 

An important point about the impact of the capital gains and dividend tax cuts: Between May 28th, 2003, when the president signed the legislation into law, and December 31st, 2005, the 500 leading U.S. companies on the S&P 500 have increased their dividend payments 725 times, and quarterly dividend payments averaged almost $47 billion a quarter. That is a 51 percent increase compared to the quarterly average for the 10 years previous to the tax cut. 

ROVE: That's money that is going into retirement funds and IRAs and people's pocketbooks. 

President Bush's tax-cutting policies were not passed by unanimous consent. Some in Congress oppose any significant tax cut. 

Indeed, some members of Congress predicted economic ruin if the president's tax relief was passed, any part of it. One critic called it, quote, "akin to arsenic poisoning for the economy."

Another said it was, quote, "nothing more than a sham wrapped in spin, shrouded with deception."

And a third said it, quote, "would bestow," quote, "no real benefits on most Americans."

Now, these aren't arguments. They're the political equivalent of schoolyard jeers. But more substantive points were raised in opposition. 

One criticism was, quote, "the vast majority of its benefits were directed toward the wealthy," end quote.

If this were true, then logic tells you that the percentage of federal income taxes paid by the wealthy would be falling after the tax cuts. That is not the case. 

The Bush tax cuts have shifted more of the burden onto the wealthy and those lower on the economic ladder have been relieved of a larger share of their tax burden. 

The top 1 percent of the nation's earners, those making more than $317,000 a year, their share of income tax payments is up by 1.5 percent. 

For the top 3 percent, those that have incomes are over $200,000, their share of the tax burden is up more than 5 percentage points, from 40.5 percent of the tax burden to 46.6 percent. 

And the tax burden of the top 5 percent of those in America, those with incomes of lower than $141,000 a year, is up almost 3 percentage points. 

According to the Wall Street Journal, for every 100 Americans today, the wealthiest three are paying taxes equivalent to the other 97 combined. 

Another critic's claim is that, quote, "the tax cuts have played a major role in the return to deficits and debt."

The problem with this critique is it ignores that tax revenues are at an all-time high, in large measure because of the economic growth the tax cuts contributed to. 

ROVE: Last year, for example, revenues confounded the experts by surging $274 billion above forecasts. That's almost 15 percent. 

And it is happening again this year. Last week, the Treasury Department's most recent survey shows that tax receipts were up by $137 billion, or more than 11 percent, for the first seven months of fiscal year 2006. Corporate income tax receipts were up nearly 30 percent. While individual income tax receipts have increased by 10 percent in what has been dubbed a, quote, "revenue tsunami."

If revenues for 2006 grow by 11 percent, then federal taxes will be equivalent to 18.4 percent of the economy; higher than the 40-year historical average. 

In the words of the Wall Street Journal, this is, quote, "the largest two-year increase in tax revenue collections, after adjusting for inflation, that has ever been recorded."

The surge in revenues means that we are on track to achieve the president's goal of cutting the deficit in half by 2009. And it's worth noting that just the other day the CBO lowered its deficit forecast for this year, predicting that the large increase in tax revenues would cut the deficit to about 2.5 percent of GDP.

Another criticism, a strange one, of the tax cuts came from a former high-ranking Democrat official who dismissed the tax cuts by saying, quote, "We had very good markets in the '90s before all these tax cuts went into effect," end quote.

I'm not certain that most Americans would applaud returning to the end of 2000, when the Dow had just experienced its first calendar drop since 1994 and the Nasdaq had dropped by 50 percent a year.

It's not just that the critics predicted nearly the opposite of what happened after the tax cuts were passed. The president's critics were not only wrong, they could not have been more wrong.

Take the frequent claim that the president, quote, "failed to put forth a responsible economic plan to create jobs," end quote. We saw a lot of variations of this during the calendar year of 2004 but the charge is simply not true. 

The American economy has created more jobs than all the countries in the Euro zone and Japan combined, and our economy is growing today faster than that of any major industrialized nation in the world. 

ROVE: It grew at an annual rate of 4.8 percent in the first quarter. It added more than 5.2 million jobs in the last two and a half years.

Employment is at near all-time high. Claims for unemployment insurance are at a five-year low. The unemployment rate is 4.7 percent; well below the average for each of the last three decades.

Core inflation remains low: just over 2.1 percent for the past 12 months. Mortgage interest rates remain near historic lows. And homeownership remains near a record high, with sales of new and existing homes reaching record levels in 2005.

Real disposable income has risen almost 14 percent since President Bush took office. The Dow Jones industrial average is near its all-time high. And since the 2003 tax cuts have been passed, asset values, including homes and stocks, have grown by $13 trillion. 

The reality is that the tax cuts have helped make the American economy the strongest in the world. 

A second component of the president's economic policy is free trade. President Bush believes trade is an important source of good jobs for our workers, higher growth for our economy, and bigger earnings for our farmers and our factories. 

For example, exports accounting for roughly one-quarter of all U.S. economic growth in the '90s, and jobs in exporting plants pay wages that are up to an average of 18 percent higher than jobs in nonexporting plants. 

Free trade has a proven record of creating new opportunities for our entrepreneurs, expanding choices for American consumers and raising living standards for all our families. 

America is once again, under this president, in the business of promoting free and open trade, to build our prosperity and to spur economic growth. 

ROVE: Under the president's free trade agenda, the U.S. has completed 14 bilateral trade agreements since 2001. 

And how important is it to expand economic freedom through free trade agreements? Our free trade partners represent 14 percent of the world's GDP, excluding the United States from the world total, and yet they represent 52 percent of all U.S. goods exports in 2005 -- 14 percent of the world but 52 percent of our economic exports. 

Clearly, it is in our interests to tear down walls to the sale of American goods and services around the globe. 

The third component of the president's economic policy is restraint of federal spending. 

The president has reduced the growth of nonsecurity discretionary spending every year in office. In the final year of the previous administration, nonsecurity discretionary spending grew by 15 percent. 

President Bush worked with Congress to cut that figure, reducing nonsecurity discretionary spending growth to 6 percent in FY '02, 5 percent in FY '03, 4 percent in FY '04 and 3 percent in FY '05. 

For FY '06, the president worked with Congress to actually cut nonsecurity discretionary spending from the previous year's levels -- the first time since the Reagan administration -- and hold growth in total discretionary spending below the rate of inflation. 

The president's FY '07 budget again proposes that nonsecurity discretionary spending growth receive an actual cut and that growth in discretionary spending again be held below inflation. 

Now, how is this done? Well, take last year. The administration issued 39 veto threats on six major spending bills. And Congress responded to those veto threats by restraining spending to the levels proposed in the president's budget. 

To put it mildly, the impact of the president's veto messages have been an unreported achievement. 

Here's another fiscal fact people may be unfamiliar with: Under this president, federal spending as a percentage of the economy is lower than that under four of the last five presidents. 

ROVE: And the high water mark for the budget deficit as a percentage of the GDP for this administration -- 3.6 percent -- is significantly less than it was in the case of the 1980s, when it ranged as high as 6 percent. 

The president's tax cuts, trade liberalization and spending restraint helped strengthen the economy's foundation and added fuel to our economic recovery; not a bad record. 

The American economy still faces challenges, however, clearly. The first of 78 million baby boomers are beginning to retire. And by 2030, spending for Social Security, Medicare and Medicaid will comprise almost 60 percent of the federal budget. This is a serious threat to our fiscal well-being. 

And while the topic of entitlements is beyond the scope of my prepared remarks this morning, I will point out that no president has made a more concerted or determined effort to reform Social Security, our nation's largest entitlement. The president encountered enormous resistance to what were bold but practical reforms. 

I believe there will be a price to pay for the political intransigence which some showed to this reform agenda. But President Bush will continue to keep entitlement reform front and center on the nation's political agenda. 

ROVE: In closing, I suspect the temptation for some policymakers is to forget that beyond the economic statistics lie compelling human stories. This is a temptation that we must resist. We must remember that economic growth creates work which is the source of human dignity. 

In his 1981 encyclical "On Human Work," John Paul II wrote, quote, "Human work is a key -- probably the essential key -- to the whole social question. Work is a fundamental dimension of man's existence on Earth. Work is a good thing for man, a good thing for his humanity because through work he achieves fulfillment as a human being." 

This is an important reminder that prosperity is not just an end in and of itself. Prosperity is also a means to broader ends and greater purposes. 

Things don't happen in Washington by accident. They happen because of the right policy and the right leadership. The American Enterprise Institute has done much to foster both. 

And who knows? Maybe there is out there some young college student today reading an AEI study on telecom deregulation who will be inspired by the world of conservative ideas. 

I was fortunate to have been in that position myself a long, long time ago. 

I'm honored to have been invited today, Chris. 

Thank you for your attention. And now I look forward to taking, and in some instances ducking, your questions. 



MODERATOR: Thank you, Karl. 

Ladies and gentlemen, Karl has time for a couple of questions.

QUESTION: You said that the long-term reform of the big entitlement programs was outside the scope of your remarks today. But do you have any hope that they can be put on the right track before the end of the Bush presidency? 

ROVE: Yes. 

This last year, Congress passed a modest reform of entitlement spending. I think the total is $10 billion, I believe, over five years, although that may be the 10-year number. It's the first time in a decade that Congress has restrained mandatory spending on the entitlement side. 

I think there's a growing concern on both sides of the aisle as to how quickly this problem is going to affect the budget process. 

It does not happen in the out-years. The systems go broke in the out-years. But it begins to pinch the budget process pretty quickly. 

For example, I believe it's when we sit down to write the FY '09 budget that we will find ourselves at the end of a 25-year ride in which each year Congress has had a larger so-called Social Security surplus -- the amount of money going into Social Security exceeding the amount that is necessary for the expenditures that year has grown each year for 25 years.

Well, we peak and begin our downward spiral for the FY 2009 budget, which means members of Congress who are serving today in the House and Senate are going to have to start grappling with the pinch that this is going to put on the budget in a very short time frame. 

And I think the recognition is growing. And, as a result, the willingness to adopt reasonable and prudent responses is itself growing.

I've had a number of members of Congress say to me, with a little bit of exasperation, "Geez, why didn't we do that Posen reform? That seemed sensible. Let's grow the Social Security benefit for the people at the bottom of the scale by wages, for the people in the middle by some scale of inflation and wages, and for the top third or so, let's grow it by inflation itself. That would solve 75 percent of our problem." 

And my response to them is, "Where were you when we were the only people out there talking about it?"

But, no, I think there's a growing recognition of this problem. And policymakers will have to confront it sooner rather than later. 

QUESTION: Would it involve raising the age at which people qualify for (OFF-MIKE)?

ROVE: Well, there are a large number of -- you know, we're already in a pattern where we are seeing an increase in the eligibility age for some of these programs. 

Everything ought to be on the table. Everything ought to be discussed. There is a reasonable and prudent way to arrive at this.

The problem arises because we've made a series of promises, particularly with regard to Social Security, that are rising much more rapidly than our ability to pay. My mother-in-law gets roughly the average Social Security benefit today. My son, if he were to retire at mid-century and get the average benefit, would get a benefit that is not, in today's dollars, roughly the same size, it would be almost twice the size of the average benefit today. That's the problem that we've built into the system.

QUESTION: May I point out that some of the president's most conservative and loyal supporters were the most disappointed on Social Security. 

What they thought they heard him say -- perhaps at your recommendation -- was that, "Social Security is in deep trouble, private personal retirement accounts would be a good idea, except they wouldn't solve the financial problem -- coming problems of Social Security, therefore I'm recommending that we cut your benefits and raise your taxes, vote Republican."

Now, that was the impression that...

ROVE: That's the impression you may have had, and some conservatives...

QUESTION: I'm reporting, Karl...

ROVE: Exactly.

Look, let's go over what it was. 

No one's benefit would be cut. Benefit would continue to be larger. 

ROVE: The growth rate, though, would be reduced -- particularly under Posen, the growth rate would leveled off from here to here.

The president -- personal accounts do not solve the problem of the fiscal problems facing Social Security. They do solve the fiscal problems facing the individual retiree. 

If the individual retiree were allowed to put some of their own money -- particularly younger workers were allowed to put some of their own money into responsible investment vehicles, they would get a much higher rate of return than could be promised them or delivered to them by Social Security. 

So while it does not resolve the issue of the financial stability of Social Security, personal accounts are an absolutely vital way to assure the financial security of the individual Social Security recipient. 

The two need to go hand-in-hand. Personal accounts are a way for individuals to get ahead and the fiscal restraints on the system allow us to have a system that it can be sustained without an onerous tax burden that would absolutely devastate the economy. 

QUESTION: Our most comprehensive data on household and family incomes come from the Census Bureau. And the Census data show that real median household income, real median family income, have both declined in 2001, 2002, 2003, 2004. And given the stagnation of wages and the uptick in inflation in '05, it's likely that real median income declined again in 2005. 

Don't these data indicate many, if not most, Americans have suffered real income losses under President Bush? 

ROVE: Well, not necessarily. In fact, the other data shows that there's been an actual increase in real income of 14 percent. 

ROVE: I think what we're talking about here, though, is the nature of the composition of the households coming into that pool that is measured. 

The younger the workforce, the less likely we are to have higher wage growth, the more likely we are to have, as the composition changes of the nature of who's entering the workforce -- and we do have, over the last five to 10 years, a larger number of younger workers and part-time workers and returning workers, all of which would tend to depress the particular scale you're talking about.

And I'm not the expert in it. 

QUESTION: It's been a staple of analyses for decades that eliminating spending on programs or severely reducing them is just politically more grief than it's worth because of the interest group dynamics it unleashes in Congress especially. 

Do you believe that is fundamentally as true now as it ever was, in which case the best one can hope to do is grow the economy faster than government? Or do you think it's changed in any particular way, and there are opportunities out there now for serious structural reform of the role of the federal government in a way that there was not before?

ROVE: That's a very good question. 

I think there are three -- the short answer is, yes, I do believe there is a changing attitude by people, particularly if they know the facts about it. 

I do think that there is an advantage to growing the economy in order to pay for these programs. 

I think there's also a great utility in looking at game changers. What are the things that will allow us to fundamentally change people's behavior in a different way? 

Health savings accounts, for example, may be such a game changer. It is likely that if people have, over the course of their working experience, a good experience with health savings accounts, and when they get to the age of 65 they'd rather not give it up and, instead, would like to keep their health savings account as an alternative to traditional Medicare. 

ROVE: But I do think there is a growing sense, a growing awareness on the part of the American people, particularly if given the facts, that they are willing to accept some changes in programs. 

For example, I don't think that most Americans today think that when they retire that the average benefit that they're going to get under Social Security is not going to be adjusted for inflation but it's going to be adjusted for something that goes significantly higher than even the growth in wages. 

I think most people think when they retire they're going to get a benefit that in its size is roughly equivalent in real dollars to what somebody in previous years would have gotten. 

I gave you the example of my mother-in-law and my son. Let's assume that if somebody who's 17 or 18 or 19 years old today works the ordinary, the normal, average career and at the end of it retires with, quote, "the average benefit." 

Well, the average benefit in 2050 will be roughly $22,000; almost twice what the average benefit is today in real terms. 

And I think most Americans when told that, "We're making a promise to your kids and grandkids that we're going to give them a benefit for you or for them that is going to be significantly larger than the average benefit today in real dollar terms," people say, "Well, why are we doing that?" "Can we afford it?" "If we can afford it, fine, if we can't why are we making that promise?" 

QUESTION: A broader question...

ROVE: The Brits are dominating the questioning here far out of proportion to their... 


QUESTION: No matter which way you look at the moment, you can hear mutterings about the direction of the Bush administration, even grumbles among many of your core supporters, or even dissenting voices in this very building. 

ROVE: It has always been thus.


QUESTION: It's clear that the position that the administration's in now is not where it would have liked to have been with a few months to go before the mid-term elections. I wonder if you could just say what has gone wrong and how do you turn things around before November. 

ROVE: Look, we're in a sour time. I readily admit it. 

I mean, being in the middle of a war where people turn on their television sets and see brave men and women dying is not something that makes people happy and optimistic and upbeat. 

ROVE: But I'm absolutely confident that -- I heard this same kind of language about the 2004 elections in roughly the March, April, May, June period of June 2004.

We're going to be just fine in the fall elections. 

And we're going to be fine because we stand for things that are important. We stand for strong natural defense abroad and complete victory in the war on terrorism which involves victory in Iraq. 

We stand for a strong national defense. We stand for economic policies that are pro-growth, involving tax cuts and free trade. We are strongly for fiscal restraint in the budget process.

And our opponents, at this point, stand for little or nothing, except mere obstructionism. Whether it is the nomination of superbly qualified men and women to the judiciary, or our policies to reauthorize the Patriot Act to keep America safe in a time of global terror, the other party seems to stand for little except obstructionism. 

And ultimately, the American people are a center-right country, who, presented with a center-right party with center-right candidates, will vote center-right. 


ROVE: Well, I think the war looms over everything. And, I mean, you know, there's no doubt about it. 

QUESTION: You talked a lot about the budget discipline that the Bush administration has achieved. How come so many conservatives don't seem to agree with you and are really up in arms about spending? Are they missing something? 

ROVE: Yes. They're missing the facts. 

QUESTION: All these conservatives are just...

ROVE: Look, some want deeper cuts. 

But I will tell you it is hard. We passed the budget resolution last year in the House -- what was it? -- by one vote or two votes last year. 

ROVE: I mean, it is hard to go up there on the Hill and say, "We're asking you to absolutely cut nonsecurity discretionary spending; not rise it by inflation, not raise it at 3 percent, 4 percent, 5 percent, but actually cut it." It's tough. But they did it, and we enacted such a budget and are operating under such a budget.

Now, would people like to do more? You bet. Would people like to have entitlement reform? You bet. 

But the difficulty of getting progress in the real world is such that it requires a lot of energy and a lot of will and a lot of nerve. And we're pressing the issue, and I'm happy to defend the record any day of the week.

QUESTION: Medical costs are very much a part of the entitlement equation. And I was wondering what the administration, given it's got two and a half years, might do differently to address the issue of actual costs and people who do not have insurance.

ROVE: First of all, health savings accounts are a very positive way to help address some of the health care cost and access questions. 

One of the interesting things about them is that they appear to be largely a vehicle that draws large numbers of previously uninsured people into the system. I think 40 percent, according to one study, and in the mid- to high 30s in another study, of new HSA holders were people who were previously uninsured. 

It is a low-cost, high-quality vehicle that we think will actually have a very significant and durable long-term impact.

So we are addressing cost and access questions with things like that. We also, though, realize that this is a very complex problem that's going to require attention on a wide variety of fronts. 

Medical liability reform we think is a very important component of this. The cost of defensive medicine to the federal taxpayer is roughly $28 billion a year. The additional added cost to the entire health economy is roughly $100 billion a year in unnecessary preventative -- defensive medicine costs. 

ROVE: We think something needs to be done on that front.

We think health I.T. represents an extremely positive avenue to help restrain health care costs. We see it at the V.A., where they will tell you that it's helped them bring about significant cost reductions, allowing them to take their precious dollars and spread the more broadly. 

And we also think that transparency matters. We're involved in an initiative to essentially get a cooperation between health providers, health insurers and companies that provide health coverage to their employees, starting with a project in, I think, roughly 10 cities where we're going to aim to get complete health transparency in the pricing of the most common kinds of medical procedures at hospitals and doctors' offices, both quality measures for hospitals and price measures for both doctors and hospitals. 

We think this will help bring more market pressure to bear in our health care system. 

You can see the effect of this a little bit in the prescription drug benefit. When it was debated before Congress, the best estimates of the government estimators were that the cost of the annual -- of the monthly premium for Medicare prescription Part D would be $37 a month. In fact, there was an effort by some of the members on the other side of the aisle to lock in the $37 a month as not the ceiling but -- excuse me, as a specific price; not even a ceiling or a floor, but the specific price that would be charged. 

This was defeated on a party-line vote. And good that it was because now with market competition, 540 plans floating around America competing for Medicare prescription Part D sign-ups, the average monthly premium is $25; $144 less a year per individual recipient when it was estimated at the time of the program's formation.

So market forces being injected into all the facets of federal health policy is really important to restraining costs. 

MODERATOR: Karl, we have five or six more questions. Are you game? 

ROVE: I'm game. 


Ladies and gentlemen, I've established a queue, and I'm going to...

ROVE: Don't call on...


ROVE: He wasted too much of my weekend, so call on someone else. 

Don't call on him either. 


MODERATOR: Two people up front. 

Too late. 

QUESTION: On a different subject, Scott McClellan told the White House press corps -- many who are here today -- that he had spoken to you and that you were not involved in the CIA leak. Can you explain why the American public, almost two and a half years later, hasn't been given an explanation?

QUESTION: And don't you think it deserves one for the misinformation because it does seem that you were, to some degree, though it may be disputed, involved in that leak?

ROVE: My attorney, Mr. Luskin, made a statement on April 26th. I refer you to that statement. I have nothing more to add to it. Nice try, though. 


QUESTION: You mentioned that the president has issued veto threats and that's caused Congress to restrain spending. That's true, but they often did not meet the target the president set when he issued his veto. The transportation bill is an example of that.

Why hasn't the president vetoed any bill which many of your conservative supporters would like to see as a clear indication that the party stands for spending discipline? Why hasn't he and will he?

ROVE: Well, first of all, he certainly will when they don't meet his target.

Now, you brought up one example, the highway transportation bill. You can't find any other bill where they've breached his target. And in that instance, they did breach his target because what they had is a face-saving gesture of being able to get -- and I'm going to get the terms wrong here, but one is "contracting and obligation."

And in essence, they hit our target for the actual amount of money that the federal government is going to have to lay out over the course of the highway bill.

And that was our target. And we agreed on that amount. And they did have a face-saving ability to go above that. And I'm going to get the term wrong (inaudible) for "contracting and obligation."

ROVE: But the amount of money that is covered under the highway bill met our target.

Now, did we like a lot of the earmarks? No. But it is hard for a president to say, "I want you to hit the target. I want to you make sure you live under the ceiling that I set in my budget. And incidentally also you're going to have to spend every dollar within it exactly the way that I want to spend it." 

This is a continuing tension between the executive branch and the legislative branch over spending. 

There are instances where if they get too far off base or they get substantially off base in the composition of the spending, where we issue veto threats in that instance as well. That number probably is a heck of a lot more than 39. But the 39 vetoes to which I talked about referred to, "If you breach my spending limit, the budget limit that I have laid out in my budget, I will veto this bill." And in each and every instance, Congress receded.

We see this now in the instance of the supplemental. We'll see how this plays out over the next couple of weeks, but I have every confidence at the end of the day, we'll get a supplemental that falls within the president's limit. 

QUESTION: Karl, in the context of your discussion about the economy but then also into politics, I want you to discuss the stakes, in your view, of what the president will discuss tonight, which is immigration. 

What are the stakes in this debate for the economy? And what are the stakes for the Republican Party if the Tom Tancredos and others who forcefully disagree with this president carry the day in the end? 

ROVE: Let me say that it was a long-ago agreement of when I would show up, not fortuitous timing, that put me here today talking. 

I am so completely off message on a day that we're talking about immigration, I don't know if they'll let me back into the gates at 1600 Pennsylvania Avenue. 

Look, tune in tonight. The president's going to talk about a comprehensive approach to this. 

This is a problem of security. It is a problem of our economy. It is a problem of compassion. It is a problem that we have to attack on several different fronts simultaneously if we hope to resolve it. 

ROVE: And he's going to talk about a comprehensive solution. 

I think it's important for the country. I think it's important for our economy. It's also important for people who want to come here and earn to put something on their family's table. 

And it's important for us to deal with the question of the people who are already here. How are we going to deal with them in a comprehensive fashion? 

The president's going to lay out some proposals tonight in a comprehensive vision.

QUESTION: What about the politics of it, though, 10 or 15 or 20 years from now for the party, if you get this, quote/unquote, "wrong," in your view?

ROVE: Well, look, this is about getting the right policy and the politics will take care of itself. 

I mean, we've seen this about four or five times before in American politics, and it's always seemed to work its way out politically, and I'm confident this will as well.

QUESTION: My question is also about immigration, but specifically its impact on economic growth now and its future impact on Social Security.

ROVE: Good questions. I'm not certain I have a particularly good answer. 

I've been reading conflicting studies on Social Security. 

We have vast amounts of money which have been paid into the Social Security trust fund for people who do not eventually collect it. It's been paid in either with the Social Security numbers of a person who does not really exist or in the name of somebody who doesn't draw on it then. So there are conflicting claims as to the impact. 

On the other hand, that positive impact is offset by payments made to individuals and with countries with whom we have an agreement -- for example, Japan, where Japanese citizens come here, work, pay into Social Security, and then return home to Japan and receive the benefit that is allowed them under U.S. law.

So there are conflicting studies on what the exact impact is.

But, look, this goes back to, we're a country of immigrants. I'm from Texas. I have a lease in Kenedy County, Texas. 

ROVE: It's half the size of Rhode Island and has 973 people who live there. And I don't care if you're hunting deer in February or mowing the roads in the middle of the pasture in August, you'll find somebody carrying a plastic jug and a plastic bag in the middle of the cold winter or the very hot summer, trying desperately to get north in order to earn money to put food on the table for their families. 

We've got to deal with that reality. 

On the other hand, we've also got to deal with the reality that people die. I've seen a couple of corpses out there. I don't want to see them again. 

And you also have to deal with the reality that we've got a border that is so porous and so insecure that who knows whether that is simply an illegal immigrant looking for getting a job in a landscaping company or throwing tar or whether it's somebody who wants to do something worse? 

So we need to get a better control on our borders. The only way to do is through a comprehensive program. 

Now, I'll range a little bit free here. 

Most people don't understand that we're doing a heck of a lot better job of getting control of the border. This year, the average day this year, we have apprehended and returned over 4,200 people each and every day this year. There have been 6 million people who have been apprehended and removed from the country since 2001.

This year, it's 4,200 people a day. That is a thousand people a day more this year than last year. 

We're doing a heck of a lot better job at getting the problem of catch-and-release under control. For some several decades, the United States government has had an unofficial program of catch-and-release, in which, if you are not from Mexico -- if you're from Mexico, we get you, we put you back across the border pretty quickly. 

But if you're from some place other than Mexico, what happens is you have to go through a lengthy immigration proceeding. And during that time, between the time that you're going -- get apprehended and the time that you exit that immigration hearing, we've got two choices. 

One is to put you up at the taxpayers' expense and we fill up every available detention facility we've got. And when we finish, we release you out into society and hope that you show up for your court date. Catch-and-release: Guess what? Ninety-two percent of them don't show up. 

And we have attacked this problem vigorously, first by engaging in a series of changes with countries from which these people come, in order to slim up the procedures necessary to get them back into their home country. 

ROVE: In the last year alone, we have gone from -- an average immigration hearing for an other than Mexican, or so-called OTM, took 66 days, to today where it is 21 days and going further south by expediting removal of these people from the country. 

And we've now gotten this problem worked down. We monitor it, literally, on a weekly basis. 

Let me give you just one example. 

Last week for which I have full numbers is the week of April 10. During that week we apprehended roughly 2,100 and some odd -- I'm sorry, 2,300 people who were from -- I'm sorry 2,100 who were from some place other than Mexico and we immediately sent home 1,300 of them -- processed them and got them out of the country. 

There were roughly 830 people that we had to release out. Over 700 of them were Salvadorans, which we are obligated under a court decision to release; we cannot hold them. There's a now-many-year-old court decision which says -- which was issued during the middle of the El Salvadoran civil war that said you cannot return people to El Salvador because there is a very high risk that they will be killed. Well, that court decision is still in place, even though today El Salvador is not enjoying a civil war. 

And yet of the 830 people we had to release, over 700 of them were Salvadorans. 

The next largest group was the People's Republic of China, which is now beginning to make steps -- take steps to begin to receive larger flows of people back. Illegals that we catch here who come from China are now -- we stand a much better chance of being able to process those people rapidly and get them home. 

The rest came from 60-some-odd countries. 

Now, my point is that this is a problem that if we had more authority -- that is to say something to deal with the question of this court decision involving El Salvador -- and some additional money for additional facilities to detain people and additional transportation money, this is a problem of catch-and-release that we could end. And our goal is to end it along the southwest border this year -- within the year. 

But no one should underestimate that we are dealing with a problem that is decades old. 

And you'll hear the president talk tonight about steps that we're going to take to increase our security along the border immediately and to deal with the other part of it, which is we will not be able to secure the border unless we have a temporary worker program. 

ROVE: We want to have people patiently waiting in line with the prospect of being able eventually to go north and get a job than to have themselves throwing themselves across the border time and time and time again. They get caught and returned, caught and returned, caught and returned.

The only way to stop that is to reduce the pressure by having a way for people to legally come here to work and then return home.

QUESTION: In light of everything you've talked about today with the economy, why are the poll numbers so dismal, with people who don't seem to see in their own family budgets or in many other areas of the policy of the administration, in fact, things are better? 

In fact, the latest polls say that everything is worse than it was since President Bush took office. 

ROVE: Well, you know, it's interesting, because consumer confidence is relatively high. In fact, it is much higher than the average of the last 40 years. 

In fact, I think it's the University of Michigan Survey Research Center, though it may be the Conference Board numbers, I read a study by a couple of political scientists that say that based on those numbers, Republicans will have 10 seats more after the fall election than they would otherwise have because of people's confidence about their own circumstances and the economy that they feel and say. 

So I mean, there is a disconnect. And I think it's because the war looms on all political actors and not just that it's people's attitudes are sour about the economy. 

People -- they feel it. Their personal circumstances are good. They're feeling good about where they are.

They don't like gas prices. Who likes having to pay more at the pump? 

But they do feel that overall the economy is good for them, that the prospects for their family in the near term and for the future are good. 

They're worried about the long haul. They've heard about the problems with Social Security. They're worried about globalization. But they're confident about where they are right now and where they find themselves. 

QUESTION: I'd like to ask you a question about energy policy. You didn't mentioned that oil is at $70 a barrel and yet the market is approaching record highs and the economy is ticking along at 4.8 percent GDP.

QUESTION: Two great AEI scholars, Glenn Hubbard and Larry Lindsey, used to say that a key part of your policy was, in fact, the dividend tax cut, and that by letting price signals direct investment flow through the market, you'd get good results. 

Now, can you articulate in a more precise way exactly what the energy policy is now? And is it working? 

ROVE: One of the things undergirding our energy policies, and included in last year's bill, was the philosophy that, over the last 20 years, America has been able to become an increasingly energy- efficient economy. 

That is to say it now takes a considerably smaller part -- for every part of our economy, for every part of our economic output, it takes a considerably smaller amount of energy to arrive at it. And that's because of the efficiency of the market, the adoption of new technologies, and because energy prices have forced people to substitute. 

How do we go about -- in a high-energy environment, how do we find a way to do things and make things cheaper and better? 

And we've attempted in the energy policy that was passed by Congress last year to continue to further that. We did -- for example, one of the energy technologies that does make us more energy- efficient is reliance no nuclear power. It's cheaper, it does not pollute, it does not add to air emissions, and yet we have put in place of nuclear power a whole series of obstacles that have meant that since the '70s we've not built a new nuclear power plant in America.

We want to remove those. 

It's also embodied in the president's Advanced Energy Initiative. Last year we went and met with the people from the Energy Department and talked about some of these advanced energy technologies. And there's some really interesting working done over there. 

Most people, for example, don't know that the hybrid automobiles that they see on American highways today, every time one of those hybrids is bought, a check gets written to the U.S. Treasury because the technology in those automobiles was developed at the advanced energy programs at the Department of Energy -- copied by the car companies. And, in fact, they got into litigation, I think, over it. And we won and they have to pay. 

The purpose of the Advanced Energy Initiative was to sit down with these guys last year and say, "What are you doing? And can we spend more money and get it done quicker?" 

And it was really an interesting set of meetings, because the first thing is, none of them said, "Spend more money." 

ROVE: The hydrogen guys said, "Look, fine, we're proceeding; it's a theoretical question. We'll tell you if and when we get to a place where we think we can speed it up. Thanks so very much. Let us go back to our work."

But others said, "You know what? We are past the theoretical stage, we're at the engineering stage. All we got to do is put enough guys with pocket protectors and slide rules on the issue and we can get this done. But we don't need any more money. 

"Do two things for us, though." They said, "Give us the money that you were otherwise going to give to us, but give it to us sooner. Give us what you'd programmed in the out-years and give it to us sooner. And two, get rid of the earmarks, because the earmarks are by and large meaning that large sums of money are being spent on things that are unproductive." 

One of the project people said, "Forty percent of the budget for our particular area goes to things which we do not think, at the end of the day, add to our ability to bring this to market."

And we did some work to talk with them to see about the technologies, and it's pretty remarkable. You go out, for example, to Johnson Controls in Milwaukee, Wisconsin, and they'll show you two SUVs, one with the existing state of battery technology, and you open up the back of the SUV and the entire, sort of, storage area has got the giant, you know, huge pack of batteries.

ROVE: And then they show you the new one and you open up the back of the SUV and there it is. The load area is like you'd see in any ordinary SUV. And they pull up the little panel and there is a 72-pound pack, about this thick, about this big, and about that wide, which is going to be able to power the car for 40 miles a day. Pretty remarkable. 

So the Advanced Energy Initiative this year, embodied in our budget, part of the State of the Union, says, "Let us take these technologies which are coming close to commercial application; let's speed up the development by getting rid of the earmarks and moving the money forward and hitting an earlier deadline so that these things -- hybrids, plug-in hybrids, cellulosic, wind and solar -- can be brought to market quicker and better."

QUESTION: From the Wall Street Journal, I'd like to ask...

ROVE: Now the Wall Street Journal has bypassed the Brits. 


It's in first place, you're in second, everyone else is way back in the pack. It's really well done. 


QUESTION: It's always been thus.


ROVE: Let the record show that Jean immediately said, "I'm not with him," therefore displaying an unbelievable lack of loyalty to her publication that pays her. I mean, it's unbelievable.


QUESTION: I'd like to ask a question about the president's own poll numbers, which I'm sure you've noticed are a little on the low side right now. 

I'd like to ask: Do you think there's a disconnect with the president's poll numbers similar to the one going on with the economy or do you think that there is some other explanation for all that? 

ROVE: You know, when you say "the president's own poll numbers," for a moment there, I thought, "Has somebody been walking through Lafayette Park again and dropping documents off?" I don't know. 

Look, I don't want to spend a lot of time on polls. Let me just tell you, I'm sanguine. Here's the reason why. 

You mentioned our own polls. I know our own polls. I love all these polls. I love reading your polls. I love this mania which has swept through American media today which substitutes polls for coverage of substance. 

And you'll work your way through it eventually. There's, I'm sure, going to be a special Betty Ford addiction for those that are addicted to regular poll numbers, but you'll work your way through it. 


But the polls I believe are the polls that get run through the RNC. And I look at those polls all the time. 

The American people like this president. His personal approval ratings are in the 60s. Job approval is lower. And what that says to me is that people like him, they respect him, he's somebody they feel a connection with, but they're just sour right now on the war. And that's the way it's going to be. 

ROVE: And we will fight our way through. The polls will go up; the polls will go down. 

I'm confident that when the polls -- the Wall Street Journal-NBC poll shows a jump in the president's popularity, you will give it the same attention that you did when it went down.


And I'm confident, therefore, that we'll get a fair break.

But the fact of the matter is that if you want to govern by waking up and saying, "How am I doing in the polls?" and adjust yourself thereby, you're going to find yourself in one heck of a problem.

So we're going to stay focused on good policy, and confident that that will ultimately take care of the politics of the matter.

Thanks again.



Source: CQ Transcriptions
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