Tax‐​Cutting Lies and Statistics

This article appeared in the Washington Times on September 12, 1999.

President Clinton is expected to veto the Republican tax bill within thenext week or so. But almost every White House statement attempting tojustify that veto has been a half-truth, an artifact of historicalrevisionism, or an outright fabrication. What's worse, the press hasdutifully echoed the din of the White House's class warfare grenadeswithcasual unconcern about their veracity.

Let's get the record straight about the Republican tax bill. Everystatistic I present below comes from the Census Bureau, the UnitedStatesbudget, or other official government publications unless otherwisenoted.

  • A "gigantic" tax cut. Virtually every news story labels the GOP taxplan "enormous," "huge," "massive," and even "unaffordable." Granted,$792billion is a huge amount. But that number is misleading. The tax cutisspread out over a decade (when did Congress start imitating socialistChinaand Russia with ten-year plans?) and is taken out of an expected revenueflow of more than $20 trillion. In other words, federal taxes would becutby less than four cents of every tax dollar collected. More important,inthe first few years the tax cuts are imperceptible. In 2000, Americans'taxes would be cut by 0.4 percent, in 2001 by 0.9 percent, in 2002 by1.8percent. The tax cuts are not scheduled to start providing real taxreliefuntil the next two presidential elections have passed. That is a modesttax sliver, not a gigantic tax cut.

  • Tax cuts risk a return to high inflation and high interest rates.As Ronald Reagan would say, "There they go again." In 1980 the majorcriticism of the Reagan supply side tax cut proposal was that it wouldcause inflation to rise--one of the most discredited predictions in thehistory of the dismal science. Still this remains the White House'sfavorite mantra. Apparently, Clinton hasn't bothered to read his ownEconomic Report of the President. In that report, one finds statisticsshowing that after the Reagan tax cuts in 1981, interest rates andinflation didn't rise, they plummeted. The inflation rate was 11percentin 1980 and by 1985 it had fallen to below 4 percent. In 1980 mortgageinterest rates were 15 percent, but five years after the Reagan taxcuts,they were down to 7 percent. Moreover, in the 18 months after theClinton1993 tax increase, interest rates rose by more than 100 basis points.Thepast 20 years suggest that taxes have an inverse relationship oninterestrates and inflation.

  • Tax cuts are skewed to the wealthy. The fact is that most of thefederalincome tax burden today is borne by the wealthy. According to the mostrecent IRS statistics, the top 1 percent of Americans makes about 16percent of the total income but pay about 33 percent of the federalincometax. The top 1 percent pays more federal income tax than the entirebottom50 percent--which is why the wealthy get a bigger tax cut.

  • The tax plan provides no relief for the middle class. More thanhalf of American families now own stock. Most of those families willsomeday be subject to the capital gains tax. Many middle income two-earnerfamilies with children will save hundreds of dollars a year by avoidingthemarriage penalty. If ever fully phased in, the tax cut will save manymiddle income families $1,000 or more.

  • Tax cuts will return America to the days of big deficits. Bigdeficits in the 1970s, 1980s and 1990s were a result of stampeding costsoffederal entitlement programs like Medicare. The Reagan tax cuts in 1981actually resulted in a doubling of tax revenues--from $500 billion to $1trillion in the 1980s.

  • Taxes aren't really that high on the middle class. The federaltaxbite has increased from 18 to 21 percent of GDP in just the past sixyears. Taxes devour 38 percent of the median two-earner family budget today.That's almost $20,000 in total federal, state and local taxes.

  • Debt retirement should come first. Even under the Republicantaxcut plan, the national debt would be reduced by nearly $2 trillion overthenext 10 years. The federal debt burden of GDP would fall to 25 percent,its lowest level since the 1930s.

  • Americans don't want tax cuts. This is a lie that is perpetuatedeveryday by the media. But recent polls by Gross Roots research show thattwo-thirds of Americans think that taxes "are too high." But those samepolls show that almost 80 percent of Americans--most of whom stillrememberGeorge Bush's "read my lips" pledge and are still waiting for BillClinton's promised "middle class tax cut"--don't think the politiciansinWashington will really cut their taxes.
  • Americans do want their taxes cut, and they want it doneevenhandedly. What offends Americans is not a tax cut that benefits all, but a taxcutthat carves out special sweetheart deals to powerful political groups atthe expense of the rest of us. (Memo to Republican leaders: get rid oftheoutrageous pork in this tax bill.) The Reagan tax cut was politicallypotent because all taxpayers got an equal percentage reduction in theirtaxburden. There were no windfalls; and there were no losers.

So those are the indisputable tax-cutting facts. As this debateproceeds into the fall, we ought to keep in mind a quip from Mark Twainashe responded to the allegations of a buffoon: "Sir, first you have togetyour facts straight, then you can distort them as you wish."