October 04, 2004, 8:54 a.m.

SQUEEZE PLAY

He asserted that Paul Krugman’s endorsement of my best-selling and national award-winning book, Perfectly Legal, gives me my “liberal credentials.” Yet Jack Bogle, a premier capitalist, and Lou Dobbs, surely no liberal, also endorsed my book.

Luskin also attacked my integrity over my July 29 New York Times “claim” that the I.R.S. said that the incomes of Americans fell for two consecutive years, 2001 and 2002. He said I “cleverly” avoided facts in an accompanying chart and that my piece was “designed to trash-talk the Bush economy.”

Provable nonsense.

The chart should have used inflation-adjusted figures, making it consistent with my text. Imperfect coordination between graphics and reporter is hardly grounds to attack my integrity, especially since Luskin knows real from nominal incomes.

Even so, the income “increases” Luskin cited from the chart were infinitesimal — and may be due to people falling into the upper reaches of lower statistical categories.

My piece was designed to report important new income and tax data. Belying Luskin’s partisanship charge, my references to President Bush showed that income taxes fell primarily because of factors that are not his responsibility: the stock market drop, the recession (on its way before he took office), and changes in compensation practices.

Luskin wrote that I gave a false impression because the data show that “the richer you were, the worse you got hit” and asserted that the Times would “never admit” that the rich got poorer during the Bush administration.

Did Luskin read my report? I wrote that the higher one stood on the income ladder the greater the fall. Taxpayers making $10 million plus were reduced by half. One of eight making over $200,000 fell below that level. And I explained why.

For 38 years I have signed my work, winning a wall of awards including a Pulitzer, for reports that are enterprising, fearless, and rounded, the last a point that even Luskin grudgingly acknowledged at his personal blog.

As a reader of National Review for more than four decades I am appalled that you publish Luskin’s jaundiced tripe.

David Cay Johnston

Donald Luskin replies: I stand by every word of jaundiced tripe in my column.

As to Johnston’s liberal credentials, I can think of none more impeccable than having one’s book endorsed in a Paul Krugman column (being a New York Times economic reporter is another good one). The fact that the book has been endorsed by others whom Johnston judges to be non-liberal is immaterial.

I would go further. Johnston not only has liberal credentials, he has a liberal agenda. He is a strong advocate of populist tax polices — progressive taxation of incomes and estates, and the taxation of income from capital. These are cornerstones of the canonical liberal economic agenda. His advocacy is very much in evidence in interviews he has given to the liberal website Buzzflash, and the more conservative website Forbes.com.

The book in question, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich, strongly reflects Johnston’s liberal views on these issues. As a reviewer put it in Tax Notes — the respected journal for tax professionals — Johnston’s book is a “populist tirade against the super rich.” The review continues,

As to my judgment that Johnston’s August 27 New York Times story is deceptive, the fact is that the chart accompanying the article showed taxable incomes falling from 2000 to 2002 only for taxpayers with taxable incomes above $100,000. For everyone else — the majority of taxpayers — taxable incomes rose over the period. And it is a fact that the story begins with the statement “The overall income Americans reported to the government shrank for two consecutive years,” without making reference to the fact that this “overall” result is due entirely to income declines among America’s highest-income taxpayers. While the story makes various distinctions among income groups, it never states the fact that incomes rose during the period for those with taxable incomes below $100,000.

Johnston justifies the failure of the text of the story to conform to the statistical evidence presented in the accompanying Times chart by noting that the chart was not adjusted for inflation, while the text of the story was based on inflation-adjusted taxable incomes. The truth is that some of the statistics cited in the text of his story are inflation-adjusted, and others are not. There is no mention of an inflation adjustment in the misleading first sentence of the story, which I quoted above.

Be that as it may, there is no unique virtue to inflation-adjusting — except that it makes all changes in income look worse, which well serves the liberal agenda of the Times’s economic reporting during an election year. As long as Johnston is applying his own adjustments to statistics he obtained from the Internal Revenue Service, why not adjust for effective tax rates (which fell over the period) or for non-cash forms of compensation (which rose). Simple: because those adjustments make changes in income look better.

As to whether the gains in taxable income among lower-earning taxpayers are “infinitesimal,” this is immaterial to the argument I made in my column. Even infinitesimal gains are not losses, as Johnston’s story led readers to believe that they are.

And as to whether those gains are “due to people falling into the upper reaches of lower statistical categories,” that was precisely the point of my column. To repeat: contrary to John Kerry’s claim that the middle class is “shrinking,” Johnston’s statistics show that it has grown, if only by virtue of the falling incomes of the highest-earning taxpayers.

Finally, I emphatically dispute the truthfulness of Johnston’s statement that I acknowledged on my personal blog, grudgingly or otherwise, that Johnston’s work is “enterprising, fearless and rounded.”

I thank David Cay Johnston for taking the time to write, and for his forty years of devoted readership of National Review.