Edmund L. Andrews | Washington | August 23
NYT – The White House tax cuts are skewed to the wealthiest. Spoken like a…Republican? Raising doubts about Bush economic policies, and making Republicans wince.
Previous news thread on the recent CBO report is here.
Note: full print edition headline was used; also used blurbs from print edition; is from page A14, big spread with big picture.
New York Times
August 23, 2004
Former Bush Economic Aide Isn’t Keeping to Script
By EDMUND L. ANDREWS
Carol T. Powers for The New York Times
“The only shield one has in a job like this is your professional credibility,” Douglas J. Holtz-Eakin says.
WASHINGTON, Aug. 22 – Congressional Democrats were deeply suspicious when Republican leaders selected Douglas J. Holtz-Eakin to take over the nonpartisan Congressional Budget Office in early 2003.
As chief economist for the White House Council of Economic Advisers, Mr. Holtz-Eakin had helped build President Bush’s case that big tax cuts could at least partly pay for themselves by speeding up economic growth.
Democrats suspected that Mr. Holtz-Eakin would undermine the agency’s rigorous independence to advance Mr. Bush’s tax-cutting agenda by making it look less costly than it was.
Things did not turn out that way. Today, Mr. Holtz-Eakin wins praise from Democrats and is a frequent source of heartburn to Republicans.
Within weeks of taking office, Mr. Holtz-Eakin dealt a big blow to Republicans. Analyzing the impact of Mr. Bush’s spending and tax plans together, he concluded they would do little or nothing to stimulate long-term growth or make the deficit any smaller than it would be otherwise.
Last week, responding to questions posed by Democratic lawmakers, the Congressional Budget Office released a report showing that Mr. Bush’s tax cuts were skewed very heavily to the very top income earners.
Senator John Kerry immediately trumpeted the report as proof that the tax cuts were contributing to a middle-class squeeze, even though the report also showed that tax burdens declined at every income level.
The report seemed to catch Republicans off guard.
Robert Novak, the conservative newspaper columnist, bitterly accused Mr. Holtz-Eakin of being a pawn for Democrats.
“Thanks to the C.B.O., Kerry can now accuse Bush of trying to destroy the middle class based on a nonpartisan report authored by a former Bush aide,” Mr. Novak fumed, in a column published on Thursday.
Republicans in Congress and the White House were more restrained, accusing Democrats of distorting the facts rather than blaming Mr. Holtz-Eakin.
“You’re blaming the messenger,” said Sean Spicer, a spokesman for the Republican-controlled House Budget Committee. “Is it Holtz-Eakin’s fault that the Democrats did a better job of getting their message out?”
Mr. Holtz-Eakin, a former professor of economics at Syracuse University and a prolific author on issues including income mobility and tax reform, acknowledged the firestorm but said it was inherent in running a nonpartisan agency responsible for analyzing polarizing issues.
“The only shield one has in a job like this is your professional credibility,” he said. ”If you try to play games with that, you end up in a morass and won’t know what to do. It’s not workable.”
Mr. Holtz-Eakin, 46, is not the first Congressional budget director to wrestle with his own party. Robert D. Reischauer, a Democrat, raised major questions that helped doom President Bill Clinton’s health care plan in 1994. Dan L. Crippen, a Republican who was budget director from 1999 to January 2003, infuriated his party by refusing to even experiment with “dynamic scoring,” an effort to predict how tax cuts might add to federal revenue by spurring economic growth.
But Mr. Holtz-Eakin is the first director to come directly from the White House and then raise challenges to his former boss.
And he has done so repeatedly. Under his direction, the agency has raised doubts about proposals to partly privatize the Social Security system, one of Mr. Bush’s long-term goals.
The agency also calculated that Mr. Bush’s tax and spending policies could increase the federal debt by $4 trillion over 10 years.
It recently concluded that abolishing inheritance taxes, another priority for Mr. Bush, would diminish incentives for charitable contributions. Responding to another query from lawmakers, it calculated that allowing gay marriages would slightly increase federal revenues.
But aside from the invective hurled by Mr. Novak, Republicans and Democrats generally give Mr. Holtz-Eakin high marks for solid analysis and high integrity.
“There is no doubt he is a straight shooter,” said Mr. Reischauer, who was director of the Congressional Budget Office from 1989 to 1994. “What you look for is someone who sees himself as wanting to be judged by the quality of his work rather than the number of his well-connected friends. I was very glad he was chosen for the job.”
Bruce Bartlett, a Republican and staunch defender of deep tax cuts who served as director of Congress’s Joint Committee on Taxation in the 1980′s, agreed.
“In general, I think he’s been an absolutely excellent C.B.O. director,” Mr. Bartlett said. “The C.B.O. serves the entire Congress, not just one party. The C.B.O. is required to respond to any legitimate question from the ranking member or the chairman of the House or Senate budget committees.”
Mr. Holtz-Eakin had no doubt whatsoever he would be in the hot seat last week. Congressional Democrats had asked for an analysis of which income groups benefited the most from Mr. Bush’s tax cuts of 2001 and 2003.
After three months of work, the Congressional analysts produced a blizzard of estimates that provided fodder for both parties.
For 2004, the agency concluded, the effective tax rate for people in the top one percent of income earners – with average annual incomes of just over $1 million – dropped by 6.8 percent. Democratic analysts on the Joint Economic Committee calculated more than $76,000 as an average tax cut.
For people in the bottom fifth for annual earnings – with average incomes of $14,900 – the tax rate dropped just 1.5 percent, an average cut this year of $250.
Based on the number of people in each income category, Democratic analysts calculated that one-third of all the tax benefits in 2004 will go to the top one percent of income earners.
Not surprising, Mr. Kerry, who has vowed to roll back the tax cuts for households with incomes above $200,000 a year and use the money to pay for a comprehensive health plan, pounced on the report.
“Today’s report reinforces what middle-class families across the country already knew about George Bush,” Mr. Kerry declared. “His tax breaks have forced them to pay a bigger share of America’s tax burden, forcing them to bear the brunt of his failed economic policies.”
In fact, the report was far more ambiguous. It showed that people at all income levels received at least some tax cut. It also noted that a big source of the inequity was a special bonus depreciation for business that is set to expire this year.
Senator Charles E. Grassley, Republican of Iowa and chairman of the Senate Finance Committee, noted that rate reductions are almost identical after 2004 between the bottom and top fifth of income earners.
But the budget office estimated that even after 2005 the average rate reduction for people in the top one percent of earners would be nearly twice as big as that for the bottom one-fifth.
In absolute dollar terms, the tax cuts for the wealthy were far higher than for everybody else. But the study also confirmed what tax analysts have long known: the top 10 percent of income earners still pay about two-thirds of all federal income taxes, and more than 30 million people at the lower end pay nothing except Social Security and Medicare.
“What we have done historically is turned the income tax into a high-end surtax,” Mr. Holtz-Eakin said. “That makes it hard to cut income taxes when so many people aren’t paying taxes.”
Such subtleties get lost in the heat of election season. For now, Mr. Holtz-Eakin has contented himself with laying out the facts, in all their ambiguity, and letting the political combatants battle them out on their own.