Anatomy of a phony story

Which tax increase is larger 1982's or 1990's? That depends on whether you use math, or government math.

AS PART of Pat Buchanan's surprisingly strong campaign in New Hampshire, where he held the President to 53 per cent of the vote, one of his commercials criticized Mr. Bush for capitulating to the largest tax increase in history. CNN and NBC soon ran stories asserting that Buchanan was wrong, assertions the Bush campaign incorporated into their own campaign commercials. Subsequently, the Associated Press also released a story denying that the 1990 budget deal included the largest tax increase in history, instead awarding that dubious honor to the so-called Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).

This episode starkly demonstrates that deception is alive and well in American politics. However, the source of the dishonesty is not Pat Buchanan; the 1990 budget summit did, as he said, impose the largest tax increase in history upon the American economy. The mistruths instead came from those two symbiotic entities, the mainstream press and the Washington establishment.

I confess to having more than a passing interest in this issue. When asked to justify its charge about Bush's record tax hike, the Buchanan campaign cited a Heritage Foundation publication that I had written. This led to calls to me from reporters with CNN, NBC, and AP, all of whom asked me to demonstrate that the 1990 budget deal imposed our largestever tax increase.

Every reporter who called was given the following information, every piece of which comes from government publications. According to the Budget of the United States Government, FY1984 (part 4, page 4, the table entitled "Net Effect on Receipts of Enacted Legislation"), TEFRA boosted the tax burden by $17.3 billion in 1983. That is a very big tax increase--the largest in history prior to 1990.

How big an increase, by comparison, did the 1990 budget summit impose? According to the Budget of the United States Government, FY1992 (part 3, page 3, table X-2, "Changes in Receipts"), the 1990 budget deal boosted 1991 tax receipts by $25.5 billion. That figure alone could end the debate. After all, $25.5 billion is more than $17.3 billion even in Washington.

I pointed out to the reporters, however, that it would be unfair to compare 1983 and 1991 tax collections without factoring out inflation. Might it not be possible that a $17.3-billion tax increase in 1983, adjusted for inflation, would be larger than a $25'5billion tax increase in 1991?

Yes, it might be possible, but it is not the case. According to the Bureau of Labor Statistics, the consumer price index (CPI) in 1983 was 99.6. By 1991, the CPI had climbed to 136.2, an increase of 36.7 per cent. Using this figure to adjust the 1983 tax increase to 1991 dollars, it comes to $23.7 billion. A $23.7-billion tax increase is very large. A $23.7-billion tax increase would doubtless slow the economy's expansion. (The 1981 Economic Recovery Tax Act reduced taxes nearly five times as much in 1983 as TEFRA raised them, so the economy still was experiencing a net tax cut.) A $23.7billion tax increase would surely fuel government spending. A $23.7-billion tax increase is many things, but a $23.7-billion tax increase is not bigger than a $25.5-billion tax increase. Even using government math.

The Republicans on the House taxwriting committee, hardly a cabal of fire-breathing right-wingers, came to the same conclusion. On August 2, 1991, on page 28 of the Ways & Means Committee Report on the "Intermodal Surface Transportation Infrastructure Act of 1991" (better known as the Highway Bill), Republicans began their minority report as follows: "Last fall, in the context of the largest tax increase in the history of this country..."

The U.S. Chamber of Commerce, whose economists were virtually the only ones who accurately forecast the double-dip recession, also had better calculators than the news media and the Bush Administration. In testimony to the House Budget Committee on May 22, 1991, the Chamber's vice president and chief economist, Richard Rahn, remarked, "Congress passed and the Administration signed into law the largest tax increase in the history of the United States as part of the Omnibus Budget Reconciliation Act of 1990."

Beltway Arithmetic

THE EVIDENCE is clear and straightforward that George Bush's 1990 budget deal included the largest tax increase in history. So how did the press rationalize that Buchanan was lying? It actually was not that difficult; they simply found tax and budget analysts who were willing to apply illogical restrictions on how tax increases are measured. These budget analysts, all of whom worked for senators and representatives who did not exactly have reputations for fiscal conservatism, decided that the correct way to measure a tax increase is by how much it collects over three, five, or six years.

By that criterion, adjusting the figures for inflation, the 1982 tax increase raised more money over a multi-year period than the 1990 budget deal will. And if Buchanan had charged that Bush had imposed the largest three-, five-, or six-year tax increase in history, the press would be right to condemn him. But Buchanan simply charged Bush with imposing the largest tax increase in history.