Politics & Policy

Treasury Trash

Krugman pines for the days when there was no politics in Washington. When was that?

Sound economic theory is ignored when it contradicts preconceived political agendas. Statistics are diabolically distorted in order to lie about the impact of tax policy. Talking points based on lies are provided to the media to discredit political opponents. Everything is political.

Am I describing Paul Krugman, America’s most dangerous liberal pundit? Well, if the shoe fits …

Actually, the above lead is a parody of the rhetorical trick used by Krugman in his New York Times column Tuesday, titled “Everything is Political.” Krugman’s subject was the Bush administration’s supposed politicization of the Treasury Department.

In his column, Krugman once again pretended to be shocked, shocked — no, the only expression for it is shocked and awed! — to learn that politics is going on in Washington, D.C. 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 this past 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 charged that the examples were “wildly unrepresentative.” He wrote that

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.

Krugman Truth Squad member 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 percent tax on $2,000 to a 15 percent tax — for a savings of $260, only about a third of the $725 savings in the example.

And Hoy asked, why didn’t Krugman pick on this example 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 what about Krugman’s reference to a “‘lower income’ elderly household”? He made 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” does not appear 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 the many lies, errors, and distortions that have appeared in Krugman’s columns, and have been cataloged here. But why not? After all, in its infinite punctiliousness, the Times ran a correction six weeks ago regarding another quotation-mark 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 attributed to Martin Sullivan of Tax Notes? I spoke to Sullivan, and it turns out that in the June 30 Tax Notes column that Krugman referenced, he wasn’t even talking about whether or not the Treasury examples cited by Russert were “wildly misrepresentative.” Instead, his concern was that the analysis was incomplete because it dealt exclusively with income taxes, and ignored other taxes — 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” and not “income taxes” in a document provided to Russert — creating the false impression that all taxes were indeed being taken into account. It is 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 touched 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 “who benefits and who loses” analyses of the Bush Treasury — they’re known in the trade as “distribution tables” — have only dealt with income taxes. In that sense, as Krugman said, 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 clearly labeled as being based only on income taxes.

Ultimately, Sullivan’s deepest complaint is the fact that the “elaborate computer model” Krugman referred 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. Krugman Truth Squad member Steve Antler, an economics professor at Roosevelt University who blogs as EconoPundit, said that Krugman refused 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 past administrations. 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 — alas, under a Republican administration. Weisman wrote last week — in what passes as a news story — that Treasury’s providing its analysis to Russert was an “unusually political step” that “is likely to become a staple for GOP attacks.”

Weisman obviously cannot remember as far back as 1996. That year, 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.

Krugman Truth Squad member Robert Musil — of the Man Without Qualities blog — had this memory of the Clinton-era Treasury:

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 Krugman Truth Squad member — and 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.”


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