"As deputy assistant secretary responsible for tax analysis at the Treasury Department from April 2001 to July 2003, I must respond to Paul Krugman's Aug. 5 column accusing it of political bias.

"Mr. Krugman objects to an analysis of the 2001 and 2003 tax cuts for six representative families, including a married couple, both 65, with $40,000 in income, including $2,000 in dividend income. He says that such a family is not representative of elderly taxpayers.

"Obviously, no single example can be representative of all elderly taxpayers, but this couple has income quite close to the median for filers their age, and dividends quite close to the average for elderly filers at that income level, about half of whom receive dividends. The couple in the example would see its income tax liability decline from $1,396 to $675 as a result of the tax cuts.

"Mr. Krugman is certainly free to oppose the tax relief, but he should be more circumspect in asserting political bias in the underlying analyses.

"ANDREW B. LYON"
 

"Krugman Spews Utter Nonsense

"Editor, Times-Dispatch: I know you had to find a looney-left replacement for the tedious and annoying Maureen Dowd, but did it have to be another Bush-bashing, truth-challenged New York Times fabricator of facts such as Paul Krugman?
His latest invective about Alan Greenspan - which accuses the Fed chairman of caving to the President on tax cuts, thereby increasing the deficit while not stimulating the economy - is utter nonsense. Krugman claims there are no positive economic indicators. Hello? How about rising durable-goods orders? Falling jobless claims? A continued rise in new home purchases? Oh, don't bother Krugman with the facts.

"As for the Bush tax cuts, a vast majority are back-loaded and haven't even been put into place yet and so have had no impact on deficits. The deficits can be attributed to weak tax revenues because of the sluggishness of the economy and excessive spending from both Capitol Hill and, unfortunately, the Bush White House. But Krugman's assertions are typical liberal spin, where there is never a good reason to cut taxes.

"In order to make the readers aware, there is a Website (www.nationalreview.com) that has a regular feature entitled 'Krugman Truth Squad,' which dissects and rebuts the lies and distortions of this spinmeister."

Am I describing Paul Krugman, America's most dangerous liberal pundit? Well, if the shoe fits... But actually I'm talking about what Krugman himself said about the Bush administration's supposed politicization of the Treasury Department, in his New York Times column yesterday, titled "Everything is Political." Oh... and the dumb rhetorical trick I just used to start this column is the same one Krugman used to start his.

In his column, Krugman once again pretends to be shocked, shocked... no, the only expression for it is shocked and awed! -- to learn that politics is going on in Washington DC. In an imagined bygone era of imagined politics-free government,

"Traditionally the Treasury, like the C.I.A., stands somewhat above the political fray. ...long-serving Treasury analysts traditionally ride herd on political appointees, warning them when their proposals are ill conceived or irresponsible. But under the Bush administration the Treasury takes its marching orders from White House political operatives."

According to Krugman, malign political influence has caused "the erosion of Treasury's intellectual integrity — an erosion exemplified by its denial and deception on the subject of tax cuts."

The single case of deception alleged by Krugman is an analysis prepared last June by Treasury for Tim Russert, host of NBC'S "Meet the Press." Russert was interviewing Democratic presidential hopeful Howard Dean, who has said he would repeal Bush's tax cuts, and the Treasury analysis armed Russert with examples of exactly how much the repeal would cost six different types of families. Krugman charges that the examples were "wildly unrepresentative." He says,

"...the Treasury's example of a 'lower income' elderly household was one receiving $2,000 a year in dividend income. In fact, only about one elderly household in four receives any dividend income, and only one in eight receives as much as $2,000. ...As Mr. [Martin] Sullivan [of Tax Notes] put it, 'If this continues, the Treasury's Office of Tax Policy may have to change its name to the Office of Tax Propaganda.'"

This seemingly juicy little "gotcha" doesn't pass the so-what test. Here's what Russert said about this "wildly unrepresentative" example:

"A married couple over 65 making $40,000 and claiming their Social Security, under Bush would pay $675 in taxes. You’re suggesting close to $1,400, a 107 percent tax increase."

Matthew Hoy pointed out on his Hoystory.com blog that the "wildly unrepresentative" dividend component of this couple's income doesn't make much of a difference to the calculation. At most, Bush's tax cuts would reduce a 28% tax on $2000 to a 15% tax -- for a savings of $260, only about a third of the $725 savings in the example.

And Hoy asks, why didn't Krugman pick on this example also cited by Russert?

"A married couple with two children making $40,000 a year, under the Bush plan, would pay $45 in taxes. Repealing them, under the Dean plan, if you will, would pay $1,978, a tax increase of over 4,000 percent."

Hoy's answer:

"Well, because the majority of this couple's tax burden is relieved by the reduction in the marriage penalty and the per-child tax credit -- popular cuts that would elicit little sympathy with Krugman's argument if he attacked them."

And by the way, just whom is Krugman quoting when he says "'lower income' elderly household"? He makes the Bush administration seem ridiculous and elitist by having them define a household pulling $2,000 a year in dividends as "lower income." But the reality is that the Bush administration never said that. The analysis in question is not posted on the Treasury website, but I have a copy -- and I can assure you that the expression "lower income" appears nowhere (a very similar analysis was made available in early January, and "lower income" appears nowhere there, either).

The quotation marks, then, are a lie, and the Times -- lest it be seen as engaging in denial and deception -- is obliged to correct it. Alas, the Times almost never corrects Krugman, despite the long list of lies, errors and distortions we have cataloged here. But why not? After all, in it's infinite punctiliousness, the Times ran this correction six weeks ago about another quotation marks problem:

"...an article on Sunday in the special Women's Health section about reasons for exercising misplaced the quotation marks in citing advertisement for the New York Sports Club. The ad read: 'Exercise reduces the risk of cancer. Not to mention the risk of saggy butt.' (Both sentences were part of the quotation, not just the first.)"

And what about that "Office of Tax Propaganda" quote from Martin Sullivan of Tax Notes? I spoke to Sullivan, and it turns out that in the June 30 Tax Notes column that Krugman references, he wasn't even talking about whether or not Treasury's Russert examples were "wildly misrepresentative."  Instead, his concern was that the analysis was incomplete because it dealt exclusively with income taxes, and ignored other tax burdens -- especially the Social Security tax, which heavily burdens lower-income taxpayers.

Sullivan is correct that taking the entire tax burden into account would reduce the percentage increase in taxes resulting from Dean's proposed repeal. And he told me he thought it was deceptive that Treasury spoke only of "taxes," not "income taxes" in a document provided to Russert -- creating the false impression that all taxes were indeed being taken into account. It true that the word "income" did not qualify the word "taxes" in the summary document provided to Russert. But accompanying tables explaining each of the six example families were provided as well, and they made it abundantly clear that only income taxes were being considered.

Krugman touches on this concern of Sullivan's:

"Treasury has an elaborate computer model designed to evaluate who benefits and who loses from any proposed change in tax laws. ...But since George W. Bush came into power, the department has suppressed most of that information, releasing only partial, misleading tables... In a stinging recent article in Tax Notes, the veteran tax analyst Martin Sullivan writes of the debate over the 2001 cut that 'Treasury's analysis was so embarrassingly poor and so biased, we thought we had seen the last of its kind.' But worse was to come."

Sullivan confirmed to me his complaint that the Bush Treasury's "who benefits and who loses" analyses -- they're known in the trade as "distribution tables" -- have only dealt with income taxes. In that sense, as Krugman says, they are "only partial." But "misleading"? Sullivan told me, "We saw it first in 2001 right after the campaign -- that's when I said we'd seen the last of them. But in 2003 they’ve been issuing these distribution tables that are highly misleading, because they only talk about income taxes. And they don't say in the tables that's what they are doing."

But it turns out that the "veteran tax analyst" is mistaken about this. The distribution tables issued by Treasury in March 2001, January 2003, and May 2003 are all perfectly clearly labeled as being based only on income taxes.

Ultimately, Sullivan's deepest complaint is the fact that the "elaborate computer model" Krugman refers to is no longer being used to produce the distribution tables. Several current and former Treasury officials I talked to confirmed that staff at the Treasury's Office of Tax Analysis -- and Sullivan used to be a member of that staff -- are enormously proud of that model. Yet, in the end, it's just a model. And politics aside, economists are highly likely to disagree with each other about any model. As a current Treasury economist told me,

"Historically the distribution tables have been very controversial. They, themselves, have contributed to biased political arguments. They use the concept of 'family economic income' which can turn someone making only $40,000 a year into 'the rich' by doing things like imputing rental income on the house you own, as though you were renting it to yourself! And these tables are static -- they don't look at people's lifetime income, just a snapshot. People are moving between the income classes all the time, because they are getting older, or they had a good year or a bad year."

These are eminently reasonable -- and fundamental -- criticisms of the "elaborate computer model" that Krugman and Sullivan enshrine as an oracle. Steve Antler, an economics professor at Roosevelt University who blogs as EconoPundit, says that Krugman refuses to permit any criticism of the model, but instead "accuses professional economists, with whom Paul has an intellectual disagreement, of unethical behavior."

But what about the broader question? Has the Bush administration politicized Treasury? Hardly -- at least no more than it's ever been. Sullivan himself told me, "Democrat or Republican, as far back as memory goes, there's always White House influence on the Treasury. They're right next door to each other."

Yet biased liberal pundits like Krugman -- and biased liberal reporters like Jonathan Weisman of the Washington Post -- seem to have discovered politics for the first time, now, under a Republican administration. Weisman wrote last week in what passes as a news story that Treasury's providing that analysis to Tim Russert was an "unusually political step" that "is likely to become a staple for GOP attacks." Weisman has obviously forgotten about that time in 1996 when some Republican presidential candidates were advocating a flat tax, and the Treasury Department of Robert Rubin and Lawrence Summers came up with an analysis designed to torpedo it.

And Robert Musil has this memory of the Clinton-era Treasury on his Man Without Qualities blog:

"That's the Treasury Department that gave us Deputy Secretary Roger Altman (a college friend of Bill Clinton's) testifying before the Senate Banking Committee in February 1994 that he had given top White House officials a 'heads-up' on nine Resolution Trust Company criminal referrals that in one instance targeted Clinton's 1985 gubernatorial campaign, and named the Clintons as witnesses in others. A parade of administration officials then claimed under oath not to have remembered the Treasury-White House contacts, even though Joshua Steiner, the 28-year-old Treasury chief of staff who bore an alarming resemblance to a deer caught in one's headlights, had noted them in his diaries. Lloyd Bentsen, the Treasury Secretary, soon retired."

So don't take these accusations of politicization at Treasury to heart. As National Review Online colleague Bruce Bartlett told me, "This is a sign that Treasury Secretary John Snow is doing a good job -- otherwise these people wouldn't be complaining. The squeaky wheels are squeaking."

Posted by Donald L. Luskin at 3:36 AM | link  

Monday, August 04, 2003