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UPDATED: Washington Post "Fact Checker" Moves the Goalposts in Tax Analysis


Posted by Ryan Ellis, Mattie Duppler Corrao on Tuesday, November 29th, 2011, 2:00 PM PERMALINK


Today in the Washington Post's "Fact Checker," Glenn Kessler disputed that the 1982 and 1990 budget deals resulted in reneged spending cut promises, as ATR has continually maintained.  In so doing, Kessler makes a classic mistake which is ironically one of the major things fact check websites call others on--moving the goalposts.

ATR claims that the 1990 and 1982 budget deals were bad for taxpayers.  We were promised a certain amount in spending cuts ($3 in 1982, $2 in 1990) for every $1 of tax increases.  As a matter of law, it's not in dispute that all the tax increases went through.  When the 1982 deal lengthened depreciation lives, they were lengthened.  When the 1990 deal raised the top individual rate from 28 to 31 percent, that's what people paid.  So the full hit of the tax hikes is not in question.  They never are in these deals.

What is in dispute by Kessler is our claim that the spending cut promises were not followed through.  In making this dispute, Kessler shows that non-defense discretionary spending as a percent of GDP fell after each deal was made.  While this is true, it subjects those years to a metric foreign to what was the actual measuring stick.

Let's take each deal separately.

1990 Budget Deal

In the 1990 budget deal (also known as the "Read My Lips" deal or the "Andrews Air Force Base deal"), President George H.W. Bush agreed to raise taxes by $137 billion from 1991-1995 in exchange for a reduction in projected CBO outlays of $274 billion (hence, a 2:1 ratio of spending cut promises to tax increases).

The tax increases all went through.  Most notably, as stated above, the top marginal income tax rate was raised.  But there were dozens of other tax hikes in that bill as well.  We still are paying virtually all of them.

What about spending?  Prior to the deal, CBO projected that 1991-1995 spending would total $7.07 trillion.  The deal should have resulted in historical spending in that period some $274 billion lower than that.  Instead, spending was actually higher than the pre-deal baseline.  Actual spending in that period was $7.09 trillion, an increase of about $20 billion (not a decrease of $274 billion).

This is despite the fact that there was another "spending cut" deal in 1993, right in the middle of this window.  If anything, the 1990 deal should have delivered with flying colors.  It not only promised spending cuts in its own right, but it had the 1993 deal to give it a turbo-shot.  Instead, not a single penny of the promised spending reduction actually happened. 

In other words, ATR is and always has been correct that the promised spending cuts never materialized.

But what about Kessler's point that domestic discretionary spending declined as a percentage of GDP?  That's not in dispute.  It's also not material.  It's a completely different metric which has nothing to do with the promise made in 1990.  It's like failing a test but asking the teacher to give you points for the stock quality of your paper or the visual attractiveness of your graphs.  It's apples and oranges.

Had the promised spending cuts actually happened (which they did not), then spending as a percent of GDP would have declined even faster.  The fact is that the 1990 budget deal is the best textbook example we have of a tax hike going through but spending cuts disappearing.

To anticipate some objections: Desert Storm, Hurricane Andrew, S&L crisis.  These are examples of spending events which happened after the 1990 budget deal and were not anticipated by the negotiators at Yalta...that is, Andrews Air Force Base.  Surely, some will argue, we need to give a mulligan to these unexpected costs.  But that's the whole point, isn't it?  There's always some war, some natural disaster, and/or some financial bailout that Congress is going to pull in order to get out of spending restraints.  This only explains some of how Congressional Democrats broke their word--it does not excuse them for it.

1982 TEFRA Budget Deal

Back in 1982, President Reagan agreed to $3 in prospective spending cuts to the CBO baseline in exchange for $1 in tax increases.  This translated into $645 billion in spending cuts in exchange for $215 billion in tax hikes from FY 1983-1987. 

I trust all parties can stipulate that every penny of those tax hikes were enacted.

CBO's spending baseline for this period prior to the deal was $4.85 trillion.  Actual historical spending for this period was $4.6 trillion, a baseline reduction of $250 billion.  So does this show that Congress actually delivered on some (about 40%) of the spending promise they made?

President Reagan didn't think so.  In his memoirs and in conversations with Pat Buchanan, he called this deal one of the worst he ever made, and that it was perhaps the worst mistake of his presidency.  He still was waiting for the spending cuts when he left office.

Under a best-case scenario, President Reagan was denied 60% of the spending cuts he was promised.  Under this rosy view of history, his $3:$1 deal actually yielded a $1:$1 deal--not bad considering how much his successor was taken to the cleaners by Congressional Democrats.

But that's only when you ignore a very big caveat.  CBO assumed in its baseline that inflation over the 1983-1987 period would average 6.4 percent.  In fact, inflation over this period (measured as CPI growth) grew at only a 3.3 percent rate--nearly half the speed CBO anticipated.  This would have had a ripple effect on federal spending, causing it to come in much lower than CBO's anticipated baseline just by itself.  Any real world analysis would conclude that the lower inflation was responsible for Congress' apparent semi-compliance with TEFRA, not any actual budget restraint.  Perhaps Kessler should have factored this in, as he made pains to with Veronique de Rugy's study (see below on how he gets her conclusions wrong).

President Reagan was correct--Congress never gave him his budget savings.  Federal Reserve Chairman Paul Volcker did.

Apples and Oranges

At the heart of Kessler's analysis failure here is a classic problem of moving the goalposts--he sees domestic discretionary spending decline as a percent of GDP, and concludes that the spending cut promises were realized.  The problem is that you can have both a spending decline as a percent of the economy AND a reneged spending cut promise at the same time.  We certainly did in 1990, and a reasonable inflation caveat yields the same conclusion in 1982.

Veronique de Rugy, cited in the Kessler piece, did a study of how President Reagan cut various departments. She also shows what happened to federal spending as a percent of the economy.  She did not, however, conclude that the 1982 budget deal yielded the promised spending cuts.  In fact, she reached out to ATR staff this morning urging us to rebut Kessler's piece since she had been dragooned into his argument against her will. 

Moving the goalposts is no way to conduct a fact check.

UPDATE:

Yesterday, we rebutted the Washington Post’s “fact check” of our claim that the 1982 and 1990 budget deals never actually materialized. We declined to comment on the more outlandish claims made by Fact Checker Glenn Kessler, specifically those regarding the “stimulus". He has since updated his piece to lament this oversight so we are more than happy to expand on our comments:

First, Kessler claims that it is false to call the “stimulus” package an $800 billion spending program because the American Recovery and Reinvestment Act also included tax credits that were scored as part of the cost of the bill. This is true – the initial $787 billion bill for the “stimulus” program did contain about $326 billion in tax provisions. However, about one-third of these were refundable tax credits – money redistributed to families in excess of their tax liability. JCT shows that this amounts to $214 billion in actual tax relief. The rest is spending.

It is important also to remember that bloated spending projects like the “stimulus” are paid for with borrowed money. The debt service on the ARRA will amount to roughly $347 billion according to CBO Director Doug Elmendorf. This is actually a far more generous calculation than CBO originally offered – in response to a request from now-Budget Chairman Paul Ryan, CBO estimated that the permanent extension of “stimulus” spending would amount to $744 billion in debt service costs.

Sticking with the more conservative estimates, this brings the cost of the “stimulus” program to nearly $1.2 trillion. It is actually quite generous for any fiscal conservative to argue the plan only amounted to $800 billion in spending.

Even more peculiar is Kessler’s claim that it not true that the “stimulus” did not create jobs. He accedes that yes, the country has witnessed net job loss since the passage of the “stimulus,” but that’s only because we’re not done being stimulated yet. He claims the recovery is still forthcoming; as such, so is the evidence of “stimulus” job creation.

First, the “stimulus” was passed as an emergency measure to jumpstart the economy. The White House argued its effects would be seen “immediately” while CBO has repeatedly testified the outlays of the Recovery Act would be largely frontloaded.

Secondly let’s not forget that the “stimulus” is a failure by its own metrics. The White House threatened that without it, unemployment would crest 8 percent. The country is now experiencing its thirty-third month of unemployment above 8 percent. Between June 2009 and December 2010, unemployment stayed above 9.5 percent, even though the administration stated the “stimulus” had already had its biggest impact.

Lastly, a recession is defined generally as two consecutive quarters of declining GDP. However, the second quarter of 2011 saw 1.3 percent growth while GDP grew by 2.0 percent in the third quarter. Though the economy is still fairly weak, it is difficult to claim it is in the throes of a recession. It is even more difficult to claim with a straight face that only once the economy recovers will “stimulus” proponents claim victory for their plan. These kinds of tautologies are far from the non-political fact checking WaPo claims to provide.

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