Bush OMB Director Mitch Daniels and his staff caught some well-deserved flak last month for issuing a press release making the--false--claim that the 2001 tax cut was responsible for only 15% of the ten-year deterioration of the fiscal balance, and then for trying to pretend that they had not issued such a press release. As Paul Krugman wrote on August 6:
Last month the Office of Management and Budget got sloppy: it issued a press release stating flatly that tax cuts were responsible for only 15 percent of the 10-year deterioration. The Center on Budget and Policy Priorities noticed, and I reported it here.
Now for the fun part. The O.M.B. reacted angrily, and published a letter in The Times attacking me. It attributed the misstatement to 'error,' and declared that it had been 'retracted.' Was it?
It depends on what you mean by the word 'retract.' As far as anyone knows, O.M.B. didn't issue a revised statement, conceding that it had misinformed reporters, and giving the right numbers. It simply threw the embarrassing document down the memory hole. As Brendan Nyhan pointed out in Salon, if you go to the O.M.B.'s Web site now, you find a press release dated July 12 that is not the release actually handed out on that date. There is no indication that anything has been changed, but the bullet point on sources of the deficit is gone...
And now comes the really fun part. On Monday Nicolas Bray wrote to me asking if I had caught OMB Director Mitch Daniels on Charlie Rose on Friday August 16. Charlie Rose tried to pin him down, and asked him the question: "How much do you believe the tax cut will contribute to the [long run] deficit?"
Mitch Daniels's answer? Zero. "If [the tax cut] contributes to greater economic growth, it will be a positive factor.... Surpluses don't produce good economies, good economies produce surpluses..."
I know of no analyst anywhere in the world whose run of the numbers suggests that the Bush 2001 tax cut--badly designed from a supply-side point of view--will induce enough economic growth to result in no loss of revenue. I know that there is no budget analyst within OMB, the Treasury, or the Congressional Budget Office who believes this.
Yet Mitch Daniels's dropping of the share of the deterioration in the deficit over the next ten years attributable to the 2001 tax cut from 50 percent (a rough consensus estimate) to 15 percent (in the now 'retracted' OMB July 12 press release) to zero (last Friday) has attracted remarkably little attention.
Posted by DeLong at August 21, 2002 03:12 PM | TrackbackBloomberg.com : The Charlie Rose Show: 08/16 15:25: Charlie Rose Interviews OMB Director Daniels on Economy
The linked site doesn't have the full transcript -- is it possible that Daniels was trying to say (tautologically), "If the tax cut doesn't reduce tax revenues, it won't contribute to the deficit"?
Posted by: alkali on August 21, 2002 12:03 PMSadly - The interview went as summarized. The administration will find any reason is can for blaming the budget problems to come on other than the tax cut. The middle class portion of the tax cut is done, the rest is geared for the richest. There will be undure pressure on social security and medicare as a result and the administration will complain about the sturctures of the programs rather than tax policy. We are building to a sad fiscal problem.
This is a serious matter indeed.
Posted by: on August 21, 2002 12:43 PMhttp://www.nytimes.com/2002/08/20/opinion/20TUE1.html
Notice the sorry bashing of medicare by President Bush. We are building to fiscal constraints that can harshly affect us, while the administration turns away from the problems it is creating.
Posted by: on August 21, 2002 12:50 PMAugust 20, 2002
By Paul Krugman
The federal budget is now deep in deficit, and everyone except the administration thinks it will remain there — not because of runaway spending, but because most of last year's tax cut has yet to take effect.... Mr. Bush can no longer pretend, as he did during the 2000 campaign, that there is enough money for everything. Now, to justify that tax cut, he must hack steadily away at programs that matter to ordinary people.
Still, don't tax cuts also matter to ordinary people? It depends. Last year's rebate went to a lot of families. But the items still in the pipeline are income tax cuts for upper brackets — especially the top bracket — and elimination of the estate tax. For a married couple, only income in excess of $297,000 falls in the top bracket, and only an estate larger than $2 million pays any inheritance tax. Firefighters and coal miners don't make that kind of money.
Posted by: on August 21, 2002 12:54 PMOne for the intellectual peanut gallery who frequent this comments area accusing Brad of knee-jerk liberalism and vulgar tax-and-spend Leftist heresy ... a lecture from a couple of years ago i which he sets out in an admirably neutral and even-handed manner the analytics of the deficit effects of tax cuts, including even some favourable notices for the Laffer effect (in general, not necessarily in the context of the Reagna budgets)
http://econ161.berkeley.edu/Teaching_Folder/Econ_100b_S96/Lectures/lecturethirtyone.html
btw, Brad, I'm not sure what's up withthe site search, but this one was a living pig to find. I only remembered it was here because as you no doubt know from logs, I've been an obsessive daily visitor to this site for the last three years :-)
Posted by: Daniel Davies on August 21, 2002 12:57 PMNote that Mitch Daniels doesn't suggest that the tax-cut contribution to the deficet will be zero. He suggests that it will be *less* than zero.
I was also curious about his comments about the farm bill. I'll admit that I didn't follow this business too closely but the commentary at the time left me with the impression that the Clinton administration had been attempting to start a process of phasing out farm subsidies and the farm bill was a big step backwards.
Posted by: Nick on August 21, 2002 05:05 PM