MediaWatch: July 1990
Table of Contents:
Janet Cooke Award: MacNeil-Lehrer Tax Hour
MacNeil-Lehrer Tax Hour
It was quite the irony.
While George Bush was busy caving in to Democrats in Washington
on taxes in late June, residents of Massachusetts were bemoaning
the results of the tax and spend governance of Michael Dukakis.
The Governor has brought the Bay State to the brink of
collapse. Faced with a $1.2 billion short-term debt due on
September 1, the Massachusetts legislature on July 7 passed its
third tax increase package in as many years ($1.2 billion for fiscal
1991 and $1.8 billion for fiscal 1992), upping the income tax rate
from 5.75 to 6.25 percent, nearly doubling the state gas tax to
21 cents per gallon, and extending the sales tax to include many
professional services.
Raising taxes at a time when the economy is stagnant is counterproductive. Cutting them expands the tax base, as Ronald Reagan certainly proved. But eight years of growth and prosperity have not dimmed the media's love affair with taxes. Take MacNeil- Lehrer NewsHour Business Correspondent Paul Solman on June 8. He fervently defended the need for new taxes in Massachusetts while obscuring the true roots of the fiscal crisis: the overspending and overtaxing of Dukakis. For that he earns the July Janet Cooke Award.
In Solman's view, just two words describe what ails the state's economy: tax cutters. "These folks," Solman declared, referring to citizens behind a November ballot initiative to roll back recent tax hikes, "say they are dedicated to cutting taxes. But ironically their efforts may actually wind up costing taxpayers money, including the money of their most devout followers. You see -- and here's the point of this story -- tax cutters sometimes lose sight of a hidden cost: the interest you pay when you go into debt." Reinforcing the point, Solman added: "The longer...state legislators debate the deficit and borrow money in the meantime to cover it, the more they wind up paying in interest. That's one reason the Massachusetts legislature has finally proposed raising taxes."
It is true that servicing debt is wasteful. But tax limitation groups argue that ending the spending spiral, not raising taxes, is the best way to solve the problem. Solman dismissed the point as ludicrous: "Ah, if life were only this simple. There are political hacks on the Massachusetts pay-roll, but almost everyone agrees they represent a tiny fraction of the budget deficit. Spiraling health costs, pension obligations, these are the real budget busters. And even though it's been labeled Taxachusetts, the state and local tax burden here, according to the U.S. Census Bureau, is one of the lowest in the country. According to this data, only seven states tax their citizens less. As for the complaints about federal taxes, consider this: America is the country with the lowest tax burden in the entire industrialized world. It should come as no surprise then, that cutting government expenses in America these days, often means cutting to the bone."
He also blamed the "tax cutters" for the state's bond rating, the lowest of any state: "The irony of the modern tax revolt: the more the rebels succeed in keeping taxes at bay, the more money they wind up costing us all in interest....In Massachusetts [the deficit is] now more than a billion dollars. And the more the state has borrowed to cover the deficit, the higher its interest rate has gone. This year alone, extra interest will cost Massachusetts taxpayers about 75 million dollars...because the state couldn't balance its budget either by raising taxes, or lowering expenses. That's the hidden cost no one wants to face, including the tax rebels of today."
Throwing a huge bag of money into Boston Harbor, Solman closed: "What's the historical moral of the story? Well, Americans still hate paying taxes. But we're no longer throwing someone else's tea overboard. Nope, the tax rebels of our era are throwing away their own money, in interest payments they should never have to make."
MediaWatch asked several tax policy experts to analyze the MacNeil-Lehrer report. "To blame it on the tax cutters is absurd," said syndicated columnist Warren Brookes. "The result of tax reductions [initiated by Dukakis' predecessor, Ed King (1979-1983)] was the fastest revenue increases in Massachusetts history, 1983-1988. Incomes shot up during that time, but growth began slowing when taxes were raised by Dukakis. Revenues began dropping off when the state began spending like mad. The numbers from last year's Comptroller's report show that Dukakis hasn't balanced the budget since fiscal 1986. It's an unmitigated disaster. The heart of the problem is that Massachusetts spent its way into trouble."
That State Comptroller's report shows tax revenues have increased each year since 1986 (due to growth and tax increases), but spending has increased disproportionately. [See Graph] In 1986, entire tax revenues were $11.56 billion while spending was $11.15 billion. By 1989, revenues had increased by more than $2.56 billion, but expenditures increased by $4.72 billion in the same time frame. Thus, in 1988, Massachusetts had a $1.2 billion deficit. By 1989, it was $1.75 billion. Fiscal Year 1990 ended on June 30 with further borrowing to cover a projected deficit of $1.1 billion. Charles Baker, co-director of Boston's non-profit, public policy Pioneer Institute, concurred. According to the institute, spending increased by 53 percent from 1984 to 1989. Inflation was 24 percent, giving Massachusetts a real spending increase of 29 percent in just five years.
Other facts courtesy of Brookes: On average, from 1984-1989, most states saw their revenues increase 8.2 percent each year, while spending increased about 8 percent. In Massachusetts, revenues increased 9.6 percent each year on average. The problem: spending went up even more, about 10.4 percent each year. And lately, Massachusetts revenues have begun to plummet because large 1988-1989 tax increase packages have stifled growth. From 1984 through 1986, General Fund revenues increased by more than ten percent each year. In 1986, revenues hit 116.6 percent of 1985. In 1987, the increase ws only 8.6 percent; in 1988 just 2.1 percent; and in 1989 only 5.2 percent from the previous year. The State Revenue Department announced on July 6 that Fiscal 1990 saw a real drop of 3.3 percent in revenues.
While King had cut 5,000 employees from state payrolls from 1979-1983, Dukakis added 23,000 new ones as the state population was dropping. Borrowing for housing doubled in four years. Executive Department spending rose to three times the inflation rate; under King it dropped in real terms.
What about Solman's contention that Massachusetts has one of the lowest tax burdens? He used the income analysis model (total state and local taxes/total state personal income). Brookes noted "the state's tax burden according to income has come down, but that is because of Proposition 2 and 1/2 [a 1980 referendum that capped property taxes at 2.5%] and King's tax cutting policies."
If you look at Massachusetts per capita tax burden (total state and local taxes/total population) supplied by the Census Bureau, a strikingly different picture emerges. Just six states demand more money from their citizens. According to Duane Parde, Legislative Director of the American Legislative Exchange Council, the Census statistics for 1980-1988 show that Massachusetts' per capita tax burden has gone up 112 percent.
In a conversation with MediaWatch, MacNeil-Lehrer NewsHour Executive Producer Les Crystal denied that Solman was pushing any tax agenda for Massachusetts: "I saw it as an 'explainer' piece that said borrowing is a very expensive way to deal with the problem. It wasn't intended to be 'should we tax or should we cut.'" He denied that Solman was attacking tax cutters or their position, but admitted the conclusion was flawed: "There wasn't any agenda, at least that wasn't our intent. We might have been more careful with that line. We're not perfect and I think looking at that line now it might have been adjusted a little bit if it left an impression that we didn't intend."
Crystal said that the NewsHour would be examining the issues of deficits on all levels in the future: "Obviously if we go and do a story about the Massachusetts budget crisis we will give the different points of views and we will be happy to get some proposed names from you." MediaWatch will be watching and waiting.
