The Public Policy/ Treasury Falls Flat
Neumayr, George & Carnegie, M.D.
Treasury Falls Flat by George Neumayr and M. D. Carnegie 0 n June 16, 1994, Rep. Dick Armey unveiled a federal flat-tax plan to replace the existing individual and corporate income tax. Called the...
...had been suffering a public relations nightmare since the infamous Alice Rivlin budget memo to President Clinton, which suggested that the administration might consider tax increases or adjustments to Social Security...
...In mid-January, he changed stories again, allowing that the White House had been in communication with the analysts...
...None of this would be especially remarkable, however, were it not for one rather problematic fact: the Treasury's analysis of Armey's bill was so fundamentally flawed that officials in the department must have known how inaccurate it was-and then released it anyway...
...Allowing its professional staff to participate in what amounts to opposition research used in an election campaign calls into question the impartiality-and hence the reliability-of its economic forecasting...
...Called the Freedom and Fairness Restoration Act, the proposal required a first-year personal and corporate rate of 20 percent, abating to 17 percent thereafter...
...Both the timing of the leak and the number of serious errors in the report indicate a purposeful attempt to discredit Armey's proposed legislation for political reasons...
...But even today the department refuses to make a public admission of its errors...
...Unlike the Office of Management and Budget or the Congressional Budget Office, the Treasury has traditionally been a non-partisan, independent entity...
...They came to within $40 billion of their own proposal-a discrepancy, Armey noted, easily relieved with budget cuts...
...This was awfully good-and awfully timely-news for the Democrats, who George Neumayr is a former intern at the National Journalism Center in Washington...
...After initial attention on the pages of the Wall Street Journal and Washington Times, H.R...
...They estimated a revenue loss in the plan's first year (1995) by using the 17 percent rate rather than Armey's 20 percent figure, resulting in an $84 billion error...
...By calculating with a set of false assumptions-the department never contacted Armey or his staff to obtain the correct statistical parameters-the Treasury created an incorrect set of results that the White House then used on the eve of the election...
...And their bogus figures led them to underestimate corporate tax revenue by $110 billion...
...If Armey's proposal had been under serious consideration by Congress, the Joint Committee on Taxation would have performed a detailed analysis of the bill it did not...
...Although Armey had never intended the plan to be revenue-neutral-the smaller revenue, he argued, would require government-spending limits-the Treasury analysts made much of the fact that it wasn't...
...The report received immediate attention nationwide, as commentators played up the angle, hinted at by the Post, that the report belied Republican claims that the GOP would not raise taxes on the middle class or cut benefits for the elderly...
...Treasury Analysis Finds GOP `Flat Tax' Too Costly," read the headline of the article, which quoted a senior Clinton administration official saying that the Ariney plan would "either increase the deficit by $1 trillion over five years or require a flat tax so high it would raise taxes on everybody making under $200,000...
...Yet ten days before last November's midterm elections, somebody leaked to the Washington Post a 16-page analysis of the Armey bill that had been undertaken by the Treasury Department...
...0 39 The American Spectator March 1995...
...The Treasury itself has offered no fewer than three explanations of how the department came to conduct the review...
...In the past the Treasury Department was very careful to guard its integrity under presidents from both parties," said Armey...
...J ndeed, the errors were so enormous that, were it not for what appears to be the obvious political motivation for making the study public, Treasury officials might well have had to explain their incompetence...
...While Treasury analysts track certain tax-related subjects as a matter of course, it would be virtually impossible for them to conduct a month-long study of this magnitude without approval from departmental higher-ups-particularly since sources say the department is three months behind in legislative reviews owed to congressional committees...
...M. D. Carnegie is assistant editor of The American Spectator...
...Armey's staff reviewed the Treasury study, discovered the errors, and recalculated using the correct information...
...On December 18, Treasury spokesman Scott Dykema acknowledged the study of the Armey proposal had been requested by the White House...
...Three weeks later, Dykema changed his tune: the Office of Tax Analysis, he now insisted, had undertaken the study on its own...
...Business would pay the flat rate on sales, less purchases of goods and services from other companies...
...This unprecedented action raises serious concerns about Treasury's politicization...
...D ykema's second version of events, in which the department acted independently, reeks of implausibility...
...4548, as the proposed legislation was known, died a quick death in the Democrat-controlled Congress...
Vol. 28 • March 1995 • No. 3
