Post Slants Tax Cut Story

Post Slants Tax Cut Story
Paper begrudgingly admits economic growth but warns of scary deficits.

by  Amy Menefee
July 5, 2005

     Reducing the deficit is an idea most politicians and journalists can get behind except when it means tax cuts might be working.

     On July 2, 2005, The Washington Posts Jonathan Weisman managed to turn a deficit reduction story into a warning about high deficits.

     The news of the day was an unanticipated surge of tax payments may push the 2005 federal budget deficit as much as $100 billion below official forecasts. Weisman cited the 3.8 percent growth rate for first-quarter GDP. Instead of reporting the economic news as it was, however, he couched it in partisan sniping. He called the idea that lowering tax rates could boost tax receipts a Republican theory and lamented that GDP growth provided more ammunition for Republican boasts that their tax cuts are the cause of this performance. He then devoted the rest of the article to making a case against tax-cutting Republicans.

     Highlighting the nations grave deficit challenge, Weisman called attention to the size of the deficit despite the revenue windfall, saying it could still be the third largest ever.

     Weismans logic was characteristic of journalists handling of tax issues, as the Business & Media Institute showed in its special report Tax & Spin: Five Ways the Media Distort Tax Issues. [1] Rather than looking at the dollar figure of the budget deficit, Weisman could have compared it to previous deficits using percentage of U.S. GDP. This would put the huge numbers into perspective and prevent alarmist statements. The projected deficit for 2005 (before the estimate was lowered) equaled roughly 3.5 percent of GDP, while 1985s deficit was 5.1 percent of GDP.

     Weisman said conservative economists have predicted that economic growth would produce more revenue, possibly enough to pay for the tax cuts. He turned to economist Michael T. Darda for an answer to the question of whether new tax receipts would recoup all the revenue loss expected due to lower rates.

     Calling the lack of tax revenue a loss to the government assumes that the money belonged to the government in the first place rather than to the taxpayers who earned it. It also implies that the tax cuts are a direct cause of higher deficits that they have a price that must be made up in other areas. Weisman neglected to explore the role of increased government spending in worsening the deficit. He briefly mentioned a few factors such as the Medicare prescription benefit and war costs, but used these as examples with a cautionary quotation from Rep. John Spratt Jr. (D-S.C.): Nobody should get euphoric and assume were going to grow our way out of this deficit.

     But the news, despite Weismans attempts to obscure it, was that the economy and, in turn, tax receipts have grown since the tax cuts of 2003. Weisman downplayed the effects of the tax cuts, citing slow economic response to the 2001 cuts. But asBusiness & Media Institute Adviser Dan Mitchell, a tax policy analyst at The Heritage Foundation, observed, Tax reductions only benefit the economy if the price of engaging in productive behavior is reduced. Mitchell wrote in a June 7, 2005, brief that the 2003 tax cuts did a much better job of encouraging growth than the 2001 cuts, because they lifted burdens on individuals and corporations that allowed them to produce more.

     Mitchell concluded: This does not mean that the tax cuts pay for themselves, but it does mean that the right kind of tax policy lower tax rates on work, saving, and investment will lead to faster economic growth. And faster economic growth means more income for the government to tax. In other words, the best way to generate tax revenue is to expand the tax base.

     And the best way for journalists to report on taxes is to leave the partisan rhetoric to the politicians.

To read Dan Mitchells brief on tax cuts, visit here: [2]