Gimme Shelter: Tax Evasion And The Obama Administration

Thomas Edsall
The Huffington Post
February 23, 2009

If government watchdogs -- determined to root out waste, fraud and abuse -- want to go after big game, they should skip chasing nickel-dime welfare cheats, and learn from an IRS foray into Miami's exclusive Art Basel festival -- the annual December event sponsored by Davidoff cigars, Cartier, Net Jet and, of course, banking giant UBS -- where wealthy patrons forge the 'relationships' that will enable them to avoid sharing their hard-earned income with Uncle Sam.

For UBS, sponsorship of Art Basel has done more than burnish the Swiss wealth management specialist's corporate image. It has been an opportunity to make money, and lots of it, wooing clients (perhaps better described as co-conspirators) seeking advice on tax shelters.

It's not just a Swiss thing. As watchdogs get a taste for pursuing tax scams, they are exploring some intriguing findings by the Government Accountability Office. A 2008 GAO study shows that 83 of the top publicly held U.S. companies have set up operations in such tax havens as the Cayman Islands, Bermuda, and the Virgin Islands. In addition, 14 of the corporations with operations in tax-haven countries are beneficiaries of the current $700 billion government bailout, including American International Group (AIG), Bank of America, Citigroup and Morgan Stanley.

The GAO report and the activities of UBS at Art Basel both go directly to the issue of tax avoidance.

A unique combination of events -- the GAO report, the economic collapse, the bank bailout, the pressure to raise federal revenues without hiking taxes, and a series of tax fraud indictments in Southern Florida -- has set the stage for what could become a serious assault on tax shelters, tax havens, tax loopholes, tax evasion, and what are known to economists as "tax expenditures."

For those determined to wring out every drop of "waste, fraud and abuse" from the federal budget, blocking and restricting tax evasion offers the potential of boosting revenues by multiples of billions. One tax break that looks to be a particularly inviting target, for example, allows companies to avoid paying taxes on overseas income until they bring the money back to the US. Obama and others have attacked this break as a federally subsidized incentive to invest abroad. If left intact, this provision will cost the federal government $56.4 billion from 2008 to 2012, according to Congressional tax analysts.

Or take the case of the festivities at Miami's Art Basel, where the fabulously rich spend the tax dollars they have 'conserved' on everything from $1.5 million De Koonings to $1,500 hookers, as chronicled by Conde Nast Portfolio's Jay McInerney.

Until February 19, 2009, when UBS for the first time agreed to release to the US Department of Justice (DOJ) an as yet undetermined number of the names of bank account holders, the closed-door private Miami sessions sponsored by UBS were not just opportunities for people with a lot of extra cash to get tips on hot artists. They were also events where rich people could learn how to avoid paying taxes altogether.
UBS offers put to shame more traditional tax shelters. UBS folks presented to some very receptive Americans ways to avoid paying anything to the IRS, taking advantage of the bank secrecy rules in Switzerland and Lichtenstein.

The one hitch was that the schemes were illegal. But, the UBS folks noted, they had ways to structure transfers from phony Bermuda and Cayman Island accounts to overseas accounts held by shell corporations that were so complex and arcane that U. S. authorities -- mired in confusion -- would give up the chase.

An estimated $20 billion flowed from American clients into UBS tax avoidance schemes in recent years, according to DOJ officials. If, conservatively, just 30 percent of that amount should have been paid in taxes, these scams saved the well-to-do clients of UBS just under $7 billion.

The only problem was that in 2004 a relatively small crack opened up in the scheme. That year, the IRS and the Justice Department found out that Bradley Birkenfeld, a US citizen working for UBS, and Mario Staggl, a Lichtenstein resident, had devised a tax evasion plan for Igor M. Olenicoff, a billionaire California developer.

The Birkenfeld indictment does not spell out who talked first, but Olenicoff, who pleaded guilty on December 13, 2007, to a charge of filing a false tax return, and who eventually paid $52 million in back taxes, later filed a lawsuit against UBS that accused Birkenfeld of luring him into an illegal tax scheme.

The who-fingered-who dispute is, however, secondary to what followed. South Florida U.S. Attorney R. Alexander Acosta has moved steadily up the chain to reach the top management of UBS, and, more significantly, to force unprecedented disclosure of the identity of thousands of U.S. taxpayers who took up the UBS offer to cheat on their taxes -- an extraordinary setback for Swiss banking authorities who have guarded their clients names for centuries, and whose business has been built on the rock of the once-sacred promise of secrecy .

"In an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS's cross-border business," the DOJ proudly declared on February 18 of this year.

An undetermined number -- anywhere from just 250 to 19,000 -- of US taxpayers with Swiss bank accounts face the prospect of IRS examination of their bank documents with an eye to prosecution and/or civil litigation of the account holders. The DOJ, in addition, on February 19 -- the day after reaching an initial settlement with UBS -- demanded UBS bank account documents for a total of 52,000 additional depositors.

Swiss banking authorities are claiming that their guarantee of absolute banking privacy will somehow survive this attack -- "Banking secrecy remains intact," declared Hans-Rudolf Merz, Switzerland's president and its finance minister.

That is small comfort to the uncounted thousands of folks in the United States, potentially subject to criminal charges, who are using other banks and shell accounts in Switzerland and in select countries with a history of safeguarding the names of banking customers. As the Asset Protection Law Center (a California law firm which advertises itself as "A complete reference source on offshore trusts, family limited partnerships, limited liability companies and advanced asset protection strategies") helpfully points out, European countries with bank secrecy laws include:

"Austria, Switzerland, Liechtenstein, Luxembourg, the Channel Islands, and Gibraltar. In the Caribbean, the established havens are the Bahamas, Bermuda, and the Cayman Islands. Some of the newer entries such as the Cook Islands and Turks and Caicos now provide legitimate bank secrecy products."
The $20 billion salted away by Americans at UBS only touches the surface of the use of countries with bank secrecy protections to evade US taxation.

There is, however, much more money escaping taxation through entirely legal means -- through provisions in the U.S. tax code -- and there is an accurate accounting of the revenues that are lost. Every year, the Congressional Joint Committee on Taxation puts out an illuminating but little-read document with the bestselling title "Estimates of Federal Tax Expenditures," subtitled this year, "For Fiscal Years 2008-2012."

While few people read this slender publication, it is a bible to two very wonkish constituencies: tax reformers who, in the main, hate "tax expenditures," and tax lobbyists and lawyers, who, in the main, love them. And behind every tax expenditure, there is a constituency -- ranging from the 1.3 million member National Association of Realtors to the 184-member National Indian Gaming Association.

The list of tax expenditures fills 28 pages of small type, and runs the gamut from the mortgage interest deduction, which will reduce federal revenues by an estimated $443.6 billion from 2008 to 2012 and is politically inviolable, to the exclusion from taxation of housing provided for ministers at a five year cost of $3.3 billion -- also unlikely to be challenged by elected officials.

There are, in addition to the $56.4 billion break for corporations that delay repatriating foreign profits, a host of ripe targets, especially for a new Democratic administration determined to cut the deficit in half by 2012. Congress has incrementally enacted a Byzantine collection of 39 energy tax breaks in what amounts to a piecemeal energy policy costing $29 billion over five years, affecting every industry from wind to coal. Any tax expert worth his or her salt could advise ways in which to cut this tax expenditure in half -- although there is no guarantee that Congress would go along.

With Obama now on the hunt for revenue, the Joint Committee's publication is very likely to become a bestseller, at least on Washington's K Street. It might be something the sponsors of Art Basel should consider handing out on an annual basis. The tax expenditures described in the government volume provide not only ideas for direct tax breaks, but also material for tax lawyers and accountants to structure new tax shelters -- a process that continues regardless of the actions of Congress.

Copyright 2009 HuffingtonPost.com

GOP Fighting For Money From Stimulus They Opposed

Ryan Grim

The Huffington Post

February 18, 2009

House Republicans, as a group, may take great pride in the goose egg they offered President Obama's stimulus package. But now the unanimous opposition is struggling to bring that money home.

Republicans will be working hard to make sure the money they opposed ends up benefiting their home districts, highlighting the political tightrope they walk in this economic crisis. The Democratic Congressional Campaign Committee is watching House Republicans -- and reading local media -- closely and is only too happy to highlight any happy talk about a stimulus Republicans voted against.

Back in his home district, Rep. Blaine Luetkemeyer (R-MO) found some nice things to say about the plan.

"Within the stimulus package there is some Pell Grant money, which is a good thing. It helps students be able to pay for their education and that's kind of a long term stimulus effect there. I mean obviously that's not gonna provide a job in the next 120, 180 days, but the ability of someone to get an education is an economic development tool," Luetkemeyer said at a local college. He was there, in another inside-outside Washington twist, to celebrate an earmark for a college building.

He lamented that there would be far fewer such earmarks in the future. "If they go back to the rules, it will make it very difficult to get earmarks through the next two years because number one we don't have any more money, we just blew it all on this stimulus package. Although, we're gonna have to print some more in order to be able to bail out the financial institutes and the automobile manufacturers," said Luetkemeyer.

Ken Spain, a spokesman for the National Republican Congressional Committee, said that the quotes aren't hypocritical, but rather demonstrate that Republicans did support a stimulus in general, just not the one Democrats presented to them.

"We would like to thank the DCCC for circulating these comments. They are proof-positive that Republicans stood willing and ready to support commonsense measures in the stimulus package until Nancy Pelosi unfortunately chose to undercut President Obama's message of bipartisanship by including absurd pork-barrel spending projects such as millions to protect a mouse in the San Francisco Bay, golf carts for government bureaucrats, and STD prevention funds. Republicans said 'yes' to a true stimulus package, but unanimously said 'no' to putting the politics of pork before the needs of the middle class," said Spain.

Rep. Don Young (R-AK) put out a press release saying that he "won a victory for the Alaska Native contracting program and other Alaska small business owners last night in H.R. 1, the American Recovery and Reinvestment Act."

In California's Inland Empire, battered by the economic downturn, the mostly Republican delegation is happy the stimulus passed, too, according to local news reports.

"Even the Republican lawmakers who oppose the bill say such projects are needed in the region,"the local paper reports.

"All along he has believed infrastructure spending, in particular, should provide a boost to the Inland Empire's economy," a spokesman to Rep. Jerry Lewis (R-CA) said.

"While we philosophically have different opinions, we're obligated to make sure this money is spent properly," said Rep. Ken Calvert (R-CA). "All of us in the Inland Empire will do what we can to direct as much money as we can."

UPDATE: Think Progress finds a press release from Sen. Kit Bond (R-Mo.) along the same lines:

Last week, Bond led a bipartisan group of Senators in introducing an amendment to help provide needy families affordable housing. Bond's amendment provides $2 billion to fund low-income housing tax credit (LIHTC) projects that have been stalled by the financial credit crisis. As part of the Democrats' spending bill now signed into law, the Senate unanimously accepted Bond's provision. [...]

This provision will have a real impact in Missouri, especially for low-income, working families in need of safe and affordable housing. ... Bond's amendment will save more than 700 housing units and create 3,000 new jobs in Missouri.

UPDATE II: McClatchy beat the GOP up about this on Friday.

Copyright 2009 HuffingtonPost.com

Roy Blunt is running for Senate in Missouri to bring back the glory of Tom DeLay, George Bush and Jack Abramoff

Joe Sudbay

AMERICAblog News

2/19/2009

Rep. Roy Blunt was the key ally for President George Bush, Majority Leader Tom DeLay and the notorious Jack Abramoff. He helped destroy the American economy, led the GOP's "culture of corruption," and aided the rush to war. Now, he wants to be a Senator. 

Fired Up! Missouri has been covering Blunt for years. That will be a go-to blog for this race -- and, they've already begun the fun. (I remember hearing from a reliable source that Blunt had his congressional staffers assigned to read that blog first thing every morning to see what was being written about him. There was a lot.) 

One of the first post's on Blunt's Senate candidacy at Fired Up! Missouri led me to this USA Today headline from 2006, Blunt, DeLay shared connections to lobbyist Abramoff with this as an intro:

Rep. Roy Blunt and the man he wants to succeed as House majority leader, Tom DeLay, shared similar connections to convicted lobbyist Jack Abramoff and to corporate lobbyists.

DeLay, Abramoff, Bush: Missouri is always a battleground state but I have to think Missourians aren't going to be clamoring for a return to the days when DeLay and Abramoff controlled Congress.

Blunt may still get a primary opponent, Sarah Steelman. 

The incumbent Secretary of State, Robin Carnahan is running on the Democratic side. Looks like she won't have a primary. Missouri is always a tough state. We'll be doing what we can to help Robin. We've set up an ActBlue page to help raise money. I know it's early and economic times are tough, but every dollar matters, especially the early ones. ActBlue lets donors set up monthly payments, which is what I'm doing with a couple candidates -- giving a small amount each month. If you want to get a sense of Robin, check out these videos: An ad from the 2004 Sec. of State campaign (one of my favorites) and her announcement video.

Copyright 2009 - John Aravosis

Hey California -- how's that recall election workin' for ya?

Brilliant at Breakfast

Wednesday, February 18, 2009

Remember the 2003 recall election that made Arnold Schwarzenegger the Governor of Gollyvornia? That was the election triggered by the huge spike in energy costs which weakened the state's economy. Of course it turned out that California's energy costs were caused largely by Enron, the now-defunct fradulent company led by Bush-buddy Kenny Boy Lay, but who remembers that now? But then, Californians have a history of supporting things that turn out to be mind-bogglingly stupid in the long term. Another chunk of the mess in which the state finds itself today can be traced to Proposition 13, which sought to address soaring property taxes by capping them at 1% of a property's assessed value and transferring a good deal of power over to the state. There are those now saying that Prop. 13's time has come and gone, but it's the third rail of California politics.

I live in a high property tax state too. God knows it's not that we have more services than other states. What we do have is a far-from-vibrant political climate, in which entrenched hacks run the entire political system from the state-level parties (both of whom are equally corrupt) down to the local level, where the mayor of my town violates the state Constitution by not even living in town after being nailed for DWI with a cocktail waitress in the car with him, the Council does nothing to oust him, he's been in the seat for nearly three decades, and the council members parcels out contracts to their friends and cronies in secret meetings with no input from the townspeople as to whether we want yet another small park that no one uses. The local powers that be are Republican, but I'm not convinced local Democrats would be any better. But when your state is in worse shape than New Jersey, that's saying something.

With Prop. 13 and the 2003 recall election, Californians resorted to the promise of quick fixes and the smooth talk of Republican politicians promising that lower taxes were the answer to all their problems, andhere's where they find themselves now:

The state of California — its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence — appears headed off the fiscal rails.

Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.

Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. “In the absence of a budget we need to realize this savings and the process takes six months,” Mr. David said.

After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.

California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor’s downgraded the state’s bond rating to the lowest in the nation.

California’s woes will almost certainly leave a jagged fiscal scar on the nation’s most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state’s unusual budgeting practices.

“No other state is in the kind of crisis that California is in,” said Iris J. Lav, the deputy director of the Center on Budget and Policy Priorities, a liberal research group in Washington.

The roots of California’s inability to address its budget woes are statutory and political. The state, unlike most others, requires a two-thirds majority vote in the Legislature to pass budgets and tax increases. And its process for creating voter initiatives hamstrings the budget process by directing money for some programs while depriving others of cash.

In a Legislature dominated by Democrats, some of whom lean far to the left, leaders have been unable to gather enough support from Republican lawmakers, who tend on average to be more conservative than the majority of California’s Republican voters and have unequivocally opposed all tax increases.

As Paul Krugman points out today, we ignore California at our peril, because this stalemate in the California legislature echoes the kind of stalemate we currently see in Washington. We have seen the future, and if we allow Republicans in Washington to do the bidding of their master Rush Limbaugh and attempt to make President Obama a failure in their lust for power, that future is California.

Copyright 2009 Brilliant at Breakfast

DC Journalists Love GOP Obstructionists, But Americans Don't

 

Jane Hamsher

FireDogLake.com

February 16, 2009

There appears to be a pretty big gap between what DC journalists think Americans think, and what Americans actually think. No better example of this can be found than the "winners" and "losers" that DC media are proclaiming in the wake of the passage of the stimulus bill, and what DailyKos/Research 2000 polling on the subject indicates.

DC opinion:  It's good for the Republicans!

• MSNBC's First Read lists among its winners "the Republican Party (which demonstrated unity after its big losses in November), and No.2 House Republican Eric Cantor (who raised his profile during the debate)." Reid gets a win, Pelosi gets a loss.
• Chris Cillizza also declares Eric Cantor a victor for maintaining party discipline (although he tags him a loser too for the AFSME ad).  Reid gets a "win" here too, and House Democrats are deemed losers, because "it appeared as though this was a Senate-run production."
• Fox News unsurprisingly says "Republican lawmakers may turn out to be winners. Most of them voted against the package, and in their largely unified opposition, they found an issue to galvanize the party after two consecutive dispiriting electoral defeats."  Reid and Pelosi don't exist.
• Liz Sidoti also says the Republicans win:  "Adrift after back-to-back electoral losses, they found their voice against a Democratic speaker and an expanded majority. They held to the GOP's cornerstone of fiscal conservatism as they led the effort to define the package as too costly and too quick."  Likewise, Jon Boehner:  "He strengthened his hold on his job, keeping his rank-and-file united against the House version." Again, Reid gets a win.  She gives Pelosi and Mitch McConnell losses.

The Rest of America: "Thanks For the Help"

According to Daily Kos polling, however, the change in public opinion from a poll taken from Feb. 2-5 to the latest one taken from Feb. 9-12 indicates that Pelosi, Reid and the Democratic Party have actually gone up in public approval -- all had a net change of +2 points, while the Congressional Dems scored a +3.  Conversely, Republicans went down -- the Republican Party had a net change of -2, while McConnell, Boehner and Congressional Republicans all had a loss of -3.

And if you go back to the beginning of the year and track how the public is viewing the political situation in Washington DC, the changes are even more dramatic:

Pelosi and the Democratic Party are the big winners, scoring a +5.  Congressional Dems score a +3, and Reid has actually lost two points.  

But contrary to beltway opinion, the Republicans are getting hammered.  While the Republican Party has only had a net change of -2, those directly involved in the stimulus battle are taking huge hits:  McConnell and Boehner at -11, and the Congressional Republicans who are getting such applause from the beltway denizens score a -10.

As Markos notes:

The supposedly hated "San Francisco Liberal" Nancy Pelosi not only has the only net-positive favorability rating of the bunch, but she has a net favorability advantage of 40 points over her hapless and clueless Republican counterpart. The 18-point gap in the net favorability ratings in the Senate leadership is less dramatic, but still significant. Especially since Democrats are stuck with the ineffective Harry Reid as their leader.

The "Reid wins, Pelosi loses" narrative only seems to stick with people who believe what Joe Lieberman thinks matters.

And what about those cherished "independents" that Davids Brooks and Broder always claim to speak for?  Congressional Republicans have only a 15% favorability rating, with a 70% disapproval rating. (You can find the crosstabs here.)  I eagerly await columns from both reflecting this irrefutable consensus that by anyone's measure falls well outside the margin of error.

DC lives in an economic bubble and remains largely insulated from the troubles hitting the rest of the country.  No matter who is in power, no matter who is on the receiving end of taxpayer largesse, the money finds its way there. Fairfax and Loudoun Counties in VA and Howard County MD (where lobbyists and contractor beneficiaries of the defense/homeland security boon of the past 8 years live) are the top three wealthiest counties in the country, and seven more DC suburbs chart in the top 20.  

The people who live in DC, who pretend to speak for the rest of the country, have no direct experience with what is happening there -- and their attempts to handicap DC politics have more to do with the inside baseball games that seek to protect their own interests above all else.  The fact that three and a half million Americans will have jobs as a result of the passage of this bill, or that people who are unemployed or living on food stamps will continue to be able to eat, doesn't seem to graze their analyses.

The American public looked at DC, they saw the Democrats trying to do something, and they liked what they saw.   People who are deeply worried about staying employed and taking care of their families do not seem to have the universal high regard for House Republicans who stood together to oppose helping them out that the DC establishment do.

Copyright 2009 FireDogLake.com

Dems Fed Up With McCain: "Angry Old Defeated Candidate"

Sam Stein

The Huffington Post

February 16, 2009

Democrats are growing increasingly frustrated with the brash political attacks Sen. John McCain has launched against Barack Obama in the weeks since the new president took office. No one expected the Arizona Republican to be a legislative ally for this administration. But it was widely assumed that Obama's overtures to McCain in the weeks after the election would dull some of the hard feelings between the two. Now, they are realizing, it has not.

"He is bitter and really angry," Bob Shrum said of McCain in an interview on Friday. "He is angry at the press, which he thinks is unfair. He is angry at Obama and angry at the voters. He has gone from being an angry old candidate to being an angry old defeated candidate."

Indeed, during the debate over the economic stimulus package it was McCain, as often as Senate Minority Leader Mitch McConnell, who spearheaded the opposition. The Arizona Republican denounced the proposal as pure pork on the Senate floor and introduced an alternative measure comprised nearly entirely of tax cuts.

On Sunday, McCain wouldn't let the fight die, even with the legislation through Congress. Appearing on CNN, he described the $787 billion measure as "generational theft" and said that the bill's authors should "start over now and sit down together."

Meanwhile, appearing on ABC's This Week, Sen. Lindsey Graham -- McCain's chief ally in the Senate -- said of the process by which the stimulus was forged: "If this is going to be bipartisanship, the country is screwed."

That two Republicans Senators who consider themselves prudent compromisers would forcefully condemn the president's top legislative priority is noteworthy in and of itself. That it comes after President Obama made overt gestures of reconciliation to both McCain and Graham raises questions as to just how long it will take for this era of post-partisanship to arrive.

Not to mention that, as other observers pointed out, McCain isn't being entirely consistent.

"During the Senate debate, 36 of the Senate Republicans voted for an alternative that would have cut taxes over the next decade by $2.5 trillion, [and] reduced the top marginal race to 25 percent," said the Atlantic's Ron Brownstein on "Meet the Press." "For John McCain -- who voted for that alternative of a $2.5 trillion tax cut over the next decade -- to talk about generational theft, I mean, pot meet kettle."

Copyright 2009 HuffingtonPost.com

They Sure Showed That Obama

Frank Rich

Op-Ed Columnist

The New York Times

February 15, 2009

AM I crazy, or wasn’t the Obama presidency pronounced dead just days ago? Obama had “all but lost control of the agenda in Washington,” declared Newsweek on Feb. 4 as it wondered whether he might even get a stimulus package through Congress. “Obama Losing Stimulus Message War” was the headline at Politico a day later. At the mostly liberal MSNBC, the morning host, Joe Scarborough, started preparing the final rites. Obama couldn’t possibly eke out a victory because the stimulus package was “a steaming pile of garbage.”

Less than a month into Obama’s term, we don’t (and can’t) know how he’ll fare as president. The compromised stimulus package, while hardly garbage, may well be inadequate. Timothy Geithner’s uninspiring and opaque stab at a bank rescue is at best a place holder and at worst a rearrangement of the deck chairs on the TARP-Titanic, where he served as Hank Paulson’s first mate.

But we do know this much. Just as in the presidential campaign, Obama has once again outwitted the punditocracy and the opposition. The same crowd that said he was a wimpy hope-monger who could never beat Hillary or get white votes was played for fools again.

On Wednesday, as a stimulus deal became a certainty on Capitol Hill, I asked David Axelrod for his take on this Groundhog Day relationship between Obama and the political culture.

“It’s why our campaign was not based in Washington but in Chicago,” he said. “We were somewhat insulated from the echo chamber. In the summer of ’07, the conventional wisdom was that Obama was a shooting star; his campaign was irretrievably lost; it was a ludicrous strategy to focus on Iowa; and we were falling further and further behind in the national polls.” But even after the Iowa victory, this same syndrome kept repeating itself. When Obama came out against the gas-tax holiday supported by both McCain and Clinton last spring, Axelrod recalled, “everyone in D.C. thought we were committing suicide.”

The stimulus battle was more of the same. “This town talks to itself and whips itself into a frenzy with its own theories that are completely at odds with what the rest of America is thinking,” he says. Once the frenzy got going, it didn’t matter that most polls showed support for Obama and his economic package: “If you watched cable TV, you’d see our support was plummeting, we were in trouble. It was almost like living in a parallel universe.”

For Axelrod, the moral is “not just that Washington is too insular but that the American people are a lot smarter than people in Washington think.”

Here’s a third moral: Overdosing on this culture can be fatal. Because Republicans are isolated in that parallel universe and believe all the noise in its echo chamber, they are now as out of touch with reality as the “inevitable” Clinton campaign was before it got clobbered in Iowa. The G.O.P. doesn’t recognize that it emerged from the stimulus battle even worse off than when it started. That obliviousness gives the president the opening to win more ambitious policy victories than last week’s. Having checked the box on attempted bipartisanship, Obama can now move in for the kill.

A useful template for the current political dynamic can be found in one of the McCain campaign’s more memorable pratfalls. Last fall, it was the Beltway mantra that Obama was doomed with all those working-class Rust Belt Democrats who’d flocked to Hillary in the primaries. The beefy, beer-drinking, deer-hunting white guys — incessantly interviewed in bars and diners — would never buy the skinny black intellectual. Nor would the “dead-ender” Hillary women. The McCain camp not only bought into this received wisdom, but bet the bank on it, pouring resources into states like Michigan and Wisconsin before abandoning them and doubling down on Pennsylvania in the stretch. The sucker-punched McCain lost all three states by percentages in the double digits.

The stimulus opponents, egged on by all the media murmurings about Obama “losing control,” also thought they had a sure thing. Their TV advantage added to their complacency. As the liberal blog ThinkProgress reported, G.O.P. members of Congress wildly outnumbered Democrats as guests on all cable news networks, not just Fox News, in the three days of intense debate about the House stimulus bill. They started pounding in their slogans relentlessly. The bill was not a stimulus package but an orgy of pork spending. The ensuing deficit would amount to “generational theft.” F.D.R.’s New Deal had been an abject failure.

This barrage did shave a few points off the stimulus’s popularity in polls, but its approval rating still remained above 50 percent in all (Gallup, CNN, Pew, CBS) but one of them (Rasmussen, the sole poll the G.O.P. cites). Perhaps the stimulus held its own because the public, in defiance of Washington’s condescending assumption, was smart enough to figure out that the government can’t create jobs without spending and that Bush-era Republicans have no moral authority to lecture about deficits. Some Americans may even have ancestors saved from penury by the New Deal.

In any event, the final score was unambiguous. The stimulus package arrived with the price tag and on roughly the schedule Obama had set for it. The president’s job approval percentage now ranges from the mid 60s (Gallup, Pew) to mid 70s (CNN) — not bad for a guy who won the presidency with 52.9 percent of the vote. While 48 percent of Americans told CBS, Gallup and Pew that they approve of Congressional Democrats, only 31 (Gallup), 32 (CBS) and 34 (Pew) percent could say the same of their G.O.P. counterparts.

At least some media hands are chagrined. After the stimulus prevailed, Scarborough speculated on MSNBC that “perhaps we’ve overanalyzed it, we don’t know what we’re talking about.” But the Republicans are busy high-fiving themselves and celebrating “victory.” Even in defeat, they are still echoing the 24/7 cable mantra about the stimulus’s unpopularity. This self-congratulatory mood is summed up by a Wall Street Journal columnist who wrote that “the House Republicans’ zero votes for the Obama presidency’s stimulus ‘package’ is looking like the luckiest thing to happen to the G.O.P.’s political fortunes since Ronald Reagan switched parties.” There hasn’t been this much delusional giddiness in these ranks since Monica Lewinsky promised a surefire Republican sweep in the 1998 midterms.

Not all Republicans are so clueless, whether in Congress or beyond. Charlie Crist, the moderate Florida governor who appeared with the president in his Fort Myers, Fla., town-hall meeting last week, has Obama-like approval ratings in the 70s. Naturally, the party’s hard-liners in Washington loathe him. Their idea of a good public face for the G.O.P. is a sound-bite dispenser like the new chairman, Michael Steele, a former Maryland lieutenant governor. Steele’s argument against the stimulus package is that “in the history of mankind” no “federal, state or local” government has ever “created one job.” As it happens, among the millions of jobs created by the government are the federal investigators now pursuing Steele for alleged financial improprieties in his failed 2006 Senate campaign.

This G.O.P., a largely white Southern male party with talking points instead of ideas and talking heads instead of leaders, is not unlike those “zombie banks” that we’re being asked to bail out. It is in too much denial to acknowledge its own insolvency and toxic assets. Given the mess the country is in, it would be helpful to have an adult opposition that could pull its weight, but that’s not the hand America has been dealt.

As Judd Gregg flakes out and Lindsey Graham throws made-for-YouTube hissy fits on the Senate floor, Obama should stay focused on the big picture in governing as he did in campaigning. That’s the steady course he upheld when much of the political establishment was either second-guessing or ridiculing it, and there’s no reason to change it now. The stimulus victory showed that even as president Obama can ambush Washington’s conventional wisdom as if he were still an insurgent.

But, as he said in Fort Myers last week, he will ultimately be judged by his results. If the economy isn’t turned around, he told the crowd, then “you’ll have a new president.” The stimulus bill is only a first step on that arduous path. The biggest mistake he can make now is to be too timid. This country wants a New Deal, including on energy and health care, not a New Deal lite. Far from depleting Obama’s clout, the stimulus battle instead reaffirmed that he has the political capital to pursue the agenda of change he campaigned on.

Republicans will also be judged by the voters. If they want to obstruct and filibuster while the economy is in free fall, the president should call their bluff and let them go at it. In the first four years after F.D.R. took over from Hoover, the already decimated ranks of Republicans in Congress fell from 36 to 16 in the Senate and from 117 to 88 in the House. The G.O.P. is so insistent that the New Deal was a mirage it may well have convinced itself that its own sorry record back then didn’t happen either. 

Copyright 2009 The New York Times Company