The Public Policy/Clinton's Funny-Number Factory
McFadden, Edward
Clinton's Funny-Number Factory by Edward McFadden / n the Fall 1991 issue of the American Prospect, Democratic pollster Stanley Greenberg laid out what his party must to do to regain the White...
...While the rich cashed in," Clinton writes, "the forgotten middle class—the people who work hard and play by the rules—took it on the chin...
...Phil Gramm (R-Texas), or to tax staffers on committees...
...The goal for the Democrats in 1992 was to redefine the past decade: "Democrats need . . . to create an imagery of Reagan-Bush America that supersedes the Carter years and impeaches the credibility of conservative governance for middle America...
...How could the CBO have made such a serious error...
...in economics, has been waging war on the CBO for the past four years...
...In 1987, unable to run against the economic success of the Reagan years, Democratic leaders had decided to throw "fairness" at Republican proposals...
...But CBO includes these figures anyway in what it calls "inflation-adjusted income...
...We'll see just how well in November...
...It takes information from the Census Bureau and the Internal Revenue Service and attempts to make forward projections from the hard data...
...A favorite CBO trick is to provide the Ways and Means Committee and other Democratic-controlled entities with income data that exaggerate the gains of the rich and depress those of the poor...
...CBO methodologies are not available for viewing even to economists such as Armey or Sen...
...Clearly if one overstates the revenue loss by exaggerating the tax base by 112 percent, and then ignores tax payments generated by the lower tax rate, it's not too difficult to make a capital gains tax cut look grievously unfair...
...MIT economist and top Clinton adviser Paul Krugman has used faulty CBO statistics proficiently in the past to beat Republican economic policies about the head and shoulders...
...The result is an economic picture that even the CBO now admits is incomplete...
...By the time the bill reached the House floor, Rose was able to provide the House parliamentarian with a budget-effect figure that showed the amendment would break the budget agreement...
...The CBO routinely withholds negative information at the request of committee chairmen...
...CBO Director Robert Reischauer oversees a staff of more than 200 and a Edward McFadden is a reporter in Washington, D. C. budget of $23 million...
...When people are reading stories based on 'official government data,' how do you fight that...
...Senate Majority Leader George Mitchell asked the CBO to generate the requisite family income statistics, quietly informing allies in the CBO (according to Senate sources) that he wanted the information to reflect as badly as possible on Reaganomics...
...A year later, CBO released figures showing its estimates were off by as much as 100 percent...
...People like Robbins do it every day...
...why can't the one agency required to provide accurate data for the budget...
...If the inflationary component could be [taken into account], the incomes of those near the top of the distribution would be reduced relatively more than the incomes of those in the middle and bottom of the distribution...
...And, astonishingly, the CBO does not remove inflation when calculating (real inflation–adjusted) capital gains...
...Every time we turned around," says one Senate tax staffer, "another story using CBO data was being published in the New York Times or Washington Post, saying the rich got richer and the poor got poorer...
...A home that appreciates in value is not factored in, nor are the capital gains on $3 trillion in pension funds...
...What has gone unexplained is why Republicans and the Bush Administration do not fight back more vociferously against the continual misrepresentation of the economic data—why officials like OMB director Richard Darman and Treasury Secretary Nicholas Brady refused to defend Bush economic proposals, many of them based on capital gains cuts...
...Clinton's Funny-Number Factory by Edward McFadden / n the Fall 1991 issue of the American Prospect, Democratic pollster Stanley Greenberg laid out what his party must to do to regain the White House...
...When evaluating the Reagan-Bush years, the CBO often starts its analysis in 1977—four years before any Reagan economic policies could possibly have been implemented...
...As late as 1984, CBO was claiming and reporting to Congress and telling the press that the average tax payments of high-income taxpayers had fallen since the 1981 Reagan cuts—despite the fact that the CBO had IRS data showing the exact opposite: we now know that the effect of the Reagan tax cuts was to increase the payments from high-income taxpayers...
...In a given year, the distribution of the tax burden would then be seen to fall more heavily on upper-income groups than is depicted by the currently available analysis...
...Privately, committee staffers say CBO reports and statistics are no longer considered valid or accurate...
...The distortion is routine...
...Dick Armey (R-Texas), who holds a Ph.D...
...T he CBO's funny numbers have become the cornerstone of Bill Clinton's economic policies...
...In a letter to Armey, Reischauer acknowledged that taking inflation into account would allow a very different picture of the U.S...
...Krugman could well be named Clinton's chairman of the Council of Economic Advisors...
...To this day the CBO cannot explain where that number came from...
...For twelve years, Greenberg wrote, the Republicans had run against the Carter presidency, "a period that embodies what was bad about Democrats and this country—weakness before our enemies, things out of control, bad economic times for average Americans...
...Robbins says that because the CBO formula for estimating revenue is static, it can never arrive at an accurate revenue or deficit projection...
...Dick Armey, for one, says he will continue his campaign to bring the CBO under some form of accountability...
...They simply don't want to...
...Meanwhile, the damage grows...
...But when measuring the effects of capital gains tax cuts, the CBO chose to ignore the "revenue feedback"—the additional tax payments induced by lower tax rates...
...Set up in 1974, in the wake of Watergate, it is called the Congressional Budget Office...
...A March 1988 analysis of a minimum wage bill backed by Gus Hawkins (D-Ill...
...Secrecy is central to the CBO's operations...
...It misdefines "the family" and neglects such factors as inflation on capital income and income mobility...
...The American Spectator November 1992 Armey is unimpressed...
...tax structure to emerge...
...showed that the bill would cost between 250,000 and 500,000 jobs...
...At the time, a capital gains tax cut amendment was gaining wide bipartisan support...
...By dooming the amendment, the CBO's numbers ultimately led to the infamous 1990 budget summit, and increased the deficit by about $30 billion, since Congress had—of course—already spent the anticipated tax income...
...To buttress his statement, Clinton cites an often-quoted CBO statistic to claim that the richest 1 percent of American families received 70 percent of the income gains during the Reagan and Bush administrations...
...In other words, everybody else lost money...
...His machinations worked, and thanks to CBO's assistance American workers continue to pay out several hundred dollars' worth of additional nondeductible Social Security tax a year...
...But what is most shocking is that, while its numbers contributed billions of dollars to the deficit and pushed a weakened economy closer to the brink, the CBO never informed Congress about the error used to score its members' legislation in 1989 and 1990...
...The fraud is costly: • In 1990, several congressmen pressed for changes in the acreage quota for peanut farmers which would have opened the market to smaller growers...
...It isn't in their interest...
...It would be relatively easy for them to create the kind of dynamic forecasting system that we and others use...
...T he CBO's most serious misrepresentation came with the 1989 tax bill...
...Rep...
...To kill it, Democratic leaders first released flawed CBO data based on the wildly erroneous claim that capital gains for 1990 would be about $254 billion...
...For example, the net real gain on an investment purchased in 1977 and sold in 1991 would be exaggerated by the failure to remove inflation...
...It never assumes that a family can move from one income level to another...
...In ranking families by income quintile, the CBO lists single persons as "families"—including graduate students on financial aid, and independent singles working part-time...
...It simply assumes that everything remains the same," says Robbins...
...CBO statistics and analyses are officially incorporated in just about every bill dealing with taxes, revenue expenditures, and economic plans, and the agency's influence has grown since the 1990 budget agreement, because new proposals that affect the budget deficit must now be cleared by the CBO before coming to a Senate or House vote...
...These methods allow the CBO to concoct the numbers the Democrats need for their class warfare...
...CBO staff has excused its failure to notify Congress of its $134 billion capital gains mistake by making the absurd argument that revenue estimation wouldn't have been affected significantly by a 112 percent error in the tax base...
...Bentsen, looking to sink the bill, directed the CBO to withhold the study until just before the vote...
...n the past, the agency has said it cannot get the type of information it would require to fill the voids...
...It ignores most capital gains for those in the lower three-fifths of the spectrum...
...Today, thanks in large part to CBO-generated numbers, every Democrat from Bill Clinton, Al Gore, George Mitchell, and Richard Gephardt on down claims that the 1980s saw the rich get richer, the poor get poorer, and the middle class get screwed...
...The CBO assumes that there is never any change in the value of an investment...
...The CBO director is selected and appointed by the Democratic leadership in Congress...
...At the behest of Senate Finance Committee chairman Lloyd Bentsen (D-Texas), CBO undertook an analysis of the effects of Senator Daniel Patrick Moynihan's well-known bill to cut the federal payroll tax...
...IRS data for 1990 showed capital gains income was in fact only $120 billion...
...Gary Robbins, a former Treasury official who currently runs the economic forecasting service Fiscal Associates, has used his own methodology to make accurate projections of capital gains and other tax revenue, as well as deficits, for the past four years...
...Looking to kill the amendment, Charlie Rose (D-N.C...
...CBO obfuscation has damaged its credibility within Ways and Means...
...As it happens, top Democrats were already hard at work, using a sophisticated research squad fully financed by the American taxpayer...
...Only because Armey exposed the error has any of the information been placed in the public arena...
...He neglects to show what even the CBO data show—that the richest 1 per48 The American Spectator November 1992 cent received 100 percent of the gains during the Carter years...
...He regularly skewers inaccurate or false CBO research and has been so successful at it that the agency no longer allows its family income data and numerical tables to be published in the Ways and Means Committee Green Book—which guides legislation on such issues as taxation, health care, education, and welfare...
...The office overestimated annual capital gains income by more than $134 billion, leading to an $804 bil49 lion error for tax years 1990-95...
...When CBO estimated costs for portions of the catastrophic care bill passed in 1989, one estimate showed that costs for some hospital programs could run as much as $5 billion...
...Between 1987 and 1990, he says, Democrats and their CBO minions released so much inaccurate information and data that it sapped Republicans' will to combat it...
...Even when the CBO gets the numbers right, it uses crooked means to warp dis:tributional statistics...
...CBO's methodology for scoring capital gains had created a 112 percent error, which allowed the Democrats to use a non-existent $134 billion to make the capital gains tax cut look like an unfair windfall for the wealthy...
...Clinton is also backed by the unions funding the Center for Tax Justice, which uses CBO statistics to support its radical policy recommendations...
...T hrough the Census Bureau and the IRS, better working models can be developed...
...1 50 The American Spectator November 1992...
...Republicans are informed but not consulted, and there is no formal confirmation procedure...
...What CBO is doing is perpetrating academic fraud on the American taxpayer...
...But using bad numbers to perpetuate bad policy apparently works well for Democrats...
...a subcommittee chairman on the House Agricultural Committee, called the CBO...
...The CBO," he says, "takes different sets of data, erroneous data, incomplete sets of data, rolls them all together, and tries to pass it off—without even a footnote of explanation—as a complete picture...
...Democratic control of the CBO is such that no one in the know was surprised when the Democratic National Committee selected a former CBO staffer, Dan Carol, to direct its opposition research team for the 1992 campaign...
...In a 1992 memorandum sent to Joint Tax Com-mittee staff, the CBO in fact acknowledged that a lower capital gains tax would lead to higher tax payments, offsetting a large part of any revenue losses...
...Hawkins refused to accept the report—so a new one was released with the job-loss data removed...
Vol. 25 • November 1992 • No. 11
