Tax burden politics

Posted: Aug 18, 2004 12:00 AM

WASHINGTON, D.C. -- Early on Thursday morning last week, Republican congressional staffers began receiving telephone calls from journalists asking about the new report from the Congressional Budget Office (CBO). Their immediate reaction: What report? It was news to them that the CBO for the past three months had been working on a study that would provide valuable ammunition for Sen. John Kerry's presidential campaign.
That study concluded that President Bush's cuts had shifted more of the tax burden from the nation's rich to the middle class, though everyone enjoyed an income tax reduction. That was the old-fashioned way of scoring consequences of tax legislation, an exercise of arithmetic rather than economics. Kerry could not have been happier. "This is the straw that will break the back of middle-class families," proclaimed a written statement by the senator.

 In the opinion of supply-siders, the CBO long has been an accident waiting to happen. While it is defined by statute as nonpartisan, the agency in a Republican-controlled Congress with a former Bush White House staffer as its director is not obliged to produce political fodder for Democrats. Beyond political naivete, its economic worldview is no help to George W. Bush's economics.

 The CBO was not under any legal requirement to inform Republicans of a Democratic request received May 12. Yet, it would seem natural that the agency's director, Douglas Holtz-Eakin, would tip off Republicans and perhaps the Bush administration about what was happening. Indeed, he came to the CBO at the beginning of 2003 from the White House, where he was chief economist for the president's Council of Economic Advisers during the Bush administration's first two years.

 It is inconceivable, if the situation were reversed, that a Democratic-appointed CBO director would not alert Democrats to a coming Republican demarche. The Thursday morning notification and Thursday afternoon briefing of GOP staffers came after the report was in the hands of selected reporters. Holtz-Eakin is an engaging young man with an impressive resume (including stints on the Columbia and Princeton faculties), but his political acuity seems limited.

 In the long run, however, the trouble with Holtz-Eakin is economic rather than political. His analysis is static, a zero-sum game that plays into Kerry's hands. It does not score the dynamic impact of the Bush tax cuts in not only promoting the economic recovery but also accelerating the ascension of Americans upward through the tax brackets. The study does not suggest that taxpayers in the top 20 percent are not the same today as they were in 2000.

 Taken by surprise last week, the Bush-Cheney campaign tried to recover by putting together a conference call for journalists and trying to beat the Democrats at the class warfare game with this message: Had no tax cuts been enacted, the top 20 percent of federal income-tax payers would have paid 78.4 percent, but the actual figure, because of the cuts, amounted to 82.1 percent.

 Rep. Bill Thomas, chairman of the House Ways and Means Committee and star of the conference call, concluded from those numbers that "the system is more progressive" because of the Bush tax cuts. Thomas then explained to the journalists that "progressive" means the more you make, the higher percentage of taxes you pay. Competing with the Democrats for who can be more progressive looks like a fool's errand. The top 5 percent today pays 53.5 percent of income taxes. Kerry's proposed upper bracket increase automatically makes the system still more progressive.

 Thanks to the CBO, Kerry can now accuse Bush of trying to destroy the "middle class" based on a nonpartisan report authored by a former Bush aide. But the overriding problem in the view of supply-siders is the failure of this administration to institute a system of scoring that recognizes the economic therapy of lower taxes.

 Everybody expects that Bush at Madison Square Garden will propose tax reform. But will the details be scored by the Congressional Budget Office in language that warriors in the class struggle can use? Early in the Bush administration, Bush adviser Karl Rove privately said it was essential to change the scoring of tax policy. That task has been left undone.